Climate finance will be one of the most pressing topics during COP26 in Glasgow, a vital part of the battle against climate change and one that is under the spotlight more than ever. Essentially, climate finance is financing that Developed Countries provide to Developing Countries to help support their climate related work. This includes both mitigation (by, for example, investing in renewable energy) and adaptation to, and resilience against, the effects of climate change (for example, by building coastal defences).
At COP15 in Copenhagen in 2009, developed countries agreed that at least $100 billion a year – from both public and private sources – would be given to developing nations from 2020 onwards. Yet despite this pledge, the $100 billion goal has never been reached. An OECD report released in September revealed that “Climate finance provided and mobilised by developed countries for developing countries totalled $79.6 billion in 2019, up 2 per cent from $78.3 billion in 2018.”
Bridging the Gap
According to Liane Schalatek, Co-Founder of Climate Funds Update, an independent website that provides data on climate finance funds, the issue is not just around the quantity of funding, but its quality. “If one takes the quality of climate finance into account, I would argue that we are even further away, with the gap even bigger in reaching US$100 billion in quality climate finance provided,” she says. “Not only is there a sense by many observers that under the OECD-DAC there is an over-counting [when donors overcount the climate change value of a development project where climate change is just one aspect of a broader program] of what is labelled climate finance (especially related to adaptation), but we also see an increasing share of climate finance provided in the form of loans. These include [loans] for adaptation and for Small Island Developing States (SIDS) and Least Developed Countries (LDCs), and include non-concessional loans, primarily by the Multilateral Development Banks (who according to the OECD with US$30 billion in 2019 provided a growing share of climate finance, double what they provided in 2015).”
There are a number of multilateral climate funds (are run by multiple national governments), such as the Green Climate Fund, the Adaptation Fund, the Global Environment Facility and the Climate Investment Funds, which have distributed billions of dollars of climate financing between them.
One of the biggest of these funds is the Adaptation Fund. Set up 14 years ago, it delivers adaptation projects to the most vulnerable, while pioneering innovative finance approaches such as Direct Access and Enhanced Direct Access that build and empower country ownership and local leadership.
According to Adaptation Fund Board Chair, Mattias Broman, one key aspect of the Fund is that its projects are locally led. “[They] generate immediate benefits to the vulnerable communities they serve. [The Fund’s] 120-plus projects serve over 31 million total beneficiaries, have trained 1.25 million people in climate resilient measures, established 415 early warning systems, and restored and/or preserved 161,775 meters of coastline, and 381,512 ha of natural habitat,” he says.
COP26 Assurances
At COP26, developing countries will want assurances that the $100 billion promised will be fulfilled, but also that a new climate finance programme will be adopted in 2025, a vital step to ensure that they can adapt their countries to the impact of the climate crisis.
Another issue is that many of the projects financed are focused on mitigation – such as renewable energy projects – that generate a return on investment. Adaptation projects, such as early warning flooding systems and sea walls, are expensive and do not usually generate a financial return. This is illustrated in 2020’s climate finance figures. While $1.6 billion was spent on mitigation projects, only $586 million was spent on adaptation projects (although $894 million was spent on projects that focused on both mitigation and adaptation).
“We are very far away from a balanced allocation between adaptation and mitigation, as mitigation continues to capture about 64 per cent [of climate finance] according to the OECD’s latest numbers,” says Schalatek. “While the adaptation share has now grown to 25 per cent, it is not growing fast enough. Instead, cross-cutting projects (combining mitigation and adaptation elements) have grown to 11 per cent. The cross-cutting figure could actually hide significant additional mitigation spending, as in many cross-cutting projects mitigation efforts outweigh adaptation ones.”
Transparency is another issue, particularly in the area of how the emissions reductions are actually calculated. “In many funds the accounting of emissions reductions achieved is lacking, both in terms of providing results measurement, but also in transparent disclosure of how those results were achieved and aggregated,” says Schalatek. “Most of the information that is provided is ex-ante (prior to implementation) calculations, some of which might be accurately, and a lot of it might be high-balled and never achieved, not to mention that for different projects and programs different methodologies to calculate emissions might be used.”
Recent months have seen some good news. In September, US President, Joe Biden said he would ask Congress to double the current $11 billion a year the US pledges in climate finance by 2024. As for COP26, it is clear that a lot needs to be done, both in terms of actually delivering the $100 billion promised and working out what a post-2025 climate finance world looks like. “Discussions [need] to be started about a new collective climate finance goal for post-2025 must learn from the experiences and shortcomings of the US$100 billion goal, including the way it was set (too low, based on political feasibility assumptions, not documented needs) and lack of mandatory intermittent goal posts for achieving it,” says Schalatek.