Behind the climate finance headlines

Today some of the largest emitters of greenhouse gas in the world are the developing countries.

Developed countries report that they delivered more than 33 billion dollars in Fast Start Finance (known as FSF), beyond the pledges they made at COP 15 in Copenhagen in 2009. Recent analysis suggests that the funding delivered may have exceeded 38 billion dollars. But that is not the whole story.

The story behind the headline lies in how this money has been allocated. What has it supported, and how much of it represents new funding to support the additional challenges that climate change poses for development? My colleagues at ODI in the United Kingdom, the World Resources Institute (WRI) in the United States, the Institute for Global Environmental Strategies (IGES) in Japan, Germanwatch in Germany and Cicero in Norway have analysed our countries’ FSF contributions to try and answer these questions. These countries’ climate finance contributions are among the largest.

In Copenhagen, four years ago, these and other developed countries promised to deliver 30 billion dollars from 2010 to 2012 as Fast Start Finance. This would kick-start the delivery of 100 billion dollars per year by 2020. A substantial share of this finance may flow through the Green Climate Fund, a new mechanism to deliver money to developing countries so they can mitigate and adapt to climate change. Now, what does all this mean in reality?

Positive one

Our first message is a positive one: finance for climate-related activities in developing countries has increased significantly during the FSF period, despite unprecedented economic difficulties and austerity measures in developed countries brought on by the 2008 financial crisis. Indeed, this trend applies to all of the countries we reviewed. The UK, for example, appears to have increased its climate finance four-fold relative to environment-related spending before the FSF period.

A challenge, however, is that countries counted very different forms of finance, resulting in major differences between the scale and objectives of different contributions. A large share of Germany’s 1.6 billion-dollar FSF contribution is directed through its International Climate Initiative, which is indirectly financed through revenues from emission trading.

With the exception of its 615-million-dollar loan contribution to the Climate Investment Fund, Germany counts only grants towards its FSF. By contrast, Japan and the United States include as FSF a large share of export credit and development finance for low-carbon infrastructure. In Japan’s case, some efficient fossil fuel options are also counted.

Besides, countries counted very different forms of finance, resulting in major differences between the scale and objectives of different contributions. While funding has increased, many countries seek FSF “credit” for projects and programmes that they were already supporting prior to the FSF period.

Of the five countries we studied, only Norway has met the international commitment to deliver 0.7 per cent of its gross national income (GNI) as official development assistance (ODA) and can claim that its contribution was additional by this standard during the FSF period (although it has ramped up its domestic ODA commitment to one percent of GNI). Only Germany and Norway have clearly spelled out how they define “new and additional” in their self-reporting on climate finance.

There has been a strong focus on funding activities that can help developing countries reduce greenhouse gas emissions. This includes financing clean electricity from renewable energy, the use of more efficient technologies, and better public transport systems. While they may bear less historical responsibility for climate change, today some of the largest emitters in the world are developing countries.

But the truth is that we are already feeling the impacts of climate change. These impacts will be particularly severe in poor countries. And global efforts to address climate change so far have been inadequate. This reinforces the imperative to support more effective mitigation in all countries where emissions are either high or growing.

During the FSF period countries committed to scale up adaptation finance. Adaptation finance would focus on the developing countries that are most vulnerable to the impacts of climate change, including Least Developed Countries (LDCs), Small Island Developing States (SIDS), and African countries. About 12 per cent of the total FSF contribution of the five countries we studied supported adaptation, with the share from about seven percent in Norway to about 35 percent in the UK and Germany.

In practice, of course, adaptation and mitigation activities may be quite interlinked. Norway for example has prioritised efforts to reduce emissions from deforestation and degradation, particularly in tropical forests, which also has adaptation benefits. Future public support for climate action, however, is highly uncertain. This is a substantial challenge. 

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