Climate Finance

1. What is Climate Finance?

Climate finance refers in general to funds that are allocated and disbursed for climate programs and projects. These include both public and private funds. Public funds include those from bilateral arrangements (between two countries), multilateral sources (from several governments through multilateral institutions) or from domestic sources (government financing its own programs). Private funds come mostly in the form of investments.
In the context of the international climate negotiations, climate finance has a more precise meaning. Under the United Nations Framework Convention on Climate Change Climate or UNFCCC — a legally binding treaty adopted by 195 Parties (nations) and entered into force on March21, 1994 — developed country Parties are committed to provide finance to cover the “full incremental costs” incurred by developing country Parties in implementing climate adaptation and mitigation measures (Article IV paragraphs 3 and 4).

This provision is based on the principle of common but differentiated responsibilities (CBDR) and historical responsibility.

For the climate justice movement – Climate Finance should be considered part of the reparations for climate debt, the debt that is owed by those most responsible for climate change towards those who are least responsible and yet suffer its greatest impacts.

UNFCCC Article IV Commitments
Paragraph 3Paragraph 4
3. The developed country Parties and other developed Parties included in Annex II shall provide new and additional financial resources to meet the agreed full costs incurred by developing country Parties in complying with their obligations under Article 12, paragraph 1. They shall also provide such financial resources, including for the transfer of technology, needed by the developing country Parties to meet the agreed full incremental costs of implementing measures that are covered by paragraph 1 of this Article and that are agreed between a developing country Party and the international entity or entities referred to in Article 11 (On Financial Mechanism), in accordance with that Article. The implementation of these commitments shall take into account the need for adequacy and predictability in the flow of funds and the importance of appropriate burden sharing among the developed country Parties. [Note: Mitigation by Developing Countries]
4. The developed country Parties and other developed Parties included in Annex II shall also assist the developing country Parties that are particularly vulnerable to the adverse effects of climate change in meeting costs of adaptation to those adverse effects.
2.Where is Climate Finance supposed to come from?

Based on the UN Framework Convention on Climate Change as well as based on the concept of climate debt – the delivery of climate finance is the commitment and obligation of the governments of developed countries, or the rich industrialized countries.
The climate justice movement further asserts that the governments of rich, industrialized countries have the responsibility to ensure that these funds come from those responsible for the excessive greenhouse gas emissions — corporations, the elites, other complicit institutions including the state – and should not be at the expense of the impoverished and marginalized people in their own countries.

3. What is the purpose of Climate Finance?

The UN framework Convention on Climate Change makes it clear that Climate Finance is meant to cover the full costs of adaptation and mitigation measures of developing countries.

Adaptation. Loss and Damage

“Adaptation refers to adjustments in ecological, social, or economic systems in response to actual or expected climatic stimuli and their effects or impacts. It refers to changes in processes, practices, and structures to moderate potential damages or to benefit from opportunities associated with climate change.” (UNFCCC Website)

In plain words – adaptation refers to policies, programs and measures to enable peoples, communities and societies to deal with the impacts and effects of climate change. These impacts and effects include relatively slow onset impacts as well as more dramatic effects of increasing frequency and magnitude of extreme weather events

Currently, climate justice movements and governments of developing countries are also asserting that this means climate finance should also cover the costs incurred from dealing with Loss and Damage from climate change impacts.

Mitigation

Mitigation refers to policies, programs and measures aimed at “reducing GHG emissions and enhancing sinks and reservoirs” (UNFCCC Website).

UNFCCC Article 12 COMMUNICATION OF INFORMATION RELATED TO IMPLEMENTATION
1
. In accordance with Article 4, paragraph 1, each Party shall communicate to the Conference of the Parties, through the secretariat, the following elements of information:

  • (a) A national inventory of anthropogenic emissions by sources and removals by sinks of all greenhouse gases not controlled by the Montreal Protocol, to the extent its capacities permit, using comparable methodologies to be promoted and agreed upon by the Conference of the Parties;
  • (b) A general description of steps taken or envisaged by the Party to implement the Convention; and
  • (c) Any other information that the Party considers relevant to the achievement of the objective of the Convention and suitable for inclusion in its communication, including, if feasible, material relevant for calculations of global emission trends.

Scientific studies show that the immediate cause of Climate Change is the historical and cumulative excessive greenhouse gas emissions of developed countries or rich, industrialized countries – which have reached way beyond their fair share of the earth’s carrying capacity. Thus it is their obligation and commitment (legally binding under the Climate Convention) to undertake immediate, drastic measures to reduce their greenhouse gas emissions.

