After Lima, clarity on climate finance remains elusive

Smita Nakhooda
19 December 2014
Comment
Despite a strong start, buoyed by record pledges of over $9 billion to the Green Climate Fund (GCF), long term finance to help developing countries respond to climate change proved hugely contentious and difficult at this month’s climate talks in Lima.

First, the good news on climate finance

The mood at the Climate Finance Ministerial was undeniably positive, with new pledges to the GCF and Adaptation Fund announced (though in fact, these commitments were on the same scale as those announced at last year’s climate conference in Warsaw.)

After trying to block any discussion of climate at the G20 last month, a surprising announcement of $165 million for the GCF from Australia (AUS$ 200 million) sent a strong signal that even the most uncooperative may be coming around.

Later in the week, Colombia and Peru joined the list of developing countries (including Mexico, Korea, Indonesia, Panama and Mongolia) that had contributed. China announced that it would double support for South-South cooperation on climate change – noting that contributions from developing states are not a substitute for action from wealthier countries.

These pledges are the result of concerted efforts over the past year to operationalise the GCF, and efforts to persuade political masters in places like Paris, London and Washington DC that the Fund (and the global effort to respond to climate change) is worth investing in. The Peruvian Presidency also made strong efforts to prepare key parties to come to the talks with concrete commitments to report. 

But we need more clarity

While the GCF may have become the largest multilateral climate fund in the world, clarity on how developed countries will increase finance remained elusive.

The text that was finally agreed in Lima urges wealthier countries to ‘provide and mobilise’ more money for mitigation and adaptation in the poorest and most vulnerable countries. It also includes five pages on finance options, from the balance of public and private flows to the share that will be channelled through mechanisms of the climate convention.

However these options pull in many different directions. A clear decision on finance at the Paris climate conference in December 2015 – one that helps developing countries do more and helps green global investment – remains some way off.

What counts as ‘climate finance’?

For those of us who try to monitor and track these processes, the lack of a definition of what ’counts’ as climate finance has been problematic.

The first Biennial Assessment (BA) of climate finance shows that if we just count all public and private climate-related investment underway in developing countries, then estimates exceed $100 billion. Finance delivered to meet commitments under the climate convention, however, is supposed to help developing countries do more: to scale up investment in low carbon and climate resilient development, and direct investment away from ‘business as usual’. Without a clear definition (or good reporting), countries may count programmes whose emission reduction is debatable.

Debates in the media last week over Japan’s inclusion of finance for a coal plant in Indonesia (see our review) made it clear that this is not just a technical issue. What we count as climate finance fundamentally affects what kinds of outcomes we can expect.

While the BA highlights areas of convergence in defining climate finance, much more can be done.  In Lima, the parties agreed the Subsidiary Body for Scientific and Technological Advice (SBSTA) would compile a technical report, informed by the BA, and invites the Standing Committee on Finance to recommend ways to strengthen measurement, reporting and verification of finance.

We need to know what works

Lima made it clear that we need to understand the impact and effectiveness of climate finance. The BA showed that while investment is significant, there is an urgent need to scale up. Climate finance needs to harness wider flows of investment from public and private sources, and help green global investment flows, including reducing subsidies for fossil fuel exploration.

Ultimately, good stories about what works are essential if developed country negotiators are to make the case for increased spending by cash-strapped capitals. As our recent review of the effectiveness of climate funds concluded, climate finance is making a difference but more can be done to increase impact.

Scaled-up public finance should take more risk, support innovation, and better engage with national stakeholders to address national needs, policies and governance. Increased public finance can play a vital role in helping countries take the bolder steps needed to address climate change, and confront some of the trade-offs it implies for their future.

Smita Nakhooda