COP Blog: Paris’s $100B question

Originally posted on Environmental Finance

At the Paris COP, it is hardly possible to overstate the importance of climate finance – the provision of funds by developed countries for developing countries to take climate action.

This money is critical to show poor nations that rich nations are making good on years of promises to provide such funds – promises which have largely gone unfulfilled. It is also essential for negotiations in Paris to begin in good faith, and end in a decent agreement.

But more importantly, people in developing countries, especially the poorest and most vulnerable, require climate finance in a very real way to meet their health, food, energy, and other daily needs. For farmers in Zambia and fisherfolk in India, the provision of climate finance isn’t a game of high stakes political negotiation but an essential down-payment for survival and life with dignity.

The provision of climate finance isn’t a game of high stakes political negotiation but an essential down-payment for survival and life with dignity

The world has only begun to experience the first throes of the climate crisis, and even at this early stage, it’s proving to be very expensive. Indeed, the pledge of $100 billion by 2020 (from developed to developing countries) may be a nice round number for politicians to reference but it is, in fact, an arbitrary figure that is grounded in political, not scientific, analysis. And it is magnitudes below the actual need.

So it is little wonder that the recent findings of the OECD study, Climate finance in 2013-14 and the $100 billion goal, were lampooned rather than lauded by many developing countries and civil society. The OECD study asserted that developed countries had mobilised $61.8 billion in 2014 and were on track to provide the $100 billion – both decidedly misleading claims.

For the provision of finance to count as climate finance, money must remain in, and benefit, developing countries – governments, ordinary people, especially those who are marginalised, and local economies.

Yet the majority of what the OECD study counted as climate finance ultimately benefits developed countries and their investors, banks, and corporations. The OECD counted:

1. All financial instruments at face value. This includes loans (and interest) which are lent to poor countries but ultimately end up back in the pockets of developed countries. It also includes money that does not get spent when a guarantee is provided but default does not occur. Only grants and the grant-equivalent of other financial instruments should actually count as climate finance.
2. Export credit financing. Export credits mean loans or loan guarantees, which again require repayment. In addition, export credit agencies are by design meant to benefit home country corporations – they are not driven by developing countries’ climate priorities.
3. Private investment. While greening private investment is vital, private investments are motivated by profit, not by the desire to offer relief or justice for impacted people. Private investors leave unprofitable ventures, including most adaptation projects, by the wayside, so they cannot be a substitute for direct public support. Further, as the OECD Research Collaborative of Tracking Private Climate Finance acknowledges, there are inherent difficulties in ascribing causality in relation to private finance flows (eg. did a climate finance “leveraging” instrument really cause a financier to invest, or would they have invested anyway?) as well as practical difficulties in accessing information transparently.

Further, the OECD study paid little attention to whether funds were “new and additional” to Overseas Development Assistance accounts, a key principle of climate finance to make sure, for example, that health budgets are not raided to pay for climate activities.

It even counted some activities where climate was a “significant” but not the “principal” objective, in effect counting activities that were going to happen anyway.

That the OECD would cast as wide a net as possible is an unsurprising act of self-service! After all, the OECD is a rich countries’ club. But to be credible and effective, climate finance estimates must rely on methodologies set by the UN Framework Convention on Climate Change, a forum that is fully inclusive of all countries. Such methodologies should be unambiguous and based on a robust system of measurement, reporting, and verification of finance under the UNFCCC.

The ‘parties’ in Paris should clarify that the promised $100 billion is to be made up of grants and grant-equivalents, with developed countries agreeing to yearly commitments through 2020 to meet this target in full

In addition to making progress on climate finance methodologies, the ‘parties’ in Paris should clarify that the promised $100 billion is to be made up of grants and grant-equivalents, with developed countries agreeing to yearly commitments through 2020 to meet this target in full.

Beyond 2020, countries should agree to a needs-based collective target for new and additional public finance, with separate targets for adaptation and mitigation to ensure that adaptation receives 50% of funds. Finally, a post-2020 agreement should bind wealthy countries to year-on-year commitments to provide these funds.

Such actions would go a long way towards securing a reasonable deal in Paris and, more importantly, to ensuring that those least responsible for causing the climate crisis are not the first to be devastated by it.