Climate finance at COP26

COP26: How much will the unfillled 100-billion promise weigh down on the upcoming UN climate conference?

Starting today, world leaders will gather for the 26th UN Climate Change Conference (COP26) in Glasgow, Scotland, to continue working on implementing the Paris Agreement. The dominant topic is likely to be the catastrophic inadequacy of the countries’ contributions to climate change mitigation. Financial support for mitigation and adaptation to climate change is also high on the agenda – as always. There is plenty to do, because the available funds are nowhere near enough for all that needs to be done. The following is an overview of the most important unresolved climate finance issues to be dealt with at COP26.

Unfulfilled 100-billion promise

In 2009, developed countries pledged to increase climate finance to USD 100 billion per year by 2020. In 2015, this pledge was supplemented by a commitment to maintain that level of funding until 2025. In 2019, the level reached was just under 80 billion US dollars. While complete data is not yet available, it is considered certain that the promise has not been fulfilled. Recently, just ahead of COP26, the rich countries presented a ‘Climate Finance Delivery Plan’ to show that they will now reach the 100 billion per year level in 2023 – three years later than promised. This is based on the pledges made by donor countries in recent months, including Germany’s G7 pledge.

Formally, neither the 100-billion target nor the ‘Delivery Plan’ are on the COP26 negotiating agenda. However, it is considered certain that the issue will have a significant impact on sentiment – as can be seen, for example, from the reaction of the Alliance of Small Island States (AOSIS) to the ‘Delivery Plan’. After all, climate finance and the 100-billion target are one of the most important elements in the painstaking balance between rich and poor countries under the Paris Agreement. Unfortunately, the ‘Delivery Plan’ did not lead to any progress in important areas, such as the underfunding of the adaptation sector.

New funding target for the period after 2025

One of the decisions accompanying the 2015 Paris Agreement stipulated that a new climate finance target should be set for the period after 2025. It is to build on the 100-billion target in quantitative terms and be geared to the needs and plans of the poorer countries – this is an important innovation, because the 100-billion target was set in 2009 as a political goal (and therefore fell far short of actual needs). Not much else is certain, though.

The COP26 is now faced with the task of launching the negotiation process for this new goal. In the course of the next few years, it will then have to be clarified how the goal is to be structured (there is much to be said for defining more of a goal matrix, e.g. with sub-goals for adaptation and for coping with loss and damage); who actually contributes to it (only the industrialized countries in accordance with their obligations under international law or also other countries on a voluntary basis?); how regularly it is to be adapted (or whether it should be adapted at all) to the changing needs in the recipient countries; or how the new goal can also contribute to the overarching goal of the Paris Agreement of redirecting all financial flows toward climate-compatible, climate change-resilient development.

Presumably, COP26 will only make a procedural decision, i.e. clarify how negotiations are to be conducted, what information is required (e.g. on the needs in the poorer countries), what workshops are to be held to deepen technical knowledge and, in particular, what timetable the negotiations are to follow until the target is set in 2024. It is important in a procedural decision that none of the feasible options, e.g. for the structure of the goal, is already excluded by the definition of the process.

Climate finance reporting

The regulatory framework for implementing the Paris Agreement is still not complete. Among other things, the tables are still missing in which the rich countries will then enter data on the climate finance provided as part of their regular reporting obligations.

A major problem in reporting so far has been that the way climate finance is counted allows donor countries to significantly overstate the support actually provided – mainly because of the generous crediting of supported activities where mitigation or adaptation actually play only a minor role, and because donor countries credit themselves with loans at their face value rather than at their grant equivalent (i.e. the financial advantage of a low-interest loan by a donor country over a loan at market rates). According to an Oxfam analysis, actual climate-specific support was only around a quarter of the reported funds in 2017/2018.

The reporting tables will probably be finalized at COP26. There is a great danger that Germany and the other donor countries will prevail with their self-serving accounting – and that actual support will continue to be well below the official figures in the future. The proper way of doing it would be to count only the climate shares of funded measures and only the grant equivalents in the case of loans. In the latter aspect, Germany is a special case: the grant equivalents of German climate loans are shown separately, which provides important transparency. However, the German government is still boasting of sums in which the loans are again counted by face value.

Implementation rules for Article 6

The implementation rules for Article 6 of the Paris Agreement have not yet been decided either. The article allows countries to pursue joint climate protection projects so that both countries (the host country and the financing country) can credit emission reductions achieved to their climate targets – such credits can then also be traded. The questions on implementation are particularly focused on avoiding double counting of achieved emission reductions and other regulations so that Article 6 does not become a large loophole undermining the Paris Agreement.

The article is interesting for climate finance insofar as at least one of its areas of application provides for a small levy to be paid on the credits obtained, which is to be used to finance international adaptation projects in poorer countries. Exactly how this will be structured and how high the levy should be is also still subject to negotiation. It would be important here to extend the levy to all areas of application of Article 6 in order to provide a new source of adaptation finance.

Other topics?

A COP like this has dozens of items on the agenda, and in the narrower or broader sense, they also relate to climate finance. For example, COP26 will receive and discuss reports from the Green Climate Fund, the Adaptation Fund, the Standing Committee on Finance and the Global Environment Facility – and in many cases then decide on new targets. These negotiations are more like the homework to be done in the background. Governments tend to get hung up here as well – but in the end these issues are always resolved.

Climate finance announcements

One of the most important roles of the annual climate conferences includes providing a stage for announcements outside the actual negotiations, for example on new alliances or initiatives, but also announcements of new financial commitments by donor countries. Germany and the other donor countries regularly pledge new money at climate conferences for multilateral climate funds, such as the Adaptation Fund or the Least Developed Countries Fund.

Often these commitments relate to budgets that have already been planned anyway – but they are no less important in substance. However, pledges are also expected at COP26 that will increase international climate finance overall, at least those that have not yet been included in the ‘Delivery Plan’.

Jan Kowalzig, Oxfam