100 billion / International climate finance / Private climate finance / Transparency

US$ 100 billion climate finance roadmap leaves room for improvement

Just in time for the next UN climate change conference COP22 in Morocco, developed countries have now, finally, presented their climate finance roadmap how they project to meet their promise to ramp up climate finance to US$ 100 billion a year by 2020, to assist developing countries in confronting climate change, both for reducing emissions and for adapting to a changing climate.

Climate-specific net assistance in repported and projected figures

Oxfam’s estimates on net assistance behind the shiny numbers of the 100-billion-a-year roadmap presented by developed countries: Net assistance specifically targeting climate action is much less than the reported and projected figures seem to indicate.

This financial assistance is rooted as an obligation of developed countries under the UN Framework Convention on Climate Change (UNFCCC) from 1992. It’s Articles 4.3 and 4.4 set out this obligation to meet the additional cost of dealing with climate change. Now while providing support is a legal obligation, the US$ 100 billion promise was set as a goal by developed countries themselves, and they insist it’s a voluntary goal. It was recognised by the UN climate summit back in 2010 but not negotiated nor decided upon. Nor was the question how developed countries would meet it, a situation that developed countries took as an invitation to define for themselves, what they would consider, and not consider, as contributing towards fulfilling the promise.

This makes the climate finance roadmap that was now presented at a ministerial conference in Morocco preparing the upcoming COP22 highly interesting, as it explains what the promise is really worth and what we’ll have to look out for in the years to come. It’s noteworthy that developing countries had called for such a roadmap, and developed countries had rejected that call, for years. Until now. Let’s look at its headline messages:

“Developed countries are committed to the US$ 100 billion goal.”

We would not have expected otherwise, obviously. Setting that goal was part of the reasons why the infamous Copenhagen climate summit back in 2009 did not completely collapse, and ever since climate finance has grown in importance in the UN climate negotiations, especially in the run up to last year’s COP21 where the landmark Paris Agreement was adopted. To meet its goals, including pursuing efforts to limit global warming to no more than 1.5°C over pre-industrial levels and ensuring societies can adapt to the changing climate, vast amounts of financial flows, public and private, need to be shifted and mobilised. The US$ 100 billion goal is one piece of the puzzle.

“We are confident we will meet the US$100 billion goal from a variety of sources.”

Developed countries have made it clear that the climate finance roadmap provides projections on where they think climate finance will be at by 2020, based on announcements and pledges by developed countries and the multilateral development banks. The way developed countries see it, climate finance is now at a level of US$ 40.7 billion in public finance (2013-2014 annual averages, the latest available data). According to the roadmap, this annual level is set to increase by US$ 26 billion so that total public finance is projected to reach US$ 66.8 billion a year by 2020.

Climate finance projections as per the roadmap that'sbeen presented by donor countries in October.

Climate finance projections as per the roadmap that’s been presented by donor countries in October. Source: OECD

The roadmap also projects (in fact it extrapolates) that private finance mobilised by developed countries’ actions to increase to an annual level of US$ 24.2 billion by 2020. With the additional roughly US$ 1.6 billion in export credit insurance developed countries include in their calculation, this would bring levels to US$ 93 billion a year by 2020.

That’s very close to the promised US$ 100 billion a year, and an impressive number – at first sight. To be sure, some developed countries have made significant pledges, such as Germany or the UK to double their annual financial assistance by 2020. Yet the projection relies heavily on an accounting system that is at least in parts fit for purpose, namely to make climate finance look bigger than its net worth to developing countries amounts to. It includes counting loans at face value even if, in the case of non-concessional loans, they will be paid back with market-rate interest and thus do not constitute assistance, at least not assistance to cover the additional cost as the UNFCCC Article 4.3 obligation calls for.

Another problem becomes apparent only when looking into the details of developed countries’ reporting of climate finance: many developed countries over-state the climate-relevance of funded projects and thus inflate their reported numbers – an assessment of German climate finance had revealed that the climate-relevance for about 25% of funded projects cannot be detected from project descriptions, and an assessment by AdaptationWatch on reported adaptation finance came to even starker conclusions.

These two factors, over-estimating the climate-relevance and counting numbers at face-value rather than the net assistance underpinning them, means that the shiny numbers of the roadmap do not represent what one might call the “climate-specific net assistance” within reported and projected figures. We’ve tried to assess what this net assisstance may amount to, and the results are somewhat sobering: The $67 billion per year in public finance developed countries project for 2020 may be worth just $18-34 billion in climate-specific net assistance.

