Climate Finance at COP24: Reviewing Progress & Goals
Written by Colton Kasteel – Delegation Lead, BCCIC Youth Delegation to COP 24
The 24th Conference of the Parties (COP24) has concluded, producing an initial rulebook that will guide how countries report, track and ultimately reduce their emissions. Despite resulting in an agreement, the talks in Katowice incited not only an atmosphere of cooperation, but also conflict, as developed and developing countries, scientists and researchers, civil society, industry, youth, and others, all debated over the future of climate action. Nonetheless, the evidence is clear, and we know that drastic emissions reductions are needed if we are to limit global warming to 1.5°C above pre-industrial levels.
Despite the backdrop of urgent warnings by the Intergovernmental Panel on Climate Change (IPCC) via their recent SR1.5 report, ‘Climate Finance’ persisted to be one of the most intransigent, controversial and divisive topics in negotiations. The struggle to find common ground boils down to the desire from many developed countries (particularly those with less constructive domestic political leadership) to limit their obligations in providing immediate finance, as well as indicative information on future financial commitments, to developing countries that require assistance in order to meet their climate adaptation and mitigation goals.
In order to better convey the nuances of finance negotiations at COP24, I’ll be using this opportunity to explain five key issues and funds that were discussed in Katowice: 1) The Adaptation Fund; 2): Ex-Ante Communication of Future Finance; 3) Accounting Modalities for the Tracking of Past Finance; 4) the Green Climate Fund; and 5) Long-Term Finance. Recognizing that these terms are technical and opaque, this summary will attempt to be as clear and accessible as possible, while remaining (somewhat) brief.
The Adaptation Fund (AF), established under the Kyoto Protocol in 2001, is a relatively older multilateral climate fund under the UN Framework Convention on Climate Change (UNFCCC) financial mechanism; however its age has not diminished its importance (in fact, the opposite is true). The AF plays a critical role in global climate adaptation in developing countries, particularly because of its provision of grants and micro-level financing to adaptive projects in at-risk communities. In terms of sources of funding, the AF is funded through two methods: 1) Proceeds from the Clean Development Mechanism (CDM) of the Kyoto Protocol, and 2) voluntary contributions from donor countries. The fund is also unique in that, unlike its often-cited counterpart, the Green Climate Fund, its governance board is composed of a majority of representatives from developing countries. This has allowed the AF to become a widely celebrate success (both from the perspective of developed and developing countries) due to its understandably stronger conception of how to effectively deploy climate finance in developing countries.
Being a multilateral climate fund under the UNFCCC, the fund is subject to review and mandates from countries who are parties to the agreement(s) it ‘serves’. Prior to COP24, the fund continued to serve the Kyoto Protocol (KP). In simple terms, this means that the fund is subject to guidance from countries who are signatories to the Protocol. This has significant implications: as those of us familiar with the Protocol know, many developed countries are not signatories to the agreement (including Canada). Therefore, challenges in negotiations arose, relating primarily to developing countries expressing concerns that the fund should continue to operate as it has in the past, despite having to consider new developed country board members once it serves the Paris Agreement.
Ultimately, negotiators were able to reach a consensus; agreeing that the Adaptation Fund will serve the Paris Agreement, starting January 1st, 2019. Therefore, in 2019, the fund will serve both the Paris Agreement and the Kyoto Protocol. As far as exclusivity (the overarching goal of all countries is to have the AF exclusively serve the Paris Agreement) is concerned, progress remained stalled as countries failed to reach an agreement on the substance of Article 6 of the Paris Agreement (the CDM’s replacement), known more colloquially as carbon trading/ market mechanisms, or ITMOS (Internationally Traded Mitigation Outcomes). This led to negotiators agreeing that exclusivity would be agreed-upon once the specifics of Article 6 were finalized; the negotiations of which will take place at COP25.
Ex-Ante Communication of Future Climate Finance
Ex-ante communication of future climate finance refers to the rules which dictate how developing countries will communicate their contributions of climate finance, and how developing (or, recipient) countries will share how the finance they’ve received has conclusively led to positive climate adaptation and mitigation outcomes. Under Article 9.5 of the Paris Agreement, developed countries are obligated to report their contributions of climate finance on a biennial basis, and other countries are welcome to report information voluntarily. In simple terms, this is a critical part of the rulebook, because it sets the stage for how developing countries, particularly those that are low-lying and most vulnerable to the effects of climate change, can plan ahead when implementing policy measures for both their Nationally Determined Contributions (mitigation efforts) and National Adaptation Plans. By having developed countries signal, in advance, their intents to provide financial assistance, developing country policy-makers can develop stronger, more ambitious plans.
