Climate Finance

Estimates of the cost of mitigation and adaptation have become more rigorous since detailed plans (known as Intended Nationally Determined Contributions) for every country were submitted in advance of the 2015 Paris climate conference. The 2016 Adaptation Gap report published by the UN Environment Programme suggests that the cost of adapting to climate change in all developing countries could rise to $140-$300 billion per year by 2030.

For mitigation, 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.

Immense uncertainties need to be resolved before these estimates can be improved. The same is 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 their commitment. Ethiopia, Kenya and Rwanda are amongst African countries which have established climate funds whilst Bangladesh regularly allocates 5%-7% of its total public spending to climate finance.

Nonetheless, low income countries will depend greatly on international climate agreements to bridge their climate financing gap. Such efforts build on the foundations of the UN Framework Convention on Climate Change (UNFCCC) which commits richer countries to provide financial support for the costs of reducing emissions and adapting to impacts.

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

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.” The Paris Agreement extended this commitment to 2025, although the text wording is flimsy and concerns 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.

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? Monitoring delivery of climate finance has tested even the most experienced analysts of foreign aid.

In 2016 the richer countries finally presented a roadmap for fulfilling their promise, with technical support from the Organization for Economic Cooperation and Development. Of the $100 billion target, public finance is projected to contribute $70 billion, split between bilateral and multilateral sources. The balance will be co-financing from the private sector.

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

Whilst the roadmap is coherent and thorough, many contentious issues remain. Leading aid agencies such as Oxfam believe that concessionary loans and equity should not count towards the goal. The roadmap concedes that the share of funding for adaptation will be less than 20%, against the aspiration of 50%. The issue of finance will almost certainly continue to be a key benchmark for climate justice and a potentially destabilising influence on climate negotiations.

To place the scale of current climate financial figures in context, the G20 group of countries has been providing subsidies totalling $72 billion per annum for the production of fossil fuels. This is at a time when science indicates that the majority of fossil fuel sources should be left in the ground, if global warming targets are to be met.

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 will be challenging, as poorer countries lack capacity to bid for major projects and the GCF itself has to clarify its priorities. The withdrawal of the remaining $2 billion of the US pledge by the Trump administration is a significant blow.

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.”


more Climate Justice briefings (updated March 2018)
Climate Justice
Kyoto Protocol
Paris Climate Agreement
Climate Justice and Right to Development
Loss and Damage
Climate Displacement
Climate Litigation
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