While developing countries have not yet exceeded their fair share, many emitting only a fraction of their fair share, it is vital that they shift to sustainable development pathways and contribute to the global effort to reduce greenhouse gas emissions.

Under the Climate Convention, it is the obligation of governments of developed countries to provide climate finance to cover the costs of mitigation measures of developing countries. These measures are outlined in Article 12 paragraph 1 of the UN Framework Convention on Climate Change.

4.What kind of funds should climate finance be and how should these be delivered?

Article IV paragraph 3 of the Climate Convention (or the UNFCCC) refers to “new, additional financial resources,” the “adequacy and predictability of the flow of funds,” and the “importance of appropriate burden sharing of developed country Parties.”

These provisions mean that Climate Finance should be new and additional to other standing financial commitments of developed country governments to developing countries such as official development assistance or ODA. Further, these provisions also mean that the funds should adequately provide for the full costs of adaptation and mitigation needs of developing countries, and be delivered in a predictable and not arbitrary and discretionary manner.

As climate finance is an obligation of developed countries – it also means that climate finance should not be in the form of loans that have to be paid back, nor in the form of investments that expect returns and can be withdrawn by the investors.

Climate justice movements and many developing country governments also assert that climate finance should not come with conditionalities that infringe on the sovereignty and self determination of the peoples of developing countries.

UNFCCC Article IV COMMITMENTS

7. The extent to which developing country Parties will effectively implement their commitments under the Convention will depend on the effective implementation by developed country Parties of their commitments under the Convention related to financial resources and transfer of technology and will take fully into account that economic and social development and poverty eradication are the first and overriding priorities of the developing country Parties.

8. In the implementation of the commitments in this Article, the Parties shall give full consideration to what actions are necessary under the Convention, including actions related to funding, insurance and the transfer of technology, to meet the specific needs and concerns of developing country Parties arising from the adverse effects of climate change and/or the impact of the implementation of response measures, especially on:

(a) Small island countries;
(b) Countries with low-lying coastal areas;
(c) Countries with arid and semi-arid areas, forested areas and areas liable to forest decay;
(d) Countries with areas prone to natural disasters;
(e) Countries with areas liable to drought and desertification;
(f) Countries with areas of high urban atmospheric pollution;
(g) Countries with areas with fragile ecosystems, including mountainous ecosystems;
(h) Countries whose economies are highly dependent on income generated from the production, processing and export, and/or on consumption of fossil fuels and associated energy-intensive products; and
(i) Land-locked and transit countries.

Further, the Conference of the Parties may take actions, as appropriate, with respect to this paragraph.

9. The Parties shall take full account of the specific needs and special situations of the least developed countries in their actions with regard to funding and transfer of technology.

10. The Parties shall, in accordance with Article 10, take into consideration in the implementation of the commitments of the Convention the situation of Parties, particularly developing country Parties, with economies that are vulnerable to the adverse effects of the implementation of measures to respond to climate change. This applies notably to Parties with economies that are highly dependent on income generated from the production, processing and export, and/or consumption of fossil fuels and associated energy-intensive products and/or the use of fossil fuels for which such Parties have serious difficulties in switching to alternatives.

5. What are the Funding Mechanisms under the UNFCCC?
The Green Climate Fund

The Climate Convention includes provisions for a financial mechanism (Article 11) to ensure the delivery of Climate Finance. In 2010, The Conference of Parties (COP16) of the UNFCCC agreed to establish the Green Climate Fund which will serve as the operating entity of the financial mechanism of the UNFCCC. Subsequently in 2011, the Conference of Parties adopted the Governing Instrument for the Green Climate Fund — the set of policies for the design, structure and establishment of this Fund.

The first meeting of the Board of the Green Climate Fund was held in August 2012.

(For further information please refer to the Q & A Primer on the Green Climate Fund)

Other Funding Mechanisms under the UNFCCC

In a decision at its first session held in March 1995, the Conference of Parties agreed that the Global Environment Facility shall serve on an interim basis as the international entity entrusted with the operation of the financial mechanism. The GEF continues to operate but is no longer the main operating entity of the financial mechanism of the UNFCC.

The Special Climate Change Fund (SCCF) was established under the Convention in 2001 to complement other funding mechanisms for the implementation of the Convention. The Least Developed Countries Fund (LDCF) was established to support a work programme to assist Least Developed Country Parties (LDCs) for the preparation and implementation of national adaptation programmes of action. These two funds are managed by the GEF.

