By Rehana Dada
Although it had been hoped that the Marrakech COP would result in some clarity on finance flows, a number of uncertainties remain, such as how Parties will meet the commitment of mobilising USD 100 billion per year by 2020, how conditional contributions in the NDCs can be supported, and how funds for adaptation can be significantly increased. It is also necessary to agree on a common methodology for measuring and evaluating climate finance.
At the COP, the UNFCCC Standing Committee on Finance (SCF) presented its 2016 Biennial Report, which looks at climate finance flows over 2013 and 2014. It reports that more than 70 per cent of public finance in developing countries for this period was focused on mitigation, with about 25 per cent going to adaptation. There has been a slight increase in adaptation funds from climate funds and bilateral concessions, but less than 20 per cent of investments by multilateral development banks (MDBs) went to adaptation.
Grants are significant in adaptation finance, representing 88 per cent of adaptation finance approved climate funds and 56 per cent of bilateral finance reported in a study by the Organisation for Economic Co-operation and Development’s Development Assistance Committee (OECD DAC). Least developed countries and small island development states in Africa and Asia are the main recipients of adaptation finance. Africa received about 21 per cent of climate finance from dedicated multilateral climate funds, and 15 per cent from MDBs.
Total global climate finance increased by about 15 per cent in the 2013-2014 period over the 2011-2012 period. For 2011-2012 the high bound estimate is USD 650 billion, compared to USD 687 billion for 2013 and USD 741 billion for 2014. The largest share of this is in private investment in renewable energy and energy efficiency, with levels of finance increasing as technology costs dropped. Some climate finance is mobilised and employed domestically in developed and developing countries, and the data suggests that in developing countries for which the relevant information is available, domestic public finance significantly exceeds in-flows of international public finance.
In the 2013-2014 period there was an increase of about 50 per cent in public climate finance flows reported from developed to developing countries over the 2011-2012 period. This amounts to USD 25.4 billion in 2013 and USD 26.6 billion in 2014, the bulk of it channelled through bilateral, regional and other channels. MDBs provided USD 20.8 billion in 2013 and USD 25.7 billion in 2014 to developing countries. Depending on the methodology used, USD 11.4 or USD 14.9 billion was provided by developed countries in 2013, and USD 12.7 or 16.6 billion in 2014.
Private climate finance provided is more difficult to ascertain and the figures in the report include figures from both international and domestic sources. For renewable energy projects, private finance flows are estimated at USD 1.8 billion in 2013 and USD 2.1 billion in 2014, with USD 26.4 billion in 2013 and USD 21.6 billion in 2014 reported for foreign direct investment in greenfield alternative and renewable energy in developing countries. Private co-finance is estimated at USD 12.8 billion in 2013 and USD 16.7 billion in 2014.
The instruments used to channel finance support include bilateral, regional and other finance spent as grants (35 per cent), concessional loans (20 per cent), non-concessional loans (10 per cent) and through equity and other instruments. Multilateral institutions, mainly MDBs, are responsible for channelling about 38 per cent of the finance reported to the UNFCCC.
The SCF Biennial Report also lists some challenges in reaching the results. Firstly, data used was from a diversity of sources that used different definitions of climate finance, which therefore limited comparability of the data. Secondly, there are uncertainties with each data source. Uncertainties with data on domestic public investments result from poor geographic coverage and differences in the way methods are applied, frequent changes in methods for estimating energy efficiency, and a lack of available data on some key sectors including sustainable private transport. With regards to determining private climate finance, there is a lack of procedures and data, differences in formulas used for attributing finance from development banks to developing countries, classification of “green finance”, and incomplete data on non-concessional flows.
Recognising that climate finance depends on predictability but that it is not possible for all countries to provide information about future budget allocations, the OECD provided an analysis of the impact of current climate finance pledges on climate finance levels in 2020, published just ahead of the COP in a report titled Roadmap to USD 100 Billion. The analysis, which makes some assumptions about increased funding flows, shows that overall finance in 2020 would be higher than USD 100 billion, with public adaptation finance projected to double between 2013-2014 and 2020. It includes a claim from a 2014 OECD study that industrialised countries have already spent over USD 60 billion in climate finance.
Many of the claims in the report, specifically the USD 60 billion figure, were heavily contested by a number of countries, notably China and India, and the report was accused of presenting false figures that were reached using questionable methodologies to calculate climate finance, double-counting, and a blurring of the definition of climate finance so that existing development assistance commitments are included. Despite the concerns raised, the COP took note of Roadmap to USD 100 Billion, which some believe creates a risk that its findings and recommendations will unfairly dominate the discussions on how to reach the USD 100 billion target.
