COP26 & Climate Finance: Rich Nations Are Skirting the Question, Again

There’s still no clarity on what constitutes climate finance and how it should be distributed & spent.

5 min read

Last week, at the COP26 Climate Summit, when Prime Minister Narendra Modi pledged to reach net-zero emissions by 2030, he also called upon developed countries to provide $1 trillion climate finance to developing countries to reach their climate targets and invest in projects that lower emissions.

“As we are all increasing our ambitions with respect to climate action, the world’s ambitions with respect to climate finance cannot stay at the same level,” Modi said referring to the 2009 promise of rich nations to provide at least $100 billion a year in climate finance to poorer countries by 2020.

The $100 bn figure is really a grossly underestimated ballpark figure based on a concept first mooted at the Rio Summit in 1992, that rich polluting countries should pay to help developing countries fight climate change, given their historic responsibility of colossal emissions over the last few decades. Climate finance is local, national or transnational financing, drawn from public, private and alternative sources of financing, which seeks to support mitigation and adaptation actions that will address climate change.


A String of Failures

The UN launched a dedicated institution in 2010 – the Green Climate Fund (GCF) – to distribute the $100 bn. This funding is to be channelled through existing aid programmes and development banks, allowing donor countries to self-report to the UN each year on the funding they had mobilised.

However, GCF, which has raised $18 bn since its inception, has been mired in controversy mainly due to a lack of clarity on what projects should get priority, leading to infighting amongst its board members and allegations of waste, corruption and inefficiency, as almost $1 billion was wasted due to currency fluctuation.

The $100 bn pledge is the fundamental basis of the 2015 Paris climate accord, which aims to limit global warming to well below 2°C – ideally 1.5°C – and was agreed upon at the Copenhagen climate summit in 2009.

But 12 years later, a week before COP26 opened, OECD figures show that climate finance had reached only $79.6 bn in 2019, including all grants, loans and export finance credits — from both public and private sources.

Experts also point to the failure of the previous attempt at climate finance, known as the Clean Development Mechanism (CDM), which was introduced under the Kyoto Protocol to channel hundreds of millions of dollars into climate-related projects in the developing world. A 2017 study by the European Union (EU) found that 85 per cent of Clean Development Mechanism projects examined failed to have the expected emissions impact.

A Bigger Target, Even Before the Previous One Is Reached

Everyone agrees that without adequate climate finance, the Paris Agreement and all the subsequent pledges aka Nationally Determined Contributions (NDCs), including the ones announced at COP26, are unachievable. What they cannot agree upon is, what constitutes climate finance, how the money should be distributed, to whom, and how should it be spent.

According to Oxfam, even for the $79.6 bn raised so far, if you take out the loans, the climate-specific grants are merely one-fifth of what OECD counts as “climate finance”, and after repaying interest on these loans, it could be as low as one-third of the amount disbursed.

In Glasgow, negotiations will start over how to set a bigger climate finance target for 2025, even before the previous $100-bn target has been reached. Donor countries are clamouring at COP26 to drastically increase the sums involved. The UK, Denmark, Japan, and Italy have all raised their financial commitments in Glasgow, and more funding to the tune of tens of billions of dollars is expected to be announced by multilateral banks and in private funding to help countries quit coal. The most significant is Japan’s promise to pay $2 bn a year, which will unlock another $8 bn a year of private-sector money.

Others are counting on new funding to come from the “Article Six” negotiations at COP, which will put in place a system by which polluting countries transfer billions of dollars for carbon-reducing projects in other countries.

But given the experience of CDM, there are fears that if negotiators leave a lot of loopholes in the carbon market rules, such as allowing countries to double count their emissions, then the system could push emissions up rather than reduce them.

No Seriousness Shown

None of these commitments is being taken seriously by developing countries or civil society. “They need to fix the system of distribution first. Already most of the money has gone to institutions like the UN Development Programme and the European Bank for Reconstruction and Development, which are well-funded and mostly centred around mitigation. What the poor countries need is reliable and steady finance to cope with loss and damage and improve their adaptation capacity, instead of the piecemeal project-wise approach,” says Sanjay Vashist, Director, Climate Action Network South Asia.

Despite the calls for increased finance, amplified by Modi and echoed by negotiators from the developing countries, and rhetorical announcements of the UK COP presidency, getting climate finance right has become more difficult. This is mainly due to the COVID-19 pandemic. With government budgets being diverted to relief programmes and increased risk perception for green infrastructure projects, private capital flows are also likely to be much more constrained, thereby widening the financing gap.

Another problem is that most of the climate mitigation or adaptation projects are basically preparing for future risks, which are hard to gauge and monitor.

It has been repeatedly pointed out that without climate finance, the polarisation between developed and developing countries will be reinforced.

At the end of the first week of the negotiations, a week after Modi’s Net Zero announcement and appeal for $1 tn, the negotiations at COP26 are not showing any signs of hope that the rich countries are going to heed his appeal.

“On finance, the rich countries talk of trillions being mobilised outside, but inside, they haven’t even managed to mobilise $100 bn in 12 years. They don’t even want a review of the delivery of $100 bn under the UNFCCC or a discussion on long-term finance. Inside, they don’t want a standing agenda item on a new collective finance goal; they want deliberations by workshop rather than a process to deliver a meaningful goal. On loss and damage, outside, in the negotiations, they talk about its importance, but inside, they don’t want to talk about any financing for loss and damage as a separate pillar of the Paris Agreement,” says Mohammad Adow, Director of Power Shift Africa.

(Shailendra Yashwant is an independent journalist and photographer participating in COP 26 as observer for Climate Action Network South Asia CANSA. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)

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