Establishing a Climate Change Fund: Crucial step for Sri Lanka’s economic future

Sri Lanka is at a critical juncture. Ranked 116th out of 182 countries on the climate vulnerability index, the nation faces escalating threats from climate change, including frequent droughts, floods, and other extreme weather events. These climate-induced disruptions pose significant risks to economic activities, potentially stalling progress and destabilising key industries. In light of these challenges, it is imperative for Sri Lanka to establish a dedicated Climate Change Fund to safeguard its future economic growth and stability.

Sri Lanka’s ambitious climate targets further underscore the need for a robust financial mechanism. The country aims to reduce greenhouse gas emissions by 14.5% and achieve 70% of its electricity from renewable sources by 2030. However, limited fiscal resources, low tax revenues, and high debt levels severely constrain the nation’s ability to finance these necessary investments in climate resilience and sustainability. Establishing a Climate Change Fund can address these constraints by attracting international climate finance, facilitating the implementation of adaptation strategies, disaster risk reduction measures, and fostering a transition to a low-carbon economy.

Potential to unlock international climate finance

One of the primary benefits of a Climate Change Fund is its potential to unlock international climate finance. Global climate funds and financial institutions are increasingly prioritising support for nations with dedicated climate funds and clear climate action plans. Access to these resources can significantly bolster Sri Lanka’s efforts to mitigate and adapt to climate change. Additionally, the fund can support innovative financial mechanisms like debt-for-climate swaps. These swaps can convert a portion of Sri Lanka’s debt into climate-related investments, thus reducing the debt burden while simultaneously freeing up resources for critical climate actions.

Protecting Sri Lanka’s key industries, such as agriculture, tourism, and manufacturing, is another vital aspect of establishing this fund. These sectors are particularly vulnerable to the impacts of climate change. By proactively addressing climate risks through strategic investments and resilience-building initiatives funded by the Climate Change Fund, Sri Lanka can ensure the long-term viability and growth of these crucial economic drivers. This proactive approach not only safeguards the country’s economic stability but also enhances its capacity to withstand future climate shocks.

The Sri Lankan Government, under the leadership of President Ranil Wickremesinghe, has initiated several climate action plans, emphasising the importance of sustainable development. These initiatives include policies aimed at increasing forest cover, protecting coastal ecosystems, and promoting sustainable agricultural practices. One notable initiative is the establishment of an International Climate Change University (ICCU), which focuses on research and education in climate science, renewable energy, and sustainability. The university aims to build a skilled workforce equipped to address climate challenges and drive innovation in green technologies.

Investments in renewable energy initiatives

Moreover, increasing investments in renewable energy initiatives is essential for Sri Lanka to combat its climate vulnerabilities. The transition to renewable energy not only aligns with the country’s emission reduction targets but also enhances energy security and reduces dependency on fossil fuels. Renewable energy projects, supported by the Climate Change Fund, can stimulate economic growth, create jobs, and foster technological innovation. For instance, expanding solar, wind, and hydroelectric power generation can diversify the energy mix, reduce energy costs, and contribute to a cleaner environment. Additionally, community-based renewable energy projects can provide sustainable energy solutions to remote and underserved areas, promoting inclusive economic development.

Recent investments, such as the Adani Group’s wind power projects in Sri Lanka, highlight the potential benefits of enhanced focus on renewable energy. These projects not only contribute to the country’s renewable energy targets but also attract foreign investment, create jobs, and stimulate local economies. Leveraging such investments can further bolster Sri Lanka’s efforts to build a resilient, sustainable energy infrastructure.

Analyst reports highlight that Sri Lanka’s GDP could decline by up to 6.5% by the end of the century due to the degradation of coastal and agricultural resources from climate change impacts like rising temperatures, sea level rise, and extreme weather events. This would be a major economic loss equivalent to 1.2% of annual GDP by 2050, widening to 6.5% by 2100. Climate change is expected to reduce crop yields, with rice yields in dry lowland areas potentially falling by a third by the 2080s, and tea productivity dropping by 30-80 kg/hectare with a 100mm decrease in monthly rainfall. This will threaten Sri Lanka’s important agricultural sector. Coastal regions and fisheries are also at high risk from sea level rise and more frequent storms, which could further damage the economy. Vector-borne diseases like dengue are also projected to increase significantly.

Flora and fauna

While Sri Lanka has made commendable efforts to protect its biodiversity, the challenges posed by climate change threaten its rich flora and fauna. The nation’s forests, wetlands, and marine ecosystems are at risk from rising temperatures, changing rainfall patterns, and extreme weather events. Without proper decisions and investments towards economic growth that also address climate change, the negative impacts on biodiversity could escalate, leading to significant ecological and economic consequences.

Asian Development Bank (ADB), which projects that South Asia, including countries like Bangladesh, Bhutan, India, the Maldives, Nepal, and Sri Lanka, will collectively need to spend $73 billion per year between now and 2050 to adapt to the climate change impacts, which is 0.86% of its GDP. Limiting warming to 2°C could reduce these adaptation costs to around $40.6 billion per year for the region. Sri Lanka’s population is projected to decline by nearly 50% by 2100 due to falling fertility rates, which could further strain the economy. 

Thus, establishing a Climate Change Fund is not just an option for Sri Lanka; it is a necessity. This fund will play a pivotal role in mobilising climate finance, implementing climate commitments, and building resilience against the increasing threats of climate change. By securing the necessary financial resources and strategically investing in climate resilience and renewable energy, Sri Lanka can protect its economic future and ensure sustainable development for generations to come.

The urgency is clear: the time to act is now.

(The writer is a Consultant specialised in Data Analytics with a special focus on Sri Lanka’s future direction, and in the fields of sustainable energy, ESG, investments and telecommunications.)