Context: In the last few years, climate Justice activists have been campaigning for the world’s economically developed countries to raise their investments in climate adaptation and mitigation, including paying for other countries’ abilities to deal with the effects of climate change
According to the United Nations Framework Convention on Climate Change (UNFCCC) Standing Committee on Finance, climate finance is “finance that aims at reducing emissions and improving greenhouse gas sinks, as well as reducing vulnerability of, and maintaining and increasing the resilience of, human and ecological systems to negative climate change impacts.”
The term has been used in a narrow sense to refer to transfers of public resources from developed to developing countries, considering their UN Climate Convention obligations to provide “new and additional financial resources”, and in a wider sense to refer to all financial flows relating to climate change mitigation and adaptation.
UNFCCC, Kyoto Protocol and Paris Agreement call for financial assistance. In accordance with the principle of “common but differentiated responsibility and respective capabilities” set out in the Convention, developed country Parties are to provide financial resources to assist developing country Parties in implementing the objectives of the UNFCCC. The Convention has created Financial Mechanisms to offer cash to developing nation Parties to help with this.
- Since the Convention’s entrance into force in 1994, the Global Environment Facility (GEF) has acted as the financial mechanism’s operating institution.
- Copenhagen Accord: Parties agreed for a “goal” for the world to raise $100 billion per year by 2020, from “a wide variety of sources”, to help developing countries cut carbon emissions (mitigation).
- COP 16 (2010): Parties established the Green Climate Fund (GCF) and in 2011 (COP 17) also designated it as an operating entity of the financial mechanism.
- Establishment of special funds: Special Climate Change Fund (SCCF), the Least Developed Countries Fund (LDCF), both managed by the GEF; and the Adaptation Fund (AF) under the Kyoto Protocol in 2001.
Performance till Date:
- According to UNFCCC standing committee report, the $100b targets have not been met yet.
- Even the effort to move finances through private players have also met with comprehensive failure.
- There is a huge variation in estimates. For eg- OECD reports that around $83b have been moved but Oxfam claims it to be just around $21 b – $24b
|Chart shows the carbon dioxide emissions per capita emitted in 19802021 by various geographical Regions. It also shows (as a fixed black line) a baseline target of carbon dioxide emissions (2.3 tonnes per capita) needed to limit global warming to 1.5° Celsius. The global average emissions per capita is currently double this target, and has stayed above 4.7 tonnes per capita since 2010, whereas Africa and India have both been consistently under. China crossed the global average in 2004.|
|It shows the total investment in climate related activities as a fraction of that region’s total GDP in 2019 and 2020. This includespublic and private investment. In both years, Sub Saharan Africa had the highest investment fraction in climate finance (1.3% ofits GDP), followed by East Asia and the Pacific (1%) and South Asia (0.9%). The U.S. and Canada had the lowest proportionate investment, at only 0.3% of their GDP.|
|It shows the total approved funds and theactual funds disbursed towards each region. Since 2003, for example, $3.3 billion was approved to be disbursed to South Asia, but only $1.3 billion was actually disbursed. Most regions received only 40% of the approved funding for that region, on average.|
CHALLENGES IN CLIMATE FINANCE
- Definitions & reporting of climate finance: Even 10 years after COP 15, there is no general agreement on what form of funding can be counted as climate finance under the GCF in support of the Copenhagen pledge. Even 7 years after the Paris Climate Deal, there is no agreement regarding definition of climate finance.
- Insufficient Amounts: For instance, global annual fossil fuel subsidies together with their externalities cost about $5.3 trillion. Experts have suggested that even $100b/year pledge is not sufficient to tackle the issue.
- Climate Finance Governance: Equally challenging is how international climate change funding should be effectively governed and delivered to developing countries.
- Reporting and Verification: Currently there is a lack of mandatory verification mechanism in reporting. Reporting requirements around the projected financing provisions remain weak.
Countries in Sub Saharan Africa, Latin America, and South Asia have historically contributed the least to global warming; yet, they are bearing the bigger brunt of climate disasters – both in the form of extreme natural phenomena and debt distress. On the other hand, countries in North America and Europe have contributed and continue to contribute the most, and are also the creditors of the debt crisis.