Demystifying developed world’s climate financing
OECD must come clean on the way it finances climate projects in developing nations and make good the shortfall.
As the world community gets ready to host the 26th Conference of the Parties of the UN Framework Convention on Climate Change (UNFCCC), media is awash with reports that the developed countries are close to fulfilling their commitment to contribute $100 billion annually in climate finance to developing countries by 2025. This is about five years late as the originally agreed year was 2020. The Organization of Economic Co-operation and Development (OECD) has nearly endorsed the claim by disclosing that the developed world’s climate finance contribution had touched $78.5 billion in 2018.
Claims stand on flimsy grounds
These claims are misleading. First, the OECD figure includes private finance and export credits. This is in sharp contrast to the earlier agreement that the developed countries would give the money from public sources as grants or as loans bearing low rates of interest. Interestingly, the OECD report clearly states that the public finance component amounted to only $62.2 billion in 2018, with bilateral funding of about $32.7 billion and $29.2 billion through multilateral institutions. The final figure comes by adding loans and grants. Of the public finance component, loans comprise 74%, while grants make up only 20%. The report is silent on how much of the total loan component of $46.3 billion is concessional. From 2016 to 2018, 20% of bilateral loans, 76% of loans provided by multilateral development banks and 46% of loans provided by multilateral climate funds were non-concessional. Between 2013 and 2018, the share of loans has continued to rise, while the share of grants decreased. Needless to state that low-income countries would find the burden too heavy to bear.
The OECD reports include funds for development projects such as health and education that have only a distant relation with climate action. The Oxfam report paints a different picture about the real extent of OECD’s climate financing. Oxfam estimates that in 2017-18, out of an average of $59.5 billion of public climate finance reported by developed countries, the climate-specific net assistance ranged only between $19 and $22.5 billion per year.
The recipient developing countries have also corroborated the Oxfam position in their Biennial Reports submitted to the UNFCCC.
Promises not kept
U.S. President Joe Biden recently announced that his country will double its climate finance by 2024. The obvious hint was to proclaim America as the leader in international climate finance. Since the pledge of enhanced financing is yet to get the U.S. Congress nod, President Biden’s assertion looks a bit premature. In the past there have been many instances where the U.S. has not quite lived up to its commitments. The U.S. had promised $3 billion to the Green Climate Fund (GCF) under President Barack Obama, but delivered only $1 billion. The next President, Donald Trump pruned U.S. financial backing of the GCF. Mr. Biden initially was somewhat hesitant. He promised only $1.2 billion to the GCF, which didn’t even cover the backlog of earlier commitments..
John Kerry, Special Presidential Envoy for Climate Change, recently said in Delhi that all future funds from the U.S. will have to come from private sector initiatives. News are doing the rounds that a few trillion dollars of private investment are on the anvil. Mr. Kerry said that public money from the U.S. will be utilized to underwrite the risks of private sector investments. In a nutshell, only commercially profitable projects will be eligible for such private sector funds. Projects that are socially desirable for the developing nations will not be considered for financing. Regrettably, it’s the small developing nations who will have to find money for the commercially unviable green projects.
Mitigation and Adaptation are the two ways in which humans can adjust to the climate change that has already occurred. Experts have argued that there should be a balance between the two methods. However, it is seen that climate finance flows more easily towards ‘mitigation’ projects. ‘Adaptation’ projects don’t get as much. The 2016 Adaptation Gap Report of the UN Environment Programme had noted that the annual costs of adaptation in developing countries could range from $140 to $300 billion annually by 2030 and rise to $500 billion by 2050. Currently available adaptation finance is well short of the amount really needed as expressed in the Nationally Determined Contributions submitted by developing countries.
Delivering on climate finance needs a convergence of purpose and priorities in the world community. Sadly, such cohesion is lacking now. The developing countries will, therefore, have to campaign jointly to impress upon the rich nations to loosen their purse strings.
Mitigation and Adaptation
Because we are already committed to some level of climate change, responding to climate change involves a two-pronged approach:
1. Reducing emissions of and stabilizing the levels of heat-trapping greenhouse gases in the atmosphere (“mitigation”);
2. Adapting to the climate change already in the pipeline (“adaptation”).
Mitigation – reducing climate change – involves reducing the flow of heat-trapping greenhouse gases into the atmosphere, either by reducing sources of these gases (for example, the burning of fossil fuels for electricity, heat or transport) or enhancing the “sinks” that accumulate and store these gases (such as the oceans, forests and soil). The goal of mitigation is to avoid significant human interference with the climate system, and “stabilize greenhouse gas levels in a timeframe sufficient to allow ecosystems to adapt naturally to climate change, ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner” (from the 2014 report on Mitigation of Climate Change from the United Nations Intergovernmental Panel on Climate Change, page 4).
Adaptation – adapting to life in a changing climate – involves adjusting to actual or expected future climate. The goal is to reduce our vulnerability to the harmful effects of climate change (like sea-level encroachment, more intense extreme weather events or food insecurity). It also encompasses making the most of any potential beneficial opportunities associated with climate change (for example, longer growing seasons or increased yields in some regions).