G20 must set the course on international climate finance

Photo: Krackhardt, Brot für die Welt

Financial support for poorer countries from those who are largely to blame for climate change is a key prerequisite for international cooperation in climate policy. While this issue is not explicitly part of the official G20 agenda, current processes within the G20 are nevertheless important indicators of future trends in the area of international climate finance.  

The G20 – traditionally a forum for economic and financial issues – has in recent years increasingly turned its attention to a broader range of issues, including the global climate crisis. In the run-up to the Copenhagen UN climate summit, the final declaration of the 2009 Pittsburgh summit of G20 heads of state and government was the first such document to contain substantial statements on climate policy. In 2012 the Mexican G20 Presidency placed “green growth” on its agenda and, among other results, established a study group on climate finance within the so-called “Finance Track”, making it a top priority of the G20 finance ministers.  This study group was expected to develop strategies to mobilize additional funds for climate finance – always with a view to and in the context of the obligations of the UN Framework Convention on Climate (UNFCCC).

As a joint forum of industrialized nations and major emerging economies such as China, Brazil, India and Indonesia, the G20 is not – in contrast to the G7 – a body of traditional “donor states”. G20 summits therefore tend to focus on launching initiatives and adopting action plans rather than on providing resources. Nevertheless, signals from this body are of course important, especially in the area of climate policy. In climate finance, the issue of emerging economies participating in the provision of financial and technical assistance to poorer countries will become acute at the latest by 2025, when a new collective climate finance target is expected to be set (on the basis of the USD 100 billion annually currently planned as of 2020). It can be strongly assumed that this will require an expansion of the traditional donor base.

In 2016, the Chinese G20 Presidency formulated a clear commitment to Agenda 2030, with its sustainable development goals (SDGs), as well as to the Addis Ababa Action Agenda on financing for development and to the UN Paris Agreement on climate change. The importance of the commitment of developed countries to provide financial assistance to developing nations was hereby expressly acknowledged. At the same time the Chinese Presidency put the issue of “green finance” high on the agenda. The aim here is less a lasting transformation of the entire financial system, but rather a greater effort to attract private capital to so-called “green” investment schemes and projects as a way of encouraging environmentally sustainable growth. This focus on mobilizing private investors for a transition to global sustainability is also reflected in the German G20 climate and energy agenda.

Given the massive financial resources needed for climate-friendly infrastructure everywhere in the world, this concept of “crowding in” private investment through public subsidies and steering measures might make sense. It is also clear, however, that public funds will continue to be needed to finance adaptation to climate change in order to protect the poorest population groups and their livelihoods.

It is therefore not a good idea to play down the obligation of the public sector by pointing to private-sector involvement. There are increasing signs of this trend. According to a Bloomberg report, the draft of the German G20 Presidency for the final declaration of the Finance Ministers who met on 16-17 March in Baden-Baden made no reference whatsoever to the need for additional climate finance. This could simply mean that the German G20 Presidency is bundling the climate and energy agenda – including several relevant financial and investment topics such as an initiative on climate-risk insurance and sustainable investment criteria for development banks – into a separate “sustainability working group” which is expected to draw up a comprehensive G20 climate and energy action plan. On the other hand, there is concern that this omission could foreshadow developments in the US: there are concrete signs there that a discontinuation or at least a radical cutback of support for international climate finance could be one of the first climate foreign-policy acts of the new administration. Financing for the activities of the IPCC, the Green Climate Fund and the UNFCCC are also on the hit list of new president’s

Should this become a reality, it could lead to the demise of the UNFCCC process in a totally unspectacular way and even without the US needing to withdraw from the Paris Convention. Indeed, if industrialized countries (more than ever) oppose climate finance, the delicate structure of voluntary commitment and concerted effort that forms the foundation of the Paris Agreement might very quickly collapse. If the US does withdraw from this field – which current developments suggest – only a joint effort of the remaining industrialized countries and wealthy emerging economies will ensure the implementation of the Paris Agreement. Given current trends towards reorientation in development policy, for instance in the UK, and in view of the EU crisis and the traditional hard bargaining positions of the emerging countries on this issue, this is difficult to imagine at the moment.

The G20 with its consensus principle can at best serve as a forum for exchanges. Perhaps these discussions could contribute to bridging the old firewall without alienating countries like India or Indonesia with their still low per capita emissions and high poverty rates.

Gerrit Hansen and David Eckstein, Germanwatch