A man pushes his hand cart loaded with cooking gas cylinders through a flooded street during heavy rains in Mumbai. (AP Photo/ Rafiq Maqbool)
Climate finance is one of the four goals of the United Kingdom’s COP26 presidency, and is a key determinant of success for COP26 in Glasgow this week. Unfortunately, despite the last minute commitments from a few developed countries, the United States, Germany and Canada, the total pledges are currently $10 billion short of the target $100 billion by 2020.
The UN Climate Change Secretariat released a roadmap on October 25, Climate Action Pathway For Finance which shows that developed countries will be able to meet the $100 billion goal no earlier than 2023.
Unless, more countries step up in next few days, and increase their contributions drastically, like they need to decrease their emissions for Net-Zero goal, COP26 will have done nothing to avert the climate crisis.
Under the 2009 Copenhagen Accord (COP15) developed countries with high greenhouse gas emissions, committed to jointly mobilise $100 billion a year by 2020 for climate action in developing countries. The $100bn commitments were reiterated at COP16 in Cancun in 2010, and at COP21 in Paris in 2015, where it was agreed to extend the commitment to provide $100 billion beyond 2020 through 2025.
It is important to keep in mind that the $100-billion pledge is minuscule compared to trillions of dollars urgently required each year by developing and climate-vulnerable countries to constantly adapt with the incessant climate impacts and also to meet the 2015 Paris agreement goal of restricting global warming to ‘well below’ 2°C, if not 1.5 °C, above pre-industrial temperatures.
Climate finance from both public and private sources is provided through loans, guarantees, export credits, bilateral funding, and funding from donor governments via multilateral bodies. These bodies can be funds such as the Green Climate Fund, created specifically for the purpose, or more general ones, for example the Asian Development Fund or the World Bank. Most climate finance to date has been provided for mitigation rather than adaption.
The lack of an agreed clear definition of ‘climate finance’ has caused difficulties in assessing progress toward the $100 billion goal, but even then it is increasingly clear that the existing target has been missed. In 2019, the most recent year for which data is available, around $79.6 billion was raised in climate finance.
Almost three-quarters (71 percent) of climate finance provided by developed countries has come in the form of loans paid through multilateral development banks (MDBs), according to the OECD, which found that finance paid as direct grants from donor countries made up just 27 percent of the total.
Around $24 billion — the equivalent of half the loans provided — were not concessional loans with below-market rates, according to Oxfam. It calculated that the ‘grant equivalent’ — the true value of the loans once repayments and interest were deducted — was less than half of the amount reported.
Oxfam estimates, based on the current pledges and plans, that wealthy governments will reach only $93-95 billion per year by 2025, leaving climate-vulnerable countries out of pocket a total of $68-75 billion between 2020 and 2025.
At COP26, negotiations will also begin on a new finance regime through to 2025, when a new finance goal is mandated to come into effect by the Paris Agreement. The V20 group of climate-vulnerable countries has called for a floor of $500 billion over a five-year period, implying a higher sum in the final years to balance prior shortfalls, and annually average more than $100billion.
These demands are based on real-time impacts, and in absences of ambitious emission cuts to avert runaway Climate Change, finance to cope with the worst of its impact is being seen as the deal-breaker by developing countries. For developed world the challenge is that the pandemic and its economic effects have put an emphasis on spending in areas such as public health, making the mid-to-long-term prospects of climate finance uncertain.
The solution may be as simple as ensuring that private finance is spent on projects that address the problems of Climate Change; unfortunately there aren’t enough incentives for investing in sustainability. Research has shown the most effective way to address Climate Change is to take investment dollars away from companies that harm our planet, for e.g. taking away $5.9 trillion from the subsidies to fossil fuels, and redirecting them to companies that actively promote adaptation and disaster risk reduction. Unfortunately, the Paris Agreement does little to encourage such redirection of funds.
Shailendra Yashwant is a senior advisor to Climate Action Network South Asia (CANSA). Twitter: @shaibaba. Views are personal and do not represent the stand of this publication.