More than meetings: the way forward on climate finance

Smita Nakhooda, ODI

At the COP 19 in Warsaw, Christiana Figueres sent governments back home with a command: “Governments, and especially developed nations, must go back to do their homework so they can put their plans on the table ahead of the Paris conference”. What exactly does it mean? On finance, it means that developed countries must walk the walk and help developing countries respond to climate change.

Hopes were high at the beginning of 2013 for a “Finance COP”: that when parties to the UN Framework Convention on Climate Change met in Warsaw at the end of this year, they would be able to make new progress on this sticky issue.  With the new year almost upon us, what has happened so far and what is the way forward?

A quick look backwards

Developed countries have always had obligations to provide finance to help developing countries respond to climate change, because developing countries have done less to cause climate change and still confront pressing poverty reduction challenges. In 2010 developed countries agreed to mobilise US$100 billion per year in new and additional finance from public and private sources to support developing countries to respond to climate change. As a demonstration of good faith, they would deliver US$30 billion in Fast Start Finance (FSF) between 2010 and 2012, with a focus on scaling up support for adaptation to help vulnerable developing countries, particularly small island developing states and African nations, deal with the impacts of climate change. Developed countries managed to meet – and indeed to even exceed– these commitments.

Last year’s UNFCCC meetings in Doha did not give countries much clarity on the medium term outlook for finance. A year-long technical work programme on long term finance grappled with the difficult underlying issues, such as the need for developing countries to introduce domestic policy processes to mobilise new sources of finance , as well as the policy, regulatory and institutional conditions that need to be addressed to enable greater private investment in the solutions to climate change.  It highlighted the need for a political dialogue on how to respond to finance needs. The Doha Gateway extended this work program, and also agreed to convene a High Level Ministerial Dialogue on Climate Finance. It also confirmed the need to make rapid progress in operationalising the Green Climate Fund.

So what do we have to show for the “Finance COP”?

Several countries did come forward with new pledges of finance at Warsaw. The leadership of European countries on this agenda, despite their significant economic and financial challenges at home, is noteworthy. A number of these countries, particularly Germany, committed US$104 million to the Adaptation Fund of the Kyoto Protocol, allowing it to meet its rather modest 2013 fundraising target of US$100 million. The UK has been a particularly significant actor: it has created a dedicated mechanism to deliver finance through its International Climate Fund, and has recently increased the amount of finance it will make available from £2.9 billion by 2015 to £3.87 billion by 2016. Together with the US and Norway, it committed US$280million for a new World Bank managed program to promote sustainable forest landscapes, in an effort to attract private investment to activities that reduce emissions from unsustainable land use practices. Japan committed US$16 billion in finance for developed countries in the context of announcing that it would not be able to meet its original GHG emission reduction targets. But this finance, similar to the funding it committed during the FSF period, is expected to be largely delivered as concessional and non-concessional loans. Much of it will help support Japanese companies to do business in climate-relevant sectors. However, while one of its objectives could have been to position climate change as a centrally important issue for Ministries of Finance, the Ministerial was dominated by Ministries of Environment.

The negotiated language on long term finance takes a small step forward by setting an implicit “floor” for public climate finance commitments by “Urg[ing] developed country Parties to maintain continuity of mobilization of public climate finance at increasing levels from the fast-start finance period”. It calls for a “substantial share” of public finance to support adaptation activities. And it “recognise[s]” the commitment to mobilise US$100 billion from public and private sources by 2020 “in the context of meaningful action and transparency”.

The outlook for 2014: a lot of homework to be done (and it will have to be done in capitals)

But it does not offer much more than that, despite repeated calls from developing countries on pathways to scaling up, and the proposal of a mid-term target of $70 billion per year. It does, however, “request” developed countries to prepare biennial submissions on how they will increase support, and to provide any available information on pathways. The Standing Committee on Finance will prepare its first biennial assessment of climate finance flows. Such an effort has the potential to offer some needed clarity on what should “count” as climate finance, and to offer a better sense of the current finance for adaptation and mitigation activities, including from the private sector.

In addition, the COP called for a rapid progress in finalising the operationalization of the Green Climate Fund. The fund has the potential to fill important gaps in the current climate finance architecture, supporting institutions in developing countries to incorporate climate change into their investment and development planning processes, and helping them to harness and direct private investment into low carbon and climate resilient options. The “historic opportunity” that the GCF presents was stressed by World Bank President Jim Yong Kim at its launch in Song Do earlier this year.

Finally, parties “decided” to convene a biennial high level Ministerial Dialogue on Climate Finance, informed by the new spree of technical meetings on climate finance that are poised to get underway, starting at COP 20 in Lima. The Climate Summit that the UN Secretary General will be convening in September 2014 may be an important stepping stone in the lead up to COP 20, if governments and actors including business and civil society are able to pledge ambitious action.

But it will take a lot of work, at home in capitals, for next year’s busy calendar of international technical meetings and high level political summits, to yield meaningful results. For Figueres’s wishes to come true, this will require us to convince policy makers and their constituents in developed countries that finance to help developing countries respond to climate change can make a real difference, and can be used effectively to deliver meaningful global benefits.