The Climate Change Dictionary: What Is Climate Finance?

Anchor and Producer: Sadhika Tiwari

Video Editor: Abhishek Sharma

Camera: Athar Rather

Climate finance: The money that isn't!

The Climate Change Dictionary’ is all about the buzzwords in the global politics of climate change, and there is no other term that symbolises this politics better than climate finance.

As the term suggests, climate finance means the money required to deal with the ongoing global climate crisis. The steps taken to deal with climate crisis are called ‘climate action,' and they largely include three things:

• Adaptation

• Mitigation

• Addressing loss and damages

Importance of the Earth Summit

In Rio de Janeiro at the Earth Summit, June 1992, when the United Nations Framework Convention on Climate Change (UNFCCC) was drafted, the term 'climate finance' came up for the first time.

In 2009, it was decided that 100 billion dollars would be paid every year till 2020 by the developed world to the developing countries. At COP21 in Paris, under the Paris Agreement, it was decided that this payment would be extended till 2025 and the amount would be revised after that.

Three Big Promises of the Paris Agreement

As a part of the Paris Agreement, 196 countries signed a pact in which developed countries made three big promises to developing countries.

• Technological assistance

• Capacity building

• Financial assistance

It was mutually agreed upon that the developed countries like the United Kingdom (UK) and the United States (US) will lend financial assistance to the developing countries like India and South Africa to intensify their actions towards dealing with the climate crisis. This was important because if the developing countries don’t act, the entire globe will have to suffer from the ramifications.

Why Can’t Countries Finance Their Own Climate Action?

The answer is twofold:

• We don’t have the money

• There is a global understanding that most developing countries were not really the harbingers of this crisis

Developed nations are called historical polluters because they did more than their fair share of polluting the earth during and until much after the Industrial Revolution and ensured that they became the “developed” economies that they are today.

While developing countries have mostly been on the receiving end of the impacts of catastrophic climate events, without having contributed much to them and without being developed or prepared enough to deal with them.

Climate Action Is Contingent Upon Climate Finance

The money required for climate action is a fairly large sum: We are looking at nearly 6 trillion dollars for all developing countries by 2030.

The developed world has been shaky on its promises of paying this money and without this money, the developing countries are not willing to act. For instance, India.

At COP26 in Glasgow, Prime Minister Narendra Modi announced ambitious climate targets for India. These included a net-zero target for 2070, among four other big ones.

Modi said that if we are expected to “raise our climate action goals” we will also need to raise the limits for climate finance and he asked for one trillion dollars under climate finance for India.

It was thought that these five big goals will fall under our Nationally Determined Contributions (NDCs) towards the Paris Agreement. But they were not. India said that we will only adopt these goals as our NDCs if we are given the one trillion dollars that were asked for.

Climate Finance Is Often Masked as Loans or Evaded Under Accounting Tricks

Several funds like the Green Climate Fund (GCF) and committees like the Standing Committee on Finance (SCF) have been established to monitor this mechanism. But they have not entirely succeeded in ensuring smooth functioning.

For instance, the US has not been too keen on giving up its money under climate finance.

In 2015, while the Paris Agreement was being agreed upon by 196 countries, the US had said they want an out. Their envoy John Kerry said, “Take the developed world out of this. Remember, the Earth has a problem. What will you do with the problem on your own?”

After much back and forth, the US is part of the Paris Agreement now but the issues around not wanting to pay up continue.

Given that 100 billion dollars every year until 2025 as decided under the Paris Agreement is already a problem, raising this amount further will of course be a problem and tensions are reaching a crescendo as we inch closer to 2025.

For now, the money being offered to the developing countries is grossly insufficient. While the developed world keeps saying that their financial support has been going up, developing countries disagree. Developed countries are often accused of playing “accounting tricks” to evade paying this money.

Often a large part of this assistance is offered as a loan, or the rate of interest on an existing loan is reduced and called climate finance. At COP26 in Glasgow, it was expected that more clarity on climate finance definitions and deadlines would be achieved, but that did not happen.