Climate Finance

updated September 2016

The UN Framework Convention on Climate Change (UNFCCC) establishes that richer countries have an obligation to provide financial support to poorer countries for the costs of reducing emissions and adapting to impacts. To the extent that climate justice is measured by the scale of these financial transfers, results to date fall far short of expectations.

The 2016 Adaptation Gap report published by the UN Environment Programme estimates that the cost of adapting to climate change in developing countries could rise to $140-$300 billion per year by 2030. For mitigation costs, the International Institute for Environment and Development has costed the plans submitted by the 48 Least Developed Countries alone at $58 billion per year from 2020-2030.

Estimates of the cost of mitigation and adaptation have become slightly clearer since detailed plans (known as Intended Nationally Determined Contributions) for every country were submitted in advance of the 2015 Paris climate conference. Nonetheless, immense difficulties remain and there is insufficient consensus to narrow the range of estimates. The same is equally true of attempts to quantify the amount of available climate finance, whether actually disbursed or promised for the future.

The baseline source of funding climate costs will be the domestic budgets of the developing countries themselves. Although these are small in relation to the need, a study by Carbon Brief suggests that these contributions could aggregate to $81 billion over the decade to 2030. Several low income countries have already demonstrated this commitment. Both Ethiopia and Tanzania allocate about $400 million per annum whilst Bangladesh has facilitated a longstanding institutional response, through its Climate Change Trust Fund established by parliament in 2010.

A quantified commitment to international climate finance was first articulated in the 2009 Copenhagen Accord. Richer countries agreed to “a goal of mobilizing jointly USD 100 billion dollars a year by 2020 to address the needs of developing countries.” Evidence of intent was provided through a “fast start” of $30 billion over the 3-year period to 2012.

Unfortunately, the Copenhagen Accord was silent on vital definitions necessary to monitor the $100 billion promise. Would climate finance be available as grants or concessionary loans? From public or private sources? How would this “new and additional” climate finance be distinguished from conventional foreign aid for development? These questions have never been satisfactorily answered and monitoring delivery of climate finance has tested even the most experienced analysts of foreign aid.

An OECD study commissioned by the French organisers of the 2015 Paris climate conference estimated that public and private finance mobilised by developed countries for climate action in developing countries reached $62 billion in 2014. This figure was castigated for its “exaggeration” by a team from India’s Ministry of Finance who were able to trace only $2.2 billion of actual disbursements from climate funds. Oxfam’s sober estimate of “public climate finance” was $17-20 billion per annum.

The most disappointing aspect of the Paris climate agreement from the point of view of the poorer countries was not only the lack of a clear roadmap to achieving the promised $100 billion threshold but also the failure to sort out the confusion in monitoring progress.

The richer countries have promised to extend their 2020 commitment to 2025 and beyond but the text wording is flimsy and will concern climate justice campaigners. The description of climate finance as “new and additional” that had featured in both the Kyoto Protocol and Copenhagen Accord has been omitted.  And the detail of the new commitment has been placed in the preamble text which bestows less legal force than the agreement itself.

To place the scale of current climate financial figures in context, the G20 group of countries currently provide subsidies totalling $452 billion per annum for the production of fossil fuels. This is commonly described as the “world’s dumbest policy,” echoing a recent editorial in Bloomberg View.

The search for new and innovative sources of climate finance is bound to continue. In 2010 a UN High-Level Advisory Group on Climate Change Financing presented a range of alternatives to conventional foreign aid. The options include taxes on aviation and shipping, and a global financial transaction levy. Such proposals have made little headway, having attracted a storm of objections from vested corporate and national interests.

The remaining options presented by the High-Level Group engage the private sector, either through public-private partnerships or by use of “market mechanisms”. These create markets in carbon credits awarded for investment in developing country projects which reduce greenhouse gas emissions.

Whether the private sector is an appropriate vehicle for the pursuit of climate justice is open to question. The evidence of the Kyoto Protocol’s Clean Development Mechanism, together with experience of public-private partnerships in other development sectors, indicates that private sector finance veers strongly towards middle income countries and middle class households. And carbon credits are used to offset commitments to reduce emissions, generating criticism that market mechanisms allow richer countries and the aviation/shipping nexus to indulge in “business-as-usual.”

A positive step by the UNFCCC process has been the establishment of a new Green Climate Fund (GCF). A core purpose is to rationalise the current shambolic financial architecture which sees climate funds channelled through over twenty multilateral and bilateral climate funding initiatives.

Administered from South Korea, the Fund is governed by a Board whose membership is evenly divided between developed and developing countries. The fund has received pledges of over $10 billion and made its first awards during 2015. Scaling up its operations to a target of $2.5 billion in 2016 will be challenging, as poorer countries lack capacity to present major projects and the GCF itself has to clarify its priorities.


Climate Finance Beyond Paris
Barbara Buchner, Climate Policy Initiative’s Executive Director of Climate Finance discusses next steps

Understanding national climate goals
Research into national plans attached to the Paris Climate Climate Agreement shows the extent to which poorer countries will depend on financial support

from the German Development Institute

more Climate Justice briefings
Climate Justice
UN Framework Convention on Climate Change
Kyoto Protocol
Paris Climate Agreement
Climate Justice and Development Goals
Loss and Damage
Climate Change and Migration
Climate Litigation
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