Financing the new Climate deal

Published on: August 20, 2015

Filed Under: Analysis, Draft Text

Setting up a global regime to mitigate anthropogenic climate change and adapt to its impacts will cost a lot of money. Generally speaking, richer nations will have to provide funding for poorer nations. Section F, Finance, covers how Parties plan to achieve this.

The UNFCCC has already established a Financial Mechanism, which operates through multiple entities, including the Green Climate Fund (GCF), the Special Climate Change Fund (SCCF), the Least Developed Countries Fund (LDCF). This Mechanism is accountable to the COP, which decides on its climate change policies, programme priorities and eligibility criteria for funding. Its operation is partly entrusted to the Global Environment Facility (GEF). The Parties have also established a Standing Committee on Finance to assist the COP in exercising its functions in relation to the Financial Mechanism of the Convention. At COP 16 in Cancun, industrialized countries committed to provide funds to the amount of 100 billion USD per year by 2020, so as to support concrete mitigation actions by developing countries that are implemented in a transparent way. These funds would be raised from a mix of public and private sources.

Generally speaking, Section F contains propositions on how to develop and enhance these operating mechanisms to serve the purpose of the new Climate Treaty.

So what does the draft Paris text propose?

Section F contains two alternative section options. The first covers guiding principles, how to anchor the institutions to the legal agreement, the sources of finance and contributions, the scale of resources, and proposals for monitoring, verification and reporting. The second option is a shorter version, with alernative wording. Like the rest of this draft text, there are many options within these options; some of which repeat and overlap with each other. In contrast to other sections however, the different options are enormously divergent. Section F appears to represent a lot of broadly similar suggestions which have not yet been streamlined. This article will attempt to streamline them into key options.

Generally speaking, the idea is for nations to mobilize climate finance through a ‘diversity of actions’ and ‘variety of sources’ as a means to fulfil the texts ultimate objectives, with a view to the core principle of common but differentiated responsibilities. This will be by creating new institutions and strengthening old ones. Parties have emphasised that finance should be balanced between mitigation and adaptation measures.

Developing nations want the developed nations to provide finances; whereas developed nations have suggested extending the threshold to “all parties in the Position to do so”, considering evolving capabilities. South-south cooperation is encouraged but it will be supplementary to the commitments made. How to draw the line between how ‘developed’ and ‘developing’ nations are defined is yet to be resolved.  There are suggestions of sticking with the UNFCCC annexes, or to create new ones. The governing body (ie the COP) will be required to create “objective criteria to define which Parties are in a position to provide support”, perhaps in future negotiations subsequent to COP 21.

Financial support is to be ‘new, adequate, and predictable’ and all investments are to progressively become low-emission over the long term (ie discouraging investment in fossil fuels). It is acknowledged that funding will be required for the technology transfer and capacity building regimes (which are covered in the following two sections).

One of the key tasks identified is strengthening the GCF through predictable resources and regular replenishments. The GCF is currently well below its current target, and there is little indication of countries reaching it by 2020. So while some Parties have suggested increasing the goal to 200 billion USD per year by 2030, simply getting to 100 billion (by 2020) is going to be a big issue to resolve at Paris.

The development of “a clear road map with targets for public funding from developed countries and progressively scaled up finance” is suggested in the draft, but there are no specific details. Some Parties have suggested that developed countries provide 1 percent of their GDP per year, or instead a proportional amount based on their GDP. While Parties generally acknowledge that funding will come primarily from public sources, there are also provisions to leverage the private sector, and to encourage the International Civil Aviation Organisation and the International maritime organisation (which account for 3% of global emissions) to support the fund.

Once it is collected, allocating this financial support will be done through the Mechanisms and “a periodic process for assessing the needs of developing countries.” Some parties have suggested maximizing and incentivizing ambitious mitigation actions by including payments based on verified results or an ex ante process.

Increased transparency has also been requested, by setting up monitoring, recipient reporting and verification (MRV) systems, so that donor countries account for their contributions. Transparency is a crucial part of the entire agreement and is also covered in a subsequent section.

Section F also references Reducing Emissions from Deforestation and Forest Degradation (REDD+), other market based solutions (i.e. carbon markets), as well as mechanisms that were established in the Kyoto Protocol. These will continue to play a part in the Paris agreement.

Conclusion

Finance is an odd section. It is long and unwieldy, but most of the options provided are broadly similar in shape: Developed nations will fund developing nations in order to create an effective mitigation regime, with an annual contribution of 100 billion USD per year from 2020 (the year the Agreement comes into force). The finance flows will be transparent and managed largely by existing UN institutions. Points of difference are in the specifics: Where to draw the line between developing nations, exactly how to technically implement MRV regimes, the criteria for allocation of funds to developing nations, etc. The elephant in the room is where exactly the 100 billion dollars per year is going to come from. It is all very well for nations to say they will provide an amount, but the entire agreement will fall over if Parties do not actually follow through with actual funding. The finance roadmap will thus be a very important part of the Paris negotiations.

Simon Hillier | Image by Lawrence OP

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