The short-sighted nature of climate finance

20 June 2011
Comment
Allen Kagina of the Uganda Revenue Authority spoke at ODI last week on taxation and the end of aid dependence for Africa.  Also last week, ODI and Oxfam hosted a side event on securing national ownership of climate finance at the climate change conference in Bonn. So what could possibly link these two events?

Allen closed her presentation by raising the important question: if aid was a finite resource would we have better plans and would it be better used? This can only be a rhetorical question, as aid remains an open-ended relationship despite being over fifty years old. Discussion over an ‘exit strategy’ for aid is only just beginning. However, with climate finance – and particularly the international public component of this funding – the question is not yet a rhetorical one, but could still apply in practice. Perhaps this is the lesson that climate finance needs to learn from the long, troubled implementation of aid. Rather than being an indefinite, open-ended transfer of public resources, there is a case to be made that climate finance should be time-bound.

The Cancun Agreements re-stated the financial pledge first made in the 2009 Copenhagen Accord that developed countries would work to a goal of mobilising jointly US$100 billion per year by 2020 to address the needs of developing countries.  But what happens after 2020?  For how long should the transfer of public funding continue?  There is a debate to be had, as even those who see climate finance as a matter of international justice can also acknowledge that reparations are finite: once you pay your debt then your obligation comes to an end. 

So, should climate finance be reframed as a time-bound transfer from industrialised to developing countries and therefore be treated as a finite resource?  If it were, it would have a significant effect on the current debate. 

First, it would have an impact on the sort of institutions being planned to manage the international transfers of climate finance, most notably the Global Climate Fund.  In its design, which is now the responsibility of the transitional committee, arrangements could be made to ensure the temporary nature of this institution and guarantee that it does not become a permanent addition to the already crowded space of international organisations.

But perhaps more importantly, it would make people think harder as to what the vision for climate finance should be.  What is this funding trying to achieve and how best can it meet its objective?  These questions bring us back to the ODI/Oxfam joint event in Bonn. 

What appears to be happening in many developing countries is a ‘business as usual’ approach to the way that international support is provided for climate change actions.  Most activity is focused on the ‘here and now’.  This is both short-sighted and potentially damaging.   What I proposed in Bonn is that first of all a vision for climate finance needs to be determined. Central to such a vision is the national budget: in future, the national budget should incorporate all external and domestic revenues (including climate finance), with allocation coming under strong policy direction. This will require quality assurance and oversight mechanisms for all climate change programming and an institutional architecture supporting climate change programming that is integrated into appropriate sectors.

If such a vision for climate finance was determined now what might the result be? Or, to put it another way, by working towards such a vision what would the situation look like in developing countries by, say, 2020? As a contribution to the debate, here are eight outcomes associated with climate finance delivery that we could expect to see by 2020 in developing countries:

  1. Direct access to international climate finance will have been established, with the appropriate national institutional requirements in place that demonstrate the necessary financial integrity, institutional capacity, transparency and self-investigative powers.
  2. Governments will have prepared a pipeline of investment projects for international funding and encouraged pooled funding through joint funding arrangements.
  3. Development partners (who will likely still be active in at least some countries) will have been dissuaded from developing their own projects and programmes on climate change.
  4. Acknowledging the centrality of the national budget, all ‘off-budget’ external support for climate change activities involving government agencies will have ceased.
  5. An internationally recognised performance-based system will be in place, with strong Monitoring, Reporting and Verification (MRV) for all climate finance investments.
  6. Strong engagement of the private sector will have been secured to complement public funding with private investment.
  7. A specific urban strategy to secure climate resilience among the growing urban population will have been developed, recognising the urbanisation now taking place in many developing countries.
  8. The mandate of climate change public institutions will have been clarified with a clear separation according to function, recognising:
    • the policy formulation role (being Ministry-led)
    • the regulatory role (Departmental-led)
    • the service provision role (which will require determining the appropriate balance between public and private actors), and
    • the potential for national revenue collection (involving taxation policy).

If the international public component of climate finance were to be treated as a finite resource there would be strong demand to ensure that all of the actions required to achieve these eight outcomes are conducted in the most efficient, effective and equitable way possible.  The message is clear: by moving current thinking beyond treating climate finance as an indefinite, open-ended commitment, many of the mistakes made with development finance over the years might be avoided.