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Challenges and opportunities to scaling up methane mitigation finance

July 6, 2023 Work Area: Methane

Methane is a harmful climate pollutant that is over 80 times more potent than carbon dioxide in its first 20 years in the atmosphere. In fact, nearly half of net warming to date is caused by methane emissions – with levels in the atmosphere still surging.  

The good news is that we have the solutions in hand. Low-cost methane reduction technologies are available today that could reduce warming by 0.3 degrees Celsius in the next 20 years. The majority of these easy-to-abate emissions, however, come from the oil and gas industry, and improved financial solutions are urgently needed for other methane producing sectors, such as waste and agriculture.  

The bad news is that despite its outsized role in slowing climate change, financing to cut methane emissions is seriously lagging. We’re missing 90% of the $110 billion required annually according to the Climate Policy Initiative. This situation is further complicated by the fact that funding is needed most in lower-income countries, which either emit more methane because of domestic oil and gas production—much of which is consumed by other countries—or have less capacity to effectively manage methane emissions from waste and agriculture. 

While many world leaders are recognizing the need to increase international climate finance, there is far less scrutiny of what it’s actually being spent on. In fact, in 2019 and 2020, just 2% of international climate finance was spent on methane mitigation, despite having roughly the same potential contribution to net-emission reductions by 2030 as wind and solar power, but methane abatement received 26 times less finance.  

So, if cutting methane is such a cost-effective and impactful investment, why does it receive such little funding? We spoke with climate funds, multilateral development banks, donor and recipient governments, and finance experts to investigate what’s holding methane finance back, and in a new report, we outline how these obstacles can be addressed in seven steps. 

What are the obstacles to financing methane mitigation? 

Methane mitigation finance is hampered both by supply- and demand-side. On the former, a key issue is simply that major donors and multilateral development banks don’t prioritize methane in their climate goals and strategies. This means there are no dedicated methane mitigation funding opportunities, and while some agriculture, energy, and waste projects with climate objectives reduce methane as a side-effect, this isn’t designed into the purpose or focus of these projects.  

Because methane isn’t prioritized, this means that methane mitigation is generally not estimated or tracked as a project outcome, which makes it difficult to improve the project’s impact on methane reduction. An overall lack of clear monitoring, reporting, and verification (MRV) rules for methane reduction also creates a vacuum of solid mitigation data that makes it difficult to prove the effectiveness of existing or new projects.  

Based on our interviews with experts, prioritization isn’t just a supply-side problem: one critical demand-side challenge is that recipient countries just don’t request methane financing. These countries also face the complex problems associated with translating national methane goals into a quality pipeline of bankable methane mitigation projects, which often must be implemented at regional or municipal levels of government. This project development can be slowed by a range of regulatory, financial, and capacity barriers, which can be challenging to overcome simultaneously. 

These structural challenges, combined with lagging levels of international climate finance, paint a dismal picture for methane mitigation finance. Few funds are earmarked for methane mitigation, and due to the lack of distinctly tracked outcomes, these projects are not recognized for the full value they could deliver to fighting climate change.  

How do we move forward? 

Despite the obstacles across the methane mitigation finance landscape, the right planning, coordination, investments, and political champions can help countries finance their mitigation goals. Methane mitigation already captured the world’s attention at COP26 and COP27, with the creation of the Global Methane Pledge to reduce 30% of global emissions by 2030. To date, 150 countries have signed the pledge, including over 100 developing countries, and these pledges must now be translated into quality project pipelines and increased finance. 

Methane mitigation platforms, such as Climate and Clean Air Coalition (CCAC), can play a key role here by offering a centralized platform to share best practices across sectors, and enhancing coordination across lower-income countries, donor governments and institutions and experts. These platforms could also create a bridge between lower-income countries in need of financial support, and financial institutions who can offer it. 

To begin to overcome structural barriers to international methane mitigation financing, our report also lays out several recommendations below.  

Donor governments and financial institutions should: 

  • Promote methane mitigation alongside development objectives: It’s essential to champion and communicate the importance of methane mitigation to the addressing the climate crisis. Each institution should designate a methane “champion” to elevate, coordinate and oversee methane mitigation across programmatic areas, and improve capacity on how the projects are designed.  
  • Prioritize methane mitigation in funding activities: Ensure that methane mitigation projects are eligible for support, and explicitly consider methane mitigation opportunities when developing country finance plans and other reports that inform investment decisions. 
  • Track methane mitigation impacts and financing: Donors and development finance institutions should distinctly track methane mitigation outcomes and financing to demonstrate impact to stakeholders. This will build accountability, and help institutions set and meet methane mitigation goals. 

Recipients of funds, including developing countries, can: 

  • Promote coordination and planning on methane mitigation: Lower-income countries should consider how methane reduction can be taken forward across government ministries, and at the national and sub-national level. Governments should consider designating a champion to oversee the coordination across the main sectors that emit methane. 
  • Develop investable methane mitigation project pipelines: Governments should develop investable project pipelines for each of the main sectors that emit methane. This should aim to overcome barriers to private sector investment and create win-win projects that are technically, economically, environmentally, socially, politically and legally viable.  
  • Promote methane mitigation with supportive policies: Governments should enact policies that make projects aimed at reducing methane as economically viable as possible. This can be a cross-cutting policy such as a methane fee, which would encourage all methane emitting sectors to find ways to reduce emissions.  

Over the past year, there have been important steps taken in the right direction. The Methane Finance Sprint, launched by Canada, the European Union, France, Germany, the United States, Ireland, Norway, and philanthropic leaders, aims to mobilise at least $200 million to develop investable methane mitigation project pipelines by COP-28. This funding should be delivered as soon as possible, and in the longer-term, governments will need to scale up financial commitments for implementation of these projects and pipelines. 

International climate finance is increasingly a top priority for both higher and lower-income countries – in June, French President Emmanuel Macron held a global summit that aimed to boost climate financing for lower-income countries, including by building new innovative financing streams. While the summit fell short of expectations, what’s clear is that in building momentum for needed longer-term reforms to development finance infrastructure, world leaders shouldn’t overlook the most concrete and dependable solutions that we already have. 

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