Climate finance: too little, too late?

The quarrel over climate finance is, like the climate change debate itself, a fight over who is responsible and who has to pay. Estimates of the cost vary widely, depending on the assumptions made by analysts.

For mitigation in the developing world alone, one of the earliest estimates, made by the World Bank back in 2008 put the full cost at some $400 billion a year. Since then, the Potsdam-Institute for Climate Impact Research report in 2009 put the figure at $480 – 600 billion a year up to 2030, and $1.2 trillion a year from 2030 to 2050. The International Energy Agency estimated in 2011 that the cost for the developing world of transitioning to a clean-energy economy amounted to $1 trillion a year over the next four decades. And the 2012 Global Energy Assessment, put out by the International Institute for Applied Systems Analysis (IIASA), reckoned the sums needed by these countries would be between $1.7 trillion and $2.2 trillion.

The adaptation side of the equation is at least somewhat more tangible, with the UNFCCC in 2007 placing the bill for developing country requirements for such actions as building defences against rising seas and reconstruction after disasters at $27 billion to $66 billion a year. The World Bank’s 2010 assessment put the adaptation cost in the range of $75 billion to $100 billion a year.

An aggregation by the South Centre, a developing country think-tank, of the various assessments and bundling mitigation and adaptation together, found that the core of the range to be from $600 billion to $1.5 trillion a year.

Exacerbating the uncertainty is the fact that the costs involved are dynamic. The sooner we act, the cheaper the price of adaptation and mitigation; the longer we wait, the more expensive, not merely as a result of acceleration of climate change, but from the delay in savings resulting from innovation that has yet to occur. In addition, these are broad views of the sums involved. Greater country-by-country granularity, and thus precision and accuracy, will only come as developing countries produce their own assessments of the path they wish to take and the amount of money required.

The only certainty involved at the moment is that the sums pledged and dispersed are many orders of magnitude less than this trillion-dollar price tag.

In 2009, developed countries committed to mobilize $100 billion/year in climate finance by 2020

In 2009, one of the more hopeful developments coming out of the otherwise disastrous Copenhagen UN climate talks was a developed-world commitment of $30 billion in 2010-2012 as a good faith gesture known as “fast-start” finance and a long-term commitment to mobilize $100 billion a year by 2020. Then, after four years of difficult negotiations over governance and structure, the UN’s Global Climate Fund (GCF) officially launched in 2013. This is the instrument through which Copenhagen’s $100 billion is intended to flow.

But so far the cupboard is pretty bare. When it opened its doors in Incheon, South Korea, in December, the kitty held just $40 million from Seoul to cover administrative costs. Beyond this, the total climate finance contributions claimed by developed countries last year amounted to $16.3 billion, according to an analysis by Oxfam, the international development NGO. Although if loans that are expected to be repaid are excluded, this figure drops to just $7.6 billion.

Oxfam also estimates that, in the wake of the global economic crisis, most countries’ climate finance pledges have plateaued or even declined. And, cheekily, many countries are simply repackaging or relabeling development aid money as climate finance.

$15 trillion were spent bailing out banks & carmakers; sums set aside for climate finance are paltry

The head of the GCF, Héla Cheikhrouhou, has stated that the hope is to raise $10 billion to $15 billion for the fund’s initial capitalization, while Christina Figueres, executive secretary of the UNFCCC, is aiming for “at least $10 billion” by the end of this year. When placed against the more than $15 trillion global governments spent bailing out banks, auto companies and manufacturers in the wake of the economic crisis, the sums set aside for climate finance seem paltry. Indeed, the disparity between the funds raised for climate change and the funds for financial institutions have been the source of much of the rancour between developed and developing countries. Famously, G77 climate negotiator Lumumba di-Aping, said back in 2009 that $10 billion in climate finance “is not enough to buy us coffins.”

In 2013, Washington’s climate ambassador, U.S. Special Envoy Todd Stern, was blunt in a speech in London about the rapidly diminishing chances of any extra cash: “Now the hard reality: no step change in overall levels of public funding from developed countries is likely to come anytime soon.”

A shift from public to private funds may lead to only profitable projects being funded

In a parallel fashion, the emphasis amongst developed nation climate diplomats has steadily shifted from delivery of public funds from northern coffers to a ‘mobilization’ of private sector monies in order to be able to claim to have met the $100 billion Copenhagen pledge, with such public funds as have been committed serving as a catalyst for private investment. One might reasonably say: What does it matter where the money comes from, so long as it arrives? But green and development NGO critics note that private finance is attracted to the projects that are profitable, not necessarily the projects that are necessary.

Developing countries for their part are concerned about a lack of what is termed “country ownership” of resources, meaning that national and local governments are to decide on the projects and manage how resources are distributed, albeit while operating under international guidelines. This stands in contrast to what they argue is a more paternalistic channeling of monies through international financial institutions or external agencies. Direct access to funds and “enhanced” direct access with an even deeper domestic devolution of management have become major sticking points. On the one hand, decision-making at such levels increases buy-in by communities and leverages local knowledge for potentially more successful results. On the other hand, some states do not yet have domestic institutions or human resources capable of developing and implementing projects. The United States is particularly reluctant to enhance direct access.

The United States and Britain are also keen to see Brazil, India, China and South Africa contribute to the fund. The BRICs insist that this is not in keeping with the division of responsibilities set out in the UNFCCC, which states that, due to the historic role industrialised countries played in causing the climate crisis, they are to pay the bill for fixing it. Nonetheless, China, India and Brazil are three of the biggest investors in renewable energy, and China is now the world’s largest producer of renewable energy technology.

NGO observers of the process also want processes to involve greater transparency. Australia and the United States have argued against the webcasting of board meetings, while Sweden, with its centuries-old traditions of openness and freedom of information, as well as Zambia and the Democratic Republic of Congo have resisted secrecy. The GCF has agreed on a compromise and will post online recordings three weeks after a meeting.

Green groups meanwhile complain that there is no language in GCF rules preventing the financing of what they refer to as dirty energy projects – those whose green credentials are controversial such as nuclear power, fracking, hydroelectric dams and “clean” coal.

All of this makes reaching a new global climate pact in Paris in December 2015 that much harder. Developed nations are pressing emerging economies to commit to targets capping CO2 emissions, but the BRICs are refusing to even countenance such a move before the global north delivers on its climate finance pledges.

Written by . Published on November 6, 2014. Last edited on November 25, 2014.

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  1. Laurel

    Nice summary of some of the key issues in the climate finance negotiations and well written. However, it should be Green Climate Fund not Global Climate Fund 😉

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