100 billion / International climate finance / Private climate finance

Shifting the goal posts: Will rich countries fudge their $100 billion promise?

What’s the worth of $100 billion. Photo: Krackhardt, Brot für die Welt

Ever since rich countries promised, at the disappointing 2009 Copenhagen climate summit, to ramp up climate finance support to poor nations to $100 billion a year by 2020, they refused to provide a roadmap how the promise would be met.

This seems to have changed by now. Even the most stubborn rich country government will have understood that demonstrating progress made so far towards the $100 billion target as well as some form of plan for the years to 2020 is a must-have for the Paris UN climate talks set to agree a new global agreement on climate change. The big challenge for donors is to resist the temptation to make this no more than a creative accounting exercise to get to 100 billion on paper and instead present a robust growth plan that sketches out how financial flows through the various channels and instruments are going to increase through to 2020. That, in particular, would have to include financial support from donor countries’ public budgets.

In response to the challenge, donor countries have now issued a joint statement on their current plans on what and how to count. What is its worth?

First off, it is welcome that they got together and worked out that statement, including the intent to harmonise approaches on what and how to count, hopefully making donor contributions more transparent and more comparable. Yet, while it’s useful that donors attempt to clarify what the net worth of their $100 billion promise actually amounts to, they won’t get away with it in Paris unless they invite recipient countries to the table and then jointly agree a robust and ambitious $100 billion scenario, based on criteria what and how to count that meet the consent of receiving countries.

Plans to report “transparently on different categories of public climate finance” could mean we get more clarity on the role of different channels and instruments with separate reporting of grants, concessional loans etc. This would also allow us to single out the cheeky bits in countries’ numbers, such as non-concessional loans, that shouldn’t be classified as support, or export credit finance and guarantees, that, as experience shows, do not mobilise new investments but influence who wins the tender for a given project.

Donors now also commit to count every dollar only once (which should be a no-brainer), and only finance that is climate-relevant. While this is of course a reasonable idea, the statement remains silent to the problem that much of what’s being considered ‘climate-relevant’ is actually no more than mainstreaming climate considerations into development assistance. Doing so is absolutely necessary and welcome, as it ensures that for instance projects don’t get swept away by the next flood – mainstreaming climate and development is, in effect, about sustainable spending of scarce development assistance; but that doesn’t make it climate finance as it’s understood in the UNFCCC context – as new and additional support to poor countries to deal with the growing challenge of climate change. In their statement, donors remain note that only climate-relevant financing should be counted (again, a no-brainer), but they remain silent about the problem that the climate-relevance of projects differs greatly. In our recent analysis of German climate finance, one quarter of available descriptions for mitigation projects do not allow the conclusion that the projects were climate-relevant at all (which partly may be so because of lack of transparency and incomplete project descriptions).  In any case, there is a danger of inflating numbers, so they look more impressive, by over-estimating climate-relevance.

The statement indicates that in order to assess climate-relevance donors will use the common criteria recently agreed among MDBs and the IDFC. According to these criteria, financing for coal power stations, such as efficiency measures, or infrastructure projects that eventually benefit fossil fuel based power, could be labelled as climate finance on grounds that there may be even dirtier alternatives or that the investments improves efficiency. Yet any measures that lead to life-time extensions of existing fossil fuel infrastructure are inconsistent with staying below 2°C warming over pre-industrial levels. As the IPCC fifth assessment report indicates, global emissions from the power sector need to be, more or less, zero by 2050.

On mobilised private finance as part of meeting the $100 billion promise, the statement opens the door to inflating the numbers even further, especially if donors claim that finance has been mobilised by “public policy intervention”. This is a blurry concept for which no accounting methodology exists. Donors recognise that problem in their statement yes the whole concept of mobilised private finance is dangerous territory with lots of opportunity to greatly inflate numbers. For instance, donors fail to accept that the mere existence of regulatory and policy frameworks in a recipient country (such as those that constitute markets to invest in) will usually be instrumental for a large proportion of any mobilised private finance flows. Public finance by donor countries through instruments such as loans, equity or de-risking instruments may tip the balance – but it’s not them that do the mobilising alone.

It’s now up to donor countries to provide more clarity on different aspects of the statement e.g. when applying it to current finance flows, sieving through the clutter of what counts and what doesn’t. As suggested above, the next step should be to invite developing countries to the table and jointly craft the much-needed $100 billion roadmap. If assumptions about the mobilisation of private finance are going to be conservative enough to avoid the impression of creative accounting, and if the roadmap clearly indicates by how much finance from donor countries’ public budgets will increase between now and 2020, we might be able to get the $100 billion promise out of the way so it does not undermine chances of success for Paris any longer.

Jan Kowalzig, Oxfam