German climate finance / International climate finance

Climate finance: what is at stake in Paris?

Starting next week: the UN Climate Change Conference in Paris.

By now it is obvious to everyone involved: the UN Climate Change Conference in Paris – which has the central goal of reaching a new agreement on limiting global warming – will only be a success if it attains solid results regarding financial support for developing countries. That is not surprising, as climate finance has long been a key component of international climate policy. Many of the poorer countries that have done little to cause climate change quite rightly believe they should not be left to meet its challenges alone, but ought to continue receiving adequate support for adapting to climate change and for climate-friendly development. Such support is already anchored in the UN Framework Convention on Climate Change (UNFCCC) and is part of the industrialized countries’ fair share in tackling climate change. So what exactly is at stake in Paris?

Will the $100 billion pledge be a stumbling block for Paris?

President Francois Hollande, who invited heads of state and government to the first day of the conference, clearly stated that fulfilling the $100 billion pledge by 2020 is a precondition for the successful conclusion of negotiations in Paris. Germany, France, the United Kingdom and a number of other donor countries have already announced increases by 2020. Many countries, including the United States, Japan, Switzerland and Norway, have yet to make any commitments for 2020 – but announcements can be expected from a number of these countries. Whether that will be enough to convince the developing countries remains to be seen, however.

In the meantime, African nations have put forth a concrete demand by calling for a doubling of the share of funds earmarked for adaptation from currently just under 16 percent of climate finance resources (2013-2014 annual average according to an OECD analysis) to 32 percent in 2020, thus reaching $32 billion per year. If the donor countries could accept this goal and commit to it in Paris, it would build vital bridges to vulnerable countries and thus apply pressure on a number of the more “difficult” newly industrialized countries.

Financial support in the new agreement: just empty words?

The fundamental question of how to proceed with climate finance after 2020 when the new agreement takes force is unresolved – the basic negotiating positions here differ widely.

The industrialized countries would like to see a clause in the agreement that requires a greater commitment from developing countries to create attractive conditions for climate-friendly investments. They also call for the enlargement of the donor base for direct support to include countries such as Qatar and Saudi Arabia that have higher per-capita incomes than many established industrialized countries. The industrialized countries do not question the continued existence of such support, yet they resist any draft language for the new agreement that would mean new pledges for more or better financial support.

The group of developing countries (G77) does not question the important role of private investment, but wants to use the agreement to achieve more commitment, greater reliability and more appropriate financial support. One of its proposals involves setting goals for financial support every few years. The developing countries would also like to reserve half of the support for adaptation to climate change. The G77 rejects an expansion of the donor base and calls for only the current industrialized countries to assist the poorer countries.

The controversy over the donor base expansion is paralyzing the remaining debates on climate finance – this could lead to constructive ideas on the subject (such as those of some Latin American countries) not being adequately discussed in the end. That would suit those who want to prevent future obligations (i.e. many industrialized countries), but also those who could take advantage of a weak outcome on climate finance to weaken the agreement elsewhere. Mexico has since proposed a compromise wording in which the current donors would be expressly required to continue meeting their UNFCCC finance obligations, while other countries that are in a position to do so would provide their own donations. This would amount to a de facto expansion of the donor base, but without eliminating the formal distinction between industrialized and developing countries. India, however, is not willing to go along with this idea.

Existing good proposals are thus in a poor position to be negotiated adequately for inclusion in the agreement. The idea of periodically setting financing targets is one of these. The agreement could state that such targets would be established or updated every five years – ideally categorized as support for mitigation or adaptation to prevent adaptation from being neglected any further. The agreement would thus only establish the procedure, while the targets themselves could be set every five years at the climate conference.

There is, however, a great danger that only empty words will find their way into the agreement: for example, that climate finance must strike a balance between mitigation and adaptation – old stuff that was agreed years ago (but not observed) – or that climate change concerns must be integrated into development cooperation. Again, old stuff that should be taken for granted by now.

New pledges by the German government?

We expect the German government to use the Paris conference to reaffirm the doubling of German climate finance already announced in May to ensure a favorable mood. It would be constructive, too, considering that the doubling is part of the German contribution to the $100 billion pledge.

In the past, the German government also used climate conferences to propose new contributions to multilateral climate funds such as the Least Developed Countries Fund or the Adaptation Fund. In addition, Germany succeeded in setting up a new G7 climate risk insurance initiative for poor countries at the G7 summit; new announcements on this subject can thus be expected at the climate conference. Chancellor Angela Merkel will be addressing the COP21 in Paris this coming Monday afternoon. Her speech could be well worth watching.

Jan Kowalzig, Oxfam