The report lists actions that developed countries could take to reach the USD 100 billion goal, which include (as listed in Roadmap to USD 100 Billion):
Fulfil our pledges and make further efforts to scale-up climate finance, and significantly increase finance for adaptation, in line with the priorities expressed by developing countries
Help developing countries to develop and implement ambitious mitigation contributions and adaptation plans that are essential to attract investment
Work with developing countries to address the barriers associated with access to climate finance, and to build institutional capacity and strengthen policy environments
Use public finance and policy interventions to effectively mobilise private finance, which is critical not just for the USD100 billion, but to achieve the Paris Agreement objectives
Partner with the MDBs to deliver transformational change, and work to maximise the impact of climate funds, including the Green Climate Fund and the Global Environment Facility
Mainstream climate change into decision making, including development assistance, to align efforts to address climate change and achieve the Sustainable Development Goals
Continue to improve tracking of climate finance, to share learnings and to understand where we can collectively do better
The report notes that developed countries are committed to scaling up adaptation finance, but that financial inputs alone cannot be used to measure adaptation efforts, partly because of challenges in identifying and tracking adaptation finance. It suggests that it is more efficient and effective to integrate adaptation actions into programmes that deliver wider development outcomes, such as implementing coastal ecosystem restoration as part of protection against storm surges, or building water conservation into irrigation systems.
Three strategies for supporting developing country adaptation and resilience building efforts are listed:
- Providing tools, data, and support necessary for smart investment and planning decisions by both public and private sector actors
- Ensuring the resilience of both domestic and international development and investment activities
- Enhancing availability of innovative finance for adaptation and resilience measures
The report warns that public finance is not enough to achieve the goals of the Paris Agreement, transition to low emission pathways, and create a climate resilient world, and that public resources and policies should be used strategically to mobilise private finance. Private finance mobilised will depend on policy environments, integration of climate change into development planning, promoting investment-ready projects, performance of climate funds, and cost curves for the development and deployment of relevant technology. Among the strategies listed for mobilising private finance is to develop and scale models for doing so, as well as de-risk investments.
Private finance for climate action has been increasing. For example, the Green Bank Network announced in November that its founding members have “closed transactions expected to mobilise over USD 22 billion”. It mainly invests in renewable energy technologies, including solar, wind (onshore and offshore), energy efficiency, geothermal energy, low carbon vehicles and LED street lighting. The network claims to be able to mobilise USD8 in total investment for every USD of public capital.
Several proposals have also been made over the years for innovative and unconventional sources of funding. For example, a recent paper by the European Capacity Building Initiative proposes two unconventional sources of climate finance, the first being a share of monetary proceeds from auctions of government emission allowances, and the second being crowdfunding that targets air passengers.
The authors propose that air passengers could make a voluntary contribution of 1 per cent of their ticket price for adaptation in developing countries. The Adaptation Fund is proposed as a recipient of the donations, partly because it already has an operational crowdfunding tool as well as because, the authors suggest, airline passengers might prefer to donate to a body of experts who can decide how the funds are allocated and might appreciate a mechanism that ensures equitable allocation.
Currently the Adaptation Fund has a number of projects in the pipeline and strong expertise, but its intended source of income, the Clean Development Mechanism, did not deliver, which has resulted in lengthy consideration at the climate negotiations over the Fund’s future. As at November 2016, the Fund reports that cumulative project and programme approvals had reached USD 358 million, and funds available for new funding approvals amount to USD 230.5 million, with funding required for projects in the active pipeline estimated at USD 233.5 million.
In Marrakech, following proposals by several countries, a decision was taken by the COP that the Adaptation Fund would now serve the Paris Agreement. The intention is for the Meeting of the Parties of the Paris Agreement (CMA) and the Meeting of the Parties of the Kyoto Protocol (CMP) to finalise governance and institutional arrangements, safeguards, and operating modalities by COP24 in 2018. This year, Germany, Sweden, Belgium and Italy together pledged a further USD 81 million to the Fund.
An Oxfam briefing note published earlier this year, Unfinished Business: how to close the post-Paris adaptation finance gap called for COP22 to address the adaptation finance gap “urgently” and commit to a roadmap for pre-2020 climate finance. It also drew attention to the need to “establish quality and accounting criteria” for new contributions and cooperation flows, and for quantified goals for adaptation finance.
Although there are strong efforts underway to improve reporting of climate finance, it is still on shaky ground. There is no common understanding or definition of climate finance, and no common methodologies for measuring and estimating finance flows. Methodologies and formats need to be common across developed and developing countries to be able to properly measure actual climate finance flows and their effectiveness, although it is also important to allow for more flexibility on how information is provided with some countries. Verification is also an important aspect of the climate finance discussion; it should be possible to ascertain the actual impact of climate finance in addressing climate change impacts.
Information on climate finance flow was given some attention in the Paris Agreement, with Parties requested to provide consistent and transparent information on finance flows, including South-South cooperation, and for transparency around financial and other support provided to developing countries from developed countries. The Subsidiary Body for Scientific and Technological Advice of the UNFCCC was asked to develop common modalities for accounting of public resources. Negotiation around accounting and reporting of finance was conducted at the Marrakech COP, with the aim of producing a final agreed document in 2018.
The Biennial Assessment and Overview of Climate Finance Flows is produced by the Standing Committee on Finance of the United Nations Framework Convention on Climate Change. It can be downloaded at: http://unfccc.int/cooperation_and_support/financial_mechanism/standing_committee/items/8034.php
Two unconventional options to enhance multilateral climate finance is produced by the European Capacity Building Initiative. The lead author is Benito Müller, and it is edited by Anju Sharma. www.eurocapacity.org
Roadmap to USD 100 Billion is produced by the Organisation for Economic Co-operation and Development under the leadership if the United Kingdom with Australia. It can be downloaded at: https://www.gov.uk/government/publications/climate-finance-roadmap-to-us100-billion