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TWN Info Service on Climate Change (Oct21/07) Developed countries report provision of US$ 45-52 billion in climate finance in 2017-2018 Delhi, 22 Oct (Indrajit Bose) — The UNFCCC’s Standing Committee on Finance (SCF) adopted the summary of its Fourth (2020) Biennial Assessment and Overview of Climate Finance Flows (BA 2020) report at its 26th meeting held in a hybrid format from 12-14 October. The summary of the BA revealed that the total public financial support provided by developed countries in their biennial reports (BRs) amounted to USD 45.4 billion in 2017 and USD 51.8 billion in 2018. It also showed that mitigation finance constituted the largest share of climate-specific financial support through bilateral channels at 65 per cent. The summary also states that the share of adaptation finance increased from 15 per cent in 2015–2016 to 21 per cent in 2017-2018. The BA summary also revealed that support for mitigation remains greater than support for adaptation. “Adaptation finance has remained at between 20 and 25 per cent of committed concessional finance across all sources, showing little movement since the previous BA,” it reads. According to the summary, “In 2017–2018 grants accounted for 64 and 94 per cent of the face value of bilateral adaptation finance reported to the OECD (Organization for Economic Cooperation and Development) and of adaptation finance from the multilateral climate funds, respectively. During the same period, 9 per cent of adaptation finance flowing through MDBs was grant-based. These figures indicate no change since 2015–2016. Mitigation finance remains less concessional in nature, with 30 per cent of bilateral flows, 29 per cent of multilateral climate fund approvals and 3 per cent of MDB investments taking the form of grants.” (The BA 2020 provides an updated overview of climate finance flows in 2017 and 2018, along with data on trends from 2011 to 2016 compiled from previous BA reports. The BA 2020 also includes mapping of relevant information to the long-term goal outlined in Article 2, paragraph 1(c) of the Paris Agreement. BA 2020 comprises a summary prepared by the SCF, and a technical report, prepared by experts. The technical report remains a product of the external experts.) The SCF could not however forward recommendations from the report to the 26th session of the UNFCCC’s Conference of the Parties (COP 26) and 3rd session of the Conference of the Parties to the Paris Agreement (CMA 3) due to a lack of consensus over key issues. There were disagreements on whether the SCF should continue work on the operational definition of climate finance and on issues related to Article 2.1 (c) of Paris Agreement (PA), which refers to “making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development” (Further details on the contentious issues below.) With no agreement on the recommendations to be forwarded, the SCF agreed to only forward the BA summary to the COP and CMA, which meets in Glasgow from 31 October to 12 November. Other highlights from the BA summary Other key messages that were reflected in the BA summary included the following. The summary states that UNFCCC funds and multilateral climate funds approved USD 2.2 billion and USD 3.1 billion for climate finance projects in 2017 and 2018, respectively. “Global climate finance flows were 16 per cent higher in 2017-2018 than in 2015-2016, to reach an annual average of USD 775 billion and achieved significantly higher results in particular in the area of renewable energies”, states the summary. “Although climate finance flows are increasing, they remain relatively small in the broader context of other finance flows, investment opportunities and costs. Climate finance accounts for just a small proportion of overall finance flows,” it said further. In relation to private finance flows, the summary states that the “uncertainty of the data on the geographic sources and destinations of private finance flows to developing countries remains significant”. The “OECD estimates that private climate finance mobilized by developed countries through bilateral and multilateral channels amounted to USD 14.5 billion in 2017 and USD 14.6 billion in 2018,” according to the summary. The summary also lists challenges and limitations in relation to data gaps, data uncertainty and collecting, aggregating and analysing information from diverse sources, and says that the limitations need to be taken into consideration when deriving conclusions and policy implications from the BA 2020. Contention over climate finance definition The central bone of contention during the SCF meeting over the climate definition issue was whether the COP should mandate the SCF to continue its work on the operational definition of climate finance. (According to a Decision 11/CP.25 adopted in Madrid in COP 25, the COP underscored “the important contribution of the SCF in relation to the operational definitions of climate finance,” and invited Parties to submit…their views on the operational definitions of climate finance for consideration by the SCF in order to enhance its technical work on this matter in the context of preparing its 2020 Biennial Assessment and Overview of Climate Finance Flows”). (The SCF included an analysis of the submissions received in the BA 2020 summary. “Operational definitions for climate finance in use generally reflect a common understanding of what is considered mitigation or adaptation finance, but differ when it comes to details of sector-specific activities, certain financial instruments and approaches to public and private finance flows,” reads the summary The summary also states that “Parties submissions on operational definitions of climate finance in use highlighted a range of views on the need for, form, and scope of, a common definition of climate finance”. “Some Parties noted that a single definition would not be useful or should be broad enough to cater for the dynamic and evolving nature of climate finance …(while) some Parties pointed to the use of a classification system or taxonomy rather than a single definition. Other Parties noted how the lack of a common definition affects the ability to track and assess the fulfilment of the obligations of Annex II Parties under the Convention and those of developed country Parties under the PA,” states the summary. “A common definition could support the preparation of the BA and the overall transparency and effectiveness of the UNFCCC process by highlighting the linkage between the level of action of developing countries and the level of support provided and, ultimately, the achievement of the objectives of the Convention and the Paris Agreement. In this context, two submissions proposed an operational definition of climate finance, while other submissions proposed an operational approach to achieving greater convergence among definitions over time, based either on common principles or responses to a common set of questions to provide granular information,” adds the summary further. One recommendation which became highly contentious read as follows: [Request the SCF to further elaborate its operational definition of climate finance, building on its ongoing work, Parties submissions received in the context of the Fourth BA, and information provided by Parties on climate-specificity in the context of their BR, with regard to sector-specific activities, financial instruments and approaches to public and private finance flows.] Developing country SCF members were in support of the recommendation, but the United States was opposed to including the recommendation. SCF member, Mohamed Nasr (Egypt) was of the view that the lack of a definition on climate finance creates difficulties in determining what is climate finance and suggested to include a recommendation on the need to have a climate finance definition. He suggested that the challenges with respect to definition need to be highlighted and that the SCF should be bold and brave to say that the work on the definition needs to be done. Nasr explained that since Parties’ had made submissions on the definition of climate finance, continuing work on it would mean respecting those submissions. He found it difficult to understand why continuation of deliberations on the matter was a problem especially since the climate finance definition has been a challenge for several years now. He also said that the recommendations stem from the BA report and the report had a chapter that talks about challenges around climate finance definition. He wondered why a recommendation should be problematic, especially since several recommendations had been proposed which stemmed due to challenges around PA’s Article 2.1(c). He said further that there must be lot of commonalities in the different submissions received on the definition of climate finance and those must be identