International climate finance

Climate finance in the Paris Agreement

Judged against low expectations for the 21st UN climate change conference COP21, the acceptance of the Paris Agreement is a historical moment. The agreement, that enters into force after 2020, firmly establishes the 2°C temperature limit under international law; sets out to keep warming even below 1.5°C (which marks the survival threshold for many vulnerable countries), and commits all countries to formulate new mitigation plans every five years. However, only few governments, among them none of the big emitters, are willing to tackle greenhouse gas emissions strong and fast enough. Current mitigation plans by countries put the world onto a warming trajectory of about 3°C. Whether or not Paris indeed marks a turning point in international co-operation on climate change will critically depend on countries’ willingness to increase ambition to hold the agreed temperature limits and provide poor countries with the support they need.

It comes as no surprise that climate finance, as in previous COPs, was considered the linchpin for a successful agreement, the more so as many developing countries made the ambition of their mitigation pledges (Intended Nationally Determined Contributions, INDCs) partly conditional on receiving international support, while others clearly articulated the need for financial resources to support their efforts to adapt to a changing climate.

Stumbling block: $100 billion promise

Logically, a stumbling block on the road to Paris has been that developed countries have yet to fulfil their Copenhagen promise to ramp up climate finance for developing countries to reach $100 billion per year by 2020, so before the new agreement enters into force. Right before the Paris COP, the OECD, the donor country club, launched its landmark report in order to demonstrate that developed countries are well on track towards meeting their promise. The report has met some criticism (here is some from us), as it creatively accounts for financial flows, including export credit and market-rate loans or bilateral co-operation activities where climate is only one of many objectives.

In the run up to Paris it became clear that demonstrating progress towards meeting the $100 billion promise would be a pre-condition for success in Paris – and this triggered various announcements by developed countries regarding increases of climate finance over the next few years. Germany broke the silence in May (putting other countries under pressure) and announced a doubling of its financial support from the federal budget to roughly €4 billion a year by 2020, followed by France (increase by €2 billion a year by 2020) and the UK (reaching £1,76 billion a year by 2020). Others waited until just before COP21, such as Australia or Norway, whose pledges, however, do not constitute an increase over current levels. Even the US made an announcement to double their support for adaptation, although at closer look it turned out they were just re-selling their pledge they’ve made to the Green Climate Fund. All in all, these pledges were needed to build trust in Paris, but they still fall short of meeting the $100 billion promise by 2020. At least the Paris Decision on “Enhanced Action Prior to 2020” acknowledges the remaining gap in long-term finance and asks developed countries to urgently scale up levels of financial support.

The left column shows current climate finance flows as per the OECD report, i.e. based on their methodology. The second-to-left column shows the increases over 2014 levels as announced by countries in the run up to or during Paris, including announcements made by multilateral development banks. The two columns on the right-hand side show Oxfam’s estimates on support for adaptation (grants or grant-equivalents of concessional loans).

Among the biggest concerns is the lack of sufficient funding for adaptation – most climate finance is geared towards reducing emissions, and far too little is invested in supporting adaptation of critical livelihood systems, such as food or water security or disaster risk reduction and management. The OECD puts adaptation finance at roughly $10 billion a year (in 2014), but this figure decreases significantly when looking more conservatively at targeted adaptation action on a grant or (for concessional loans) grant equivalent basis. Net support then amounts to $3-5 billion a year at best. Based on pledges made by countries in the run up to or during COP21, we estimate that this won’t increase dramatically, perhaps to $5-8 billion.

Consequently, developing countries had asked for a sub-goal for adaptation within the $100 billion promise, most prominently the African Group, backed up by the Minister of the Philippines during the last nights of COP21 – but developed countries resisted successfully. The final decisions taken in Paris merely ask developed countries to “significantly increasing adaptation finance from current levels” and to “achieve a greater balance between finance for mitigation and adaptation”. Note the language here is non-committal and likely to lead to little more than smart interpretations by donor countries.

Climate finance in the Paris Agreement: #fail

For the Paris Agreement, i.e. the period after 2020, developed and developing countries had very different expectations. Developed countries had no intention to enhance commitment or predictability of future financial support but aimed at broadening the donor base for future climate finance and at asking developing countries to do more themselves to attract private investments. Developing countries, in turn, wanted firmed up commitments by rich countries, 5-year-cycles of setting targets for climate finance, with scaled-up finance from the $100 billion per year by 2020 as a floor.

On climate finance, the Paris Agreement is extremely weak. The Agreement has an interesting provision related to financial flows in general, as it aims at “making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development“. Gone, however, is the explicit requirement to all governments to reduce their support for international fossil fuel investments, contained in an earlier draft.

With regard to the provision of financial support, the Agreement has almost nothing new to offer. Rich countries are to continue providing financial resources (i.e. a re-hashing of their existing commitments under the UNFCCC). But the Paris Agreement in its finance article stripped the obligation for developed countries to provide financial resources of any qualifiers. Developed countries are asked “to take the lead in mobilizing climate finance”, but developing countries are now also “encouraged to provide or continue to provide such support voluntary”.

The latter has been the main sticking point throughout the two weeks, with developing countries intent on preserving the responsibility of historical polluters under the Convention and developed countries seeking to expand the contributor base for financial support to include developing countries in “a position to do so”. Others were willing to settle on “willing to contribute,” as several developing countries already made voluntarily pledges to the Green Climate Fund (GCF), including South Korea, Chile and Mexico. Many developing countries opposed such new obligations in the Paris Agreement, voluntary or not, others feared developed countries were trying to dilute their existing obligations under the UNFCCC.

Beyond that, rich countries succeeded in short-changing developing countries. There is only a general provision that “mobilizing climate finance” should represent “a progression beyond previous efforts” – which has so few qualifiers that it means everything and nothing at the same time, and in particular does not ensure predictability or adequacy of future support for those in need. Developed countries managed to keep out any language that would e.g. provide for cycles of setting quantified goals for the provision of climate finance, as asked for by developing countries. Instead, the decision that accompanies the Paris Agreement now extends the $100 billion promise through to 2025 and stipulates that for the period after 2025, a new (one-off) goal will be set – presumably as part of the first Global Stocktake of the new agreement, scheduled to take place in 2023.

The lack of qualifiers for future financial support amounts to a general weakening of the existing obligations by developed countries under the UNFCCC. While the significant role of public funds is mentioned, providing that finance via highly concessional terms (in form of public grants or subsidized loans) is only referred to in the context of “grant-based resources for adaptation.” Non-concessional, non-public finance flows thus assume a larger role in the provision of climate finance acceptable under the Paris Agreement. This trend is further reinforced by a failure in the agreement to specify that the developed countries should primarily channel their public contributions through the UNFCCC financial mechanism with the Global Environment Facility (GEF) and the Green Climate Fund (GCF) as its operating entities.

What next?

On climate finance, Paris has been a missed opportunity to build an Agreement based on ambition of action, linked to solidarity and support for those in need. Developed countries rejected any calls to ensure the latter is firmly enshrined in the Agreement. This will have repercussions with regard to future ambition (and ability) of countries in enhancing action with regard to both mitigation and adaptation. The next moment to address this problem will be the facilitative dialogue in 2018 to take stock of progress made so far in relation to the long-term mitigation goal of the Paris Agreement – which offers another opportunity to address gaps in support requirements of developing countries to enhance action.

Liane Schalatek & Lili Fuhr, Heinrich-Böll-Stiftung

Jan Kowalzig, Oxfam