Among other things, negotiations over the communication of indicative quantitative and qualitative information on climate finance also emphasize the need to convene biennial high-level ministerial dialogues, such as the one that took place at COP24, to discuss the progress of current and past flows of global climate finance, how developed countries intend to increase their contributions in the future, and how they intend to reach the current annual collective mobilization goal of $100 billion (USD). A decision on this issue was ultimately adopted by countries. A few matters of controversy, such as the lack of mentioning grant-equivalency in the text, and the omission of loss and damage as category, are stark; however, there was an agreement on including gender-responsiveness as a measure that countries must report on. Therefore, while some critical concerns remain, there was progress to be noted at COP24.
Accounting Modalities for the Tracking of Past Finance
The other side of finance in the rulebook covers accounting modalities. In simple terms, this issue, as is covered in Article 9.7 of the Paris Agreement, dictates the rules under which donor countries categorize and count their climate finance provided in the past. It doesn’t take long to understand that counting, categorizing, and classifying climate finance becomes tricky, quick. Developed countries have an interest in counting all of their contributions provided, in order to get them to their portion of the $100 billion goal quicker; while developing countries are pushing back to hold providers accountable to the equitability of their finance. In essence, this means that developing countries are trying to hold developed countries accountable for the finance they report to be contributed in their assessments. Some of the accounting mechanisms countries debate over include, inter alia: whether finance is reported at its face-value (the amount of a loan, for example), or at its grant-equivalent value (the loan minus repayment, interest, etc.); whether an amount is climate-specific (going entirely to climate change mitigation/ adaptation), or cross-sectoral; whether an amount is cross-cutting, mitigation-focused, or adaptation-focused; whether loss and damage is reported as a category, separate from adaptation; and whether an amount is reported as ‘new and additional’, meaning whether is is separate from existing, non-climate, contributions of Official Development Assistance (ODA).
Unfortunately, more work needs to be done on this issue moving forward. COP24 saw little progress on the components that matter most, including those listed above (other than ‘climate-specific’, which was part of the finalized text). In the new rulebook, progress on loss and damage included recognizing its distinction in both the transparency mechanism and the global stocktake of the paris agreement, yet, problematically, it was left out of finance as a category to be reported on. Furthermore, when it comes to non-grant finance (such as loans), countries are only obligated to report the grant-equivalent value of their contributions on a voluntary basis. This means, for example, that under the currently agreed-upon rules, a developed country could provide a $20 million non-concessional (market-rate) loan to a developing country, and if that loan ended up as a net-positive transfer of wealth for the donor (meaning that the country providing the loan actually made money off the transaction), they’d still be able to count it as a climate finance contribution of $20 million. In the future, ministers need to recognize this morally reprehensible aspect of the current text, and ensure that tools such as grant-equivalency, and other transparency measures, are enforced to keep donor nations accountable.
Green Climate Fund
The Green Climate Fund (GCF), established 2010 at COP16, is a financial mechanism of the UNFCCC, which means that it is responsible for deploying a large portion of the funds provided from developed countries, to developing countries, to assist the latter with their climate mitigation and adaptation objectives. It is funded entirely through voluntary contributions from donor countries, and operates via guidance from its board (which is composed equally of 12 representatives from developed countries and 12 members from developing countries), as well as from the COP itself. Under the Paris Agreement, countries agreed to provide $100 billion in climate finance per year, from 2020 until 2025. When countries pledge climate finance commitments, they predominantly do so through what are regarded as reliable, safe channels, including Multilateral Development Banks (MDBs) and Development Finance Institutions (DFIs), to ensure that the money provided is spent on measures that either mitigate emissions in developing countries, or assists them with climate adaptation and resilience.
