Climate Finance Fundamentals 2014

Sam Barnard, ODI

The UNFCCC COP20 kicked off this week in Peru. Day by day more negotiators and observers are arriving at ‘el Pentagonito’, the Peruvian army headquarters in Lima where this year’s conference is being held, in the hope of making progress towards the global climate agreement billed to be signed in Paris in November of next year.

Finance is high on the agenda. Developed country governments have agreed to provide resources to support the efforts of developing countries to adopt low-carbon development trajectories and build resilience to climate impacts that are already starting to incur real economic and social costs.

Against this backdrop, ODI and the Heinrich Böll Foundation have released the 2014 edition of the Climate Finance Fundamentals: a series of concise briefs detailing the essentials on the key issues under discussion around climate finance. These include the progress being made towards getting the new Green Climate Fund up and running, trends in finance for mitigation, adaptation and REDD+, as well as regional briefs on how climate finance is flowing to assist countries in different parts of the world to tackle the specific challenges they face. We provide an overview of the architecture for climate finance delivery that has evolved over the past ten years, as well as the crucial need to incorporate gender considerations into climate fund interventions.

So what are the headline stories?

The Green Climate Fund has made big steps this year to becoming fully operational. The official pledging meeting in Berlin last month brought pledges up to $9.3 billion. Additional pledges have also been announced this week, making the GCF the largest multilateral fund in the world. It will now have to demonstrate its ability to use this money effectively by financing a portfolio of impactful projects.

The amounts of finance approved by climate funds for both mitigation and adaptation projects have risen substantially, indicating that the project development cycles of existing funds, and particularly the Climate Investment Funds under the World Bank, are starting to pick up steam. Dedicated adaptation funds and mitigation funds have now approved over $3 billion and $6.6 billion, respectively. Similarly, approvals by funds focusing on Reducing Emissions from Deforestation and forest Degradation (REDD+) grew by 65% in the last 12 months to nearly $1.1 billion.

Regional highlights

The largest sums of finance have been approved for projects in Asia and Pacific and Latin America and the Caribbean. In both of these regions this funding is heavily skewed towards supporting mitigation, primarily through renewable energy and energy efficiency projects. Nevertheless, funding for adaptation is growing steadily. Sub-Saharan Africa is the only region for which spending by climate funds on adaptation ($1.03 billion) exceeds that on mitigation ($834 million). In contrast to spending on mitigation, this adaptation finance is highly disperse, with the majority flowing through the Least Developed Countries Fund to support 126 projects in the region.

Globally, some particularly vulnerable countries such as Nepal, have received significant resources from dedicated climate funds to increase their resilience, but it will be crucial to ensure that the most vulnerable countries, including the small island developing states (SIDS) are not left behind.

The biggest single approval in the last year was the $238 million concessional loan from the Clean Technology Fund for the Noor II and III Concentrated Solar Power project in Morocco, which is the latest project to be approved under a concerted large-scale solar power investment programme in the Middle East and North Africa.

The Climate Finance Fundamentals draw on data compiled at Climate Funds Update, the leading source of information on the money flowing to and from dedicated climate funds. They can be downloaded in English, Spanish and French at www.climatefundsupdate.org.

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