Behind the smokescreen around private climate finance

Source– The post is based on the article “Behind the smokescreen around private climate finance” published in The Hindu on 14th November 2022.

Syllabus: GS3- Environment

Relevance: Climate change

News- The article explains the issues related to climate finance.

What are the main points emphasised by developed countries on climate finance?

They claim that their commitment of $100 billion in climate finance a year for developing countries is close to being met.

They view the mobilisation of private finance as the critical component of climate finance.

What are the issues related to climate finance goals by developed countries?

The UNFCCC Standing Committee on Finance (SCF) released a report on the progress made by developed countries towards achieving the goal of mobilising $100 billion per year. It says that the $100 billion goal has not been achieved in 2020. Efforts to mobilise private finance by the developed countries have met with comprehensive failure.

The SCF report relied mainly on the Organisation for Economic Co-operation and Development and Oxfam reports. The OECD report claims that developed countries have mobilised $83.3 billion in climate finance in 2020. The latest Oxfam report challenges this figure. It claims that the actual value of climate assistance is only around $21–$24.5 billion.

In 2016, developed countries issued a “Roadmap to $100 billion” with forward-looking projections of climate finance in 2020. The road map indicated that public finance would reach $67 billion. Remaining $33 billion would be provided by private finance.

The OECD 2020 data shows that the mobilisation of private climate finance has underperformed against the expectations of developed countries. It is $13.1 billion in 2020 against $33 billion in the road map.

What are the concerns of developing countries?

Developing countries have for a long time insisted that a significant portion of climate finance should come from public funds. Private finance will not address their needs.

Climate finance already remains skewed towards mitigation and projects that yield profit on investment. Low-income countries with poor credit ratings need more adaptation finance.

What is the future plan of developed countries for climate finance and associated challenges?

Developed countries pushed the target year for achieving it to 2025 from 2020. At COP26 in Glasgow, developed countries came up with a Climate Finance Delivery Plan (CFDP) to meet the goal. They claimed that the goal would be met in 2023.

The CFDP scenario implies that the composition of public climate finance portfolios will progressively change. It will go towards a larger share of activities with low private finance mobilisation potential for adaptation, and capacity building, as grants, for least developed and small island developing countries. In these scenarios, financing the urgent adaptation needs of developing countries is pushed further into the future.

What is the way forward?

The climate finance needs of developing countries cannot be left to private climate finance by developed countries.

Grant-based and concessional international public climate finance is needed in addressing the needs of developing countries.