The GCF is the Paris Agreement’s focal point institution when it comes to delivering the bulk of climate-designated funds. Many countries pledge the largest portions of their climate finance commitments towards the $100 billion goal, to the GCF. For instance, the plurality of Canada’s climate finance provided to-date ($300M), has gone to the GCF. At COP24, leaders agreed upon the importance of the GCF and expressed support for its continued role in global climate action. Moving forward, nations will continue to rely on the GCF to be a focal point for innovation, catalytic capital, and risk-tolerance investments as the developed world attempts to grow within a low-carbon framework.
Last but not least, comes the critical issue of long-term finance. Long-term finance refers to the debate countries have over how commitments of climate finance will change once the current collective goal of $100 billion per year expires in 2025. Objectively, it is unquestionable that the goal needs to be re-evaluated in a timely manner. Furthermore, as the $100 billion per year goal is a politically-determined amount, there is a need for further scientifically-robust assessments to be completed (building on work already undertaken by bodies such as the Standing Committee on Finance) to indicate what levels of finance are necessary to pay for the mitigation and adaptation measures, as well as loss and damage reparations, that align with a 1.5°C world.
Within these negotiations, there is a crossroads at play: developing countries want early commitments of climate finance so that they can begin to plan their mitigation and adaptation measures, while many developed countries face upcoming elections, and are limited by domestic budgetary and democratic processes, which prevent them from guaranteeing financial commitments too far in the future. In light of these challenges, how and when nations decide upon a post-2025 collective mobilization goal for finance remained inconclusive at COP24. While countries indicated that they will begin deliberations in 2020, we will have to wait until COP25 to see progress from ministers.
As we approach a new year and conclude yet another meeting of the conference of the parties, the need to increase domestic ambition in line with 1.5°C, while concurrently supporting developing countries in their desperate fight to cope with existing climate change, grows more urgent. Donor countries such as Canada need to work harder at making international climate finance more palatable to voters, by communicating the multifaceted importance of development assistance. We must better convey why grant-based climate finance contributions are not only a moral imperative, based on both the size of Canada’s historical greenhouse gas emissions and our presently egregious per-capita emissions, but also why those contributions are in our own national interest, due to their of their role in mitigating global emissions. Canadians benefit from reducing emissions overseas, as climate change is a collective action problem and emissions reductions in developing countries can be as, if not more valuable as emissions reductions within our own borders, due to their relatively lower marginal cost. This makes the need for robust transparency and communications measures ever-more critical as we proceed with the implementation of the Paris Agreement.
In terms of concrete action, the path forward is clear. Canada needs to contribute its fair share of global climate finance by increasing its contribution from the current 2020 $800 million annual pledge, to $1.9 billion in annual public sector contributions, with an ultimate goal of leveraging an additional $2.1 billion in private sector and multilateral institution funds, to reach our fair share total of $4 billion (for more information on why $4 billion is our fair share, see my article recapping climate finance at COP23). Canada needs to also support scientific assessment as an inextricable component of future climate finance targets under the UNFCCC (in practice, this would mean conducting a review of best practice research, to determine the actual needs of developing countries in adapting to, and mitigating climate change, in line with 1.5°C. As noted above, the $100 billion goal is entirely politically-determined and therefore grossly insufficient).
It is no longer enough to treat the issue of climate change without the urgency it requires. Oxfam’s 2018 Climate Finance Shadow Report presented a few sobering revelations, including that in 2015-16, only $16-21 billion in net climate-specific finance was provided by developed countries to developing countries, and only 23-27% of climate finance was given in the form of grants (meaning, 73-77% of climate finance was provided in the form of loans, equity, and other non-grant instruments). As a global community, we have tackled this problem as if its consequences lie far in the future; yet, droughts, storms, flooding and heat waves are upon us already. If we do not act quickly, the severity of these events will continue to increase exponentially. The opportunity for the world to limit global warming to 1.5°C is within reach, but it will require bold, unprecedented action and political will, of which finance will be a instrumental tool. Canada must continue to step up, stand with developing countries, and rebuke inaction. We can reach our goals and reduce global emissions by 45%, by 2030 – but to do so, we must redouble our efforts immediately.
Colton is the Project Coordinator and Lead Delegate for BCCIC’s Youth Delegation to COP24. He previously served as a delegate on BCCIC’s UN delegations to COP23, SB48-2, and HLPF 2018. Outside of BCCIC, Colton is a Research Fellow at the UBC Sauder Centre for Social Innovation & Impact Investing (SauderS3i), where he focuses on innovative climate finance and mission-driven venture capital.