Deconstructing climate finance

Synopsis: Behind the rhetoric of mobilising climate finance lies the grim reality of burdening the G77 and its people with a fresh load of “green” debt.

Introduction

Media reports have claimed that developed countries are inching closer to the target of providing $100 billion annually in climate finance to developing countries by 2025 (the original target was 2020).

This view has been supported by the Organisation for Economic Co-operation and Development (OECD), which claimed that climate finance provided by developed countries had reached $78.9 billion in 2018.

These claims are false.

What are the issues underlying in climate finance?

Flawed and erroneous claims: the OECD figure includes private finance and export credits. Developing countries have insisted that developed country climate finance should be from public sources and should be provided as grants or as concessional loans.

Currently available adaptation finance is significantly lower than the needs expressed in the Nationally Determined Contributions submitted by developing countries.

Less public financing: the OECD report makes it clear that the public finance component amounted to only $62.2 billion in 2018. Between 2013 and 2018, the share of loans has continued to rise, while the share of grants decreased.

Non-concessional loans: Of the public finance component, loans comprise 74%, while grants make up only 20%. 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.

Debt crisis: The overwhelming provisioning of climate finance through loans risks exacerbates the debt crisis of many low-income countries.

Inflating climate finance figures: The OECD reports on climate finance have long been criticised for including funds for development projects such as health and education. 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.

Hollowness of the OECD claims: The 2018 Biennial Assessment of UNFCCC’s Standing Committee on Finance reports that on average, developed countries provided only $26 billion per year as climate-specific finance between 2011-2016. This rose to an average of $36.2 billion in 2017-18.

How USA has performed with respect to climate financing?

Broken promises: U.S. President recently said that the U.S. will double its climate finance by 2024. But it is Congress that will decide on the quantum after all. The U.S. also has a history of broken commitments. It had promised $3 billion to the Green Climate Fund (GCF) under President Barack Obama, but delivered only $1 billion before President Donald Trump withdrew U.S. support from the GCF.

Private funds: the future focus of U.S. climate finance is the mobilisation of private sector investment. As per the USA, public finance would only contribute to “de-risking” of investment.

Only commercially viable projects: the funds will be directed to those projects judged “bankable” and not selected based on developing countries’ priorities and needs.

What is the way forward?

Climate finance need balance between adaptation and mitigation. 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.

Delivering on climate finance is fundamental to increase trust in the multilateral process.

Source: This post is based on the article “Deconstructing climate finance” published in The Hindu on 14th October 2021.