Financing the future we want: climate change and the Addis Declaration

Smita Nakhooda
10 July 2015
Comment

Heads of state and finance ministers from around the world will descend on Addis Ababa next week to agree a new approach to financing development. Great strides have been made in reducing poverty since the first Financing for Development Summit in 2002, but much of this has come at great environmental cost.

The challenge for 2015 is to eradicate enduring poverty, while also addressing climate change. There are many opportunities to achieve this goal, as ODI’s ‘10 things to know’ about climate change and financing for development sets out.

The good news is that the draft text recognises unabated climate change will undo hard-won development gains. Sustainability issues are far more central in this third declaration at Addis, compared to either the Monterrey Consensus, or its follow up Doha Declaration, recognising the need to protect ecosystems for all.

But strengthening key elements of the text would increase the likelihood that these sentiments will translate into action.


The three big opportunities to advance climate compatible development at Addis


A first big opportunity lies in infrastructure. As this week’s report from the Commission on the Economy and Climate Change highlights, new infrastructure investments must reduce emissions and increase resilience to climate change. To continue with carbon intensive infrastructure risks accelerating the depletion of the planet’s carbon budget and creating new and costly vulnerabilities to disasters.


The text calls for 'a new forum to bridge the infrastructure finance gap' that brings the World Bank, Regional Development Banks and the New Development Bank and others together, to ensure 'investments are environmentally, socially and economically sustainable'. The first priority for such a forum should be to agree a definition of sustainable infrastructure, and identify measures to scale up low-emission, climate-resilient development (and restrict investment in high-emission approaches without penalising the poor).


A second major opportunity is in addressing fossil fuel subsidies. The text ‘reaffirm[s] the commitment to rationalise ineffi­cient fossil-fuel subsidies that encourage wasteful consumption.’ The measures proposed include restructuring taxation and the phase out of subsidies to reflect environmental impacts, taking specific needs and conditions into account to minimise impacts on the poor.

An element of urgency would strengthen the text, particularly given the pervasive burdens that fossil fuel subsidies place on many developing country economies. Nationally appropriate steps to this end could be detailed in national development strategies, alongside an elaboration of infrastructure financing plans. 

Finally, the text emphasises the need to reach an ambitious agreement on climate action in Paris that is applicable to all parties, while reflecting common yet differentiated responsibilities and capacities to act. The text also ‘urges’ developed countries to deliver on their commitments to mobilise $100 billion a year by 2020 to support developing countries in mitigating and adapting to climate change, and welcomes the initial capitalisation of the Green Climate Fund.

The text could be further strengthened by an explicit reference to meeting these goals, and reiterating the general principle that scaling up climate finance should not be to the detriment of development spending not linked to climate change. A requirement for all development finance to be climate compatible is absent from the text, but this is the position we must move towards if we are to meet our long-term development goals in the face of climate change.


The Addis declaration can set finance for the real economy on the path towards pro-poor and climate safe development, through a clear definition of what constitutes sustainable infrastructure; the phasing out of harmful fossil fuel subsidies in a way that protects the poor; and by scaling up climate finance so that rich and poor countries can work together to meet the global challenge of climate change.

The international community has a historic opportunity at Addis to put climate change centre stage as it considers how to invest in the future we all want.

Smita Nakhooda