The Adaptation Fund was established to finance adaptation projects and programmes in developing country Parties to the Kyoto Protocol. It is financed from a 2% share of proceeds on the clean development mechanism (CDM) project activities and other sources of funding. The Adaptation Fund is supervised and managed by the Adaptation Fund Board (AFB).

6. What is the scale of Climate Finance needed?

Adaptation — Estimates of the costs of adaptation, loss and damage that developing countries face from climate change range from $100 billion to US$400 billion a year. Scientists say it is hard to project the full extent and requirements of adaptation thus these estimates are much lower than what would actually be needed.

Mitigation — the cost of shifting to renewable energy and pursuing sustainable development will require even more, with estimates of approximately $600 billion a year over the next decade.

7. What is the current status of the delivery of Climate Finance under the UNFCCC?<h/6>
Fast-Start Finance

At the Conference of the Parties (COP15) held in December 2009 in Copenhagen developed countries pledged to provide climate finance for developing countries in the amount of US$ 30 billion for the period 2010 – 2012, with balanced allocation between mitigation and adaptation. This collective commitment was called “Fast-start Finance” (FSF). The delivery of funds under this commitment was not meant to be through the Green Climate Fund which had not yet been established during most of this period (the first Board Meeting of the GCF took place only in August 2012).

It is clear that US$30 billion is nowhere near the levels needed by developing countries.

As of end 2012, according to reports of developed countries, a total of US$ 33 billion was already delivered, exceeding their original pledge of US$ 30 billion. The critical questions are whether the funds were new and additional, whether all the funds can be appropriately considered Climate Finance, and whether there was a balanced allocation between mitigation and adaptation.

Complete studies and assessments of the US$33 billion are still being undertaken and has been challenging because of difficulty in getting precise and detailed information but according to several studies of civil society groups and experts monitoring the FSF:
• A large portion of the funds are not new and additional. Funds that were previously being given as ODA or development finance were simply re-classified as climate finance. Funds that were pledged for climate programs prior to 2010 (and thus not new and additional) were also being counted.
• The US and Japan included a large share of export credits and development finance in their “FSF” disbursements
• Most of the funds were directed at mitigation.

Long Term Finance

In December 2010, at the Conference of the Parties (COP16) held in Cancun, developed countries developed countries “committed to a goal of mobilizing jointly US$ 100 billion per year by 2020 to address the needs of developing countries.”

To-date, there is no clarity if this commitment means they will aim to deliver the climate finance starting the year 2020 with a goal of US$100 per year onwards or if they will be aiming to deliver climate finance annually after the FSF ends in 2012 and increase their pledges until they reach US$100 by the year 2020 and maintain it at that level onwards. Probably the former as there has been no actual delivery of funds yet in 2013 based on this commitment. In either case, this is still falling far short of the climate finance needed by developing countries for both adaptation and mitigation.

8. What is the UNFCCC Work Program on Long Term Finance and the upcoming meeting here in the Philippines on July 16 and 17?

At its 17th session in December 2011 in Durban, the Conference of Parties (COP) of the UNFCCC decided to undertake a “work programme on long-term finance” with the aim of contributing to the on-going efforts to scale up the mobilization of climate finance after 2012. At its 18th session in December 2012 in Doha, the COP decided to extend the work programme for one more year until the end of 2013.

There are two co-Chairs of the “Extended Work Programme on Long-term Finance” – one from developed countries and one from developing countries. The co-Chairs are Commissioner Yeb Sano of the Philippines and Mark Storey of Sweden.

The co-Chairs are convening the “First Meeting of Experts on Long-Term Finance” on July 16 and17. This meeting will be held in the Philippines, in Makati City. The meeting will “discuss the parameters of pathways for mobilizing scaled-up climate finance and examine enabling environments and policy frameworks in the context of mobilization and effective deployment of climate finance.”

9. What are the key issues in the Long Term Finance discussions?

There are of course the obvious issues of the ambiguity and inadequacy of the targeted “US$100 billion per year by 2020” and the lack of commitment for 2013 and the succeeding years before 2020 – contrary to the obligations of developed countries towards developing countries as specified in the Climate Convention.

In addition, the governments of developed countries have been insisting that the bulk of climate finance will have to come from the private sector and that public finance should be used to leverage private finance for climate. This means that much of climate finance flows will be coming in as private investments with expectations of returns on their investments. Again this contradicts the principle and purpose of climate finance as specified by the UN Framework Convention on Climate Change, and the principle of reparations for climate debt consistent with the demands of climate justice.