And, finally, the projection relies on counting mobilised private finance, even though it’s not straight forward to attribute such flows to either the donor or the host country. For instance, co-financing by a developed country may tip the balance in favour of an investment by a private investor; but at the same time the market the investor finds in the host country will remain the primary motivation to invest. Attributing such private flows to either side will remain questionable. Last but not least, the projection also includes (admittedly a small amount of) export credit insurance, which, as experience goes, is not really mobilising new finance but rather determines which company from which country wins a tender of a project that is going ahead anyway.

“Public adaptation finance is projected to at least double.”

As of now, the OECD estimates that about 16 per cent of annual climate finance is allocated to support adaptation, roughly US$ 10 billion a year (again: 2013-2014 annual average). The climate finance roadmap now projects this amount to double. This would mean that by 2020, just a fifth of the US$ 100 billion target level would be supporting adaptation – way off the balance between mitigation and adaptation that previous COPs have urged for and that is also requested by the Paris Agreement.

Beyond the formal arguments, also the absolute numbers give reason for concern: The United Nations Environment Programme estimates that by 2030, developing countries could be facing costs of US$ 140-300 billion per year to adapt to climate change. Just US$ 20 billion a year by 2020 in support is woefully inadequate and needs addressing.

What next?

Developed countries will want recognition for their climate finance roadmap at COP22 in one way or another. And I have heard the notion that donors may think that they are now “off the hook” as long as they continue their efforts as projected by the climate finance roadmap. Well.

To be sure, some form of recognition is in order, if only to acknowledge the effort to provide more clarity on how developed countries are expecting climate finance to evolve over the next couple of years. The roadmap also includes some passages that describe current and future areas of action to make best use of climate finance. And the roadmap is also some sort of offer by developed countries to developing countries to engage and draw conclusions from it.

Clearly the key problem that needs addressing is the doubled-but-yet-low level of adaptation finance that the roadmap is projecting for 2020. Developed countries need to put a lot more effort into supporting adaptation, to ensure this projection becomes outdated rather quickly. In the lead up to Paris, Africa had called for a target level of at least US$ 32 billion a year – doubling the share in climate finance (16 per cent), not the absolute amount (~US$ 10 billion). If the COP recognises (or even welcomes) the roadmap, it should draw the conclusion that a mere doubling will not do the trick, and it should urge developed countries to enhance their commitments, in order to significantly increase adaptation finance.

The roadmap also underlines the importance for improving accounting of climate finance. Luckily this is on the agenda of COP22. In principle, accounting needs to be much better in reflecting the climate-specific portions of provided funds and put an end to re-labelling of conventional development assistance (notwithstanding the imperative to fully mainstream climate into all development assistance). And it needs to account for the net financial value transferred to developing countries via the various instruments currently reported as climate finance such as grants, loans, equity or guarantees. For instance, reporting the grant equivalent of concessional loans would reflect the actual assistance to developing countries much better, and hence be a much more suitable approach to measure progress towards fulfilling the UNFCCC Article 4 obligations.

On private finance, all sides need to get a better handle on mobilised private finance. For one, this form of private finance is only a drop in the ocean if compared with the vast amounts of (non-mobilised) flows still feeding the fossil fuel industry that need to get divested. This makes it essential that actions taken to mobilise private finance need to look for the highest transformative potentials. On the other hand, mobilised private finance cannot simply be ‘claimed’ by developed countries, as such finance is always mobilised by both sides. Accounting for it should reflect this.

One piece is missing from the roadmap: finance for loss and damage resulting from climate change. So far, developed countries have deflected that debate by pointing to adaptation finance as a means to reduce losses and damages in the first place — and thus avoided any recognition that assisting countries, people, communities recover from unavoidable losses and damages will necessarily also involve financial resources. Already today, losses and damages from climate change are significant and are set to rise further, especially given the lack of ambition in countries’ INDCs pointing to 3°C warming and more. It should be a no-brainer that finance for loss and damage will be needed on top of what developed countries provide to help with adaptation. The roadmap would have been a prime opportunity to address this gap and to offer a point of departure for the forthcoming discussion about finance for loss and damage at COP22.

And finally, there are quite a few developed countries that have not made pledges with regard to planned levels of climate finance in 2020 or whose 2020-related pledges do not constitute an increase over current levels. Seems they got away with it in Paris. Now would be the time to get this in order.

Jan Kowalzig, Oxfam