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Climate finance matters for COP 26


Climate finance matters for COP 26

Climate finance matters for COP 26

At the Conference of Parties held in Copenhagen in 2009 (COP 15), 23 developed countries pledged to commit a total of US$100 billion per year to finance measures to deal with climate change in poorer nations. Going into COP 26 this year, less-developed countries are concerned that this goal has not been met once in the preceding twelve years and their disillusionment could prove to be both a hurdle to the seriousness of their future climate commitments and a distraction at the conference.

US$100 billion is, after all, a relatively modest sum of money in international affairs. It is approximately equal to one-tenth of one percent of global GDP and is dwarfed by the US$1.9 trillion, projected by the International Energy Association to be spent in the international energy ecosystem in 2021. Most of this is happening in developed countries and is made up of domestic public and private expenditure.

The promised climate finance assistance is notably smaller even than the sums spent globally to subsidise the production or consumption of fossil fuels in 2019 – US$178 billion in 2019, according to the OECD. It appears even more trivial next to the United Nations International Panel on Climate Change (UNIPCC) consensus estimate that it will require investments of US$2.4 trillion per year into the energy ecosystem, through to 2035, to keep the increase in global temperatures below the benchmark 1.5°C.

As tends to happen at high-profile events, the US$100 billion pledge at COP 15 was a rather casual promise made for symbolic rather than practical reasons. Developed countries have passed through a carbon-intensive industrial stage of development. Their industrialisation generated significant carbon emissions and the results are ‘baked into’ the problem now, and yet it is precisely these countries which are telling the rest that they cannot follow the same development trajectory. The optics are bad and the US$100 billion promise was thus a combination of compensation and incentive.

But nothing below the attention-grabbing headline was thought through at the time. No formula detailing how much each developed country should pledge was even discussed. Was it to be determined by economic size, GDP per capita, past carbon intensity or something else? Was it to be for mitigation (especially installing renewable energy plant) or adaptation and how is the term ‘adaptation’ to be defined (does it include conservation?). Perhaps it should be used to provide compensation for extreme weather events which affect poor countries? But how would this be distinguished from ‘ordinary’ disaster assistance? Was it to be grant finance or concessional loans or something else like ‘green’ bonds?

These are all issues which need to be resolved if the climate finance pledge is to be taken seriously. The highest annual sum raised was US$79.6 billion in 2019, according to the OECD. While the climate-change sceptical Trump administration gets a lot of the blame for the shortfall, the UK’s Overseas Development Institute calculates that only Germany, Sweden and Norway are pulling their weight.

Methods for calculating climate finance contributions are disputed. Oxfam has a point when it argues that only grants and the concessional component of ‘soft’ loans should be included. Private finance should be excluded entirely from the calculation, they argue. Using this much more focussed methodology, Oxfam calculates that public finance climate flows were only US$16-21 billion in 2015/16. The OECD’s figure for the same period, using a much more generous calculus, was three times that figure, nearly US$60 billion.

Further issues arise in the distribution of climate finance. First there is the issue of which countries are eligible. Should the assistance be channelled exclusively to the poorest and most vulnerable countries like Pacific and Caribbean island-nations threatened by rising sea levels and extreme climate events? Or should it help reduce carbon emissions in larger middle-income countries like India, Brazil and South Africa? The impact would arguably be greatest if it focussed on the latter (the world’s third, eleventh and fourteenth highest carbon emitters) but the need is probably greater on small islands and poor, tropical low-lying coastal nations.

Into the mix has to added the complications that arise in all too many cases of development aid. Wastage and maladministration are known to account a sizeable chunk of what is freely given by developed world actors, NGOs and charities as well as states. The costs of administration and consultants have been known to exceed the value of the projects on the ground.

Earlier this year, the International Institute for Environment and Development in London reported that it has tracked funding for adaption projects in the world’s 46 least developed countries and was able to account for less than 20 percent (US$5.9 billion) of the sums donated. Of course, ‘adaption’ is a notoriously ill-defined concept and includes not only building dykes and sea walls but government functions like putting in place administrative procedures and emergency plans for floods, droughts and everything in between.

Tracking mitigation spend – which involves things like actually building renewable energy units or electrifying transport systems – might have yielded better results. Donor countries show a marked preference for funding mitigation rather than adaption and private finance is on-board for the capital projects required. Adaption appears to offer few such private funding opportunities.

Many of the politicians who rather glibly promised financial aid at COP 15 are no longer around but they have left their successors a problem which needs to be dealt with. It may be possible to deliver the promised US$100 billion in 2022, especially now that the US is back on board. The Biden administration does however have issues getting finance bills through Congress. One big problem is that trust has already been sacrificed and the rich/poor nation division over Covid-19 vaccinations has hardly improved matters.

The other problem is the breadth of the climate agenda. As the sheer range of issues around the purpose of US$100 billion pledge illustrates, it may well be overloaded beyond the capacity of any Conference of Parties. These sorts of events work best where the hard issues have been thrashed out by the technocrats beforehand, leaving the event to present itself as a symbol of united purpose. This hasn’t happened and further promises of climate aid are more likely to catalyse disagreement than to bring nations together.

About the Author(s)

David Christianson

David Christianson

David Christianson is a consultant. He has previously been a political scientist, NGO researcher and development banker. He entered business journalism in 1997 and was Diageo African Business Writer of the Year in 2006.

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