International climate finance / 100 billion / Adaptation Fund

Seven steps the UN climate talks COP23 could take to advance climate finance

COP23_Logo_Climate_FinanceWhen COP23 opens its gates this week, many negotiators will mostly want to focus on two issues: the rulebook of for implementing the Paris Agreement, although it seems the term rulebook is too strong for the taste of some who prefer to speak of implementation guidelines; and the design of next year’s Facilitative Dialogue, to take stock of the collective effort so far, read: face the gargantuan gap between current (plans for) action and what would be needed to hold warming below 1.5°C.

Yet, we can expect that climate finance will feature prominently too, given its importance in assisting developing countries’ efforts to mitigate emissions, adapt to a changing climate, and (in the future) deal with unavoidable losses and damages from worsening climate impacts. Here are five things to look out for at COP23, on climate finance:

  1. Progress on the 100-billion-promise: Developed countries claim they are well on track to deliver on their promise to ramp up climate finance support to $100 billion a year by 2020. The roadmap presented by donor countries last year confirms a current level of climate finance of $57 billion a year (2013/2014 annual average) and indicates the $100 billion level is well within reach. Yet, developed countries should use 2018 to demonstrate further progress, show how they increase adaptation finance (see next item) and also deal with the methodological “challenges” (e.g. that the climate-relevance for large proportions of reported funds is grossly overestimated). Developed countries could be asked to deliver this through their next iteration of their Strategies & Approaches, through which they are (among other issues) asked to project future finance levels. This next iteration is due in 2018. Such an effort could greatly contribute to a positive mood in 2018, which may become crucial when conducting the Facilitative Dialogue and finalising the rulebook of the Paris Agreement.
  2. Increasing adaptation finance: For years, the particularly vulnerable countries have complained the gross imbalance between finance for mitigation and finance for adaptation. The OECD estimates that current adaptation finance from public sources amounts to roughly $10 billion a year and projects this to merely double by 2020, meaning just about a fifth of the $100-billion-promise will be met by public finance for adaptation. So far, developed countries have refused to accept COP decisions that would commit them to seriously address the imbalance – so COP23 is another moment where developed countries can demonstrate what they intend to do to significantly increase adaptation finance.
  3. Starting the debate on the post-2025 finance target: The Paris summit agreed to extend the 100-billion-promise to 2025 and then set a new finance target for the period afterwards. No specifics were agreed about that future target, so it seems worth planning sufficient time for discussing its qualitative and quantitative features. For instance the target could be designed as a target matrix, with sub-targets for mitigation, adaptation, loss and damage, and splitting between provided finance and mobilised finance; sub-targets could also be set for some of the delivery channels such as the Green Climate Fund or the various financial instruments currently used. And the target could also speak to Article 2 and its paragraph 1.c), to shift financial flows, public and private, to low-carbon, climate-resilient development. How about a dedicated sub-target for the most vulnerable countries? Ample material for discussion. COP23 could, while not starting the formal process, at least agree that there will be a process, and that it will start for instance at COP25 (when the heavy rulebook negotiations are out of the way).
  4. Giving the Adaptation Fund a future: It is still not fully decided that the Adaptation Fund will have a future under the Paris Agreement. Developing countries have requested so, developed countries resisted. The agreement struck at COP22, after a lot of wrangling, had it that the fund “should” serve the Paris Agreement, subject to a set of issues on governance, modalities and operational aspects would be sorted out, with a final decision to be taken next year. Negotiators at COP23 should now avoid another conflict but identify options for each of the issues to be resolved so that decisions can indeed be made in 2018. At the same time, there is absolutely no reason that prevents COP23 from doing what COP22 did not manage to: decide that the Adaptation Fund “will” or “shall” serve the Paris Agreement. The details of that can, as mandated, be decided at COP24, but taking the political decision now would greatly enhance trust between developing and developed countries.
  5. Loss and damage finance: At COP23, the 5-year-workplan of the Warsaw International Mechanism on Loss and Damage is up for adoption. A key shortcoming of this workplan is that it does not include substantial work around financial aspects of the loss and damage issue, such as identifying what financial support is needed and for what purposes, and prepare the ground for raising finance and developing delivery mechanisms to assist climate-impacted countries in dealing with future losses and damages. Hence, COP23 should not just adopt this workplan but direct the WIM to also work (perhaps in conjunction with the Standing Committee on Finance) on the financial aspects and report back e.g. at COP25 with a proposal for an institutional structure for generating and channelling loss and damage finance.
  6. Accounting for climate finance: As part of the Paris Agreement’s rulebook discussions, COP23 will also look at how to account for, and report, climate finance, a topic that is both dealt with under the agenda of SBSTA and the overarching work on the transparency framework of the Paris Agreement under APA. Key problems in the past have been the gross overestimation of climate-relevance of reported funds or the accounting of loans at face-value, despite loans being repaid (and often with market-rate interest). Other criticisms included that several developed countries failed to report on an activity level, making it impossible to check, scrutinise and evaluate provided support, and one of the unsolved issues remains the treatment of private investments that developed countries claim to have mobilised (e.g. through co-financing), ignoring that there are many other factors on the host-country side that help tip the balance in favour of an investment too.
  7. Other COP23 housekeeping: Of course there are dozens of additional topics on the agendas of the various bodies meeting under the COP23, such as the report of the Green Climate Fund (GCF) or the Standing Committee on Climate Finance (SCF). While the various items are important housekeeping tasks to keep the UNFCCC climate finance architecture going, they may in fact run rather smoothly and a bit in the background this time – although one will of course need to keep a watchful eye on these too.

Jan Kowalzig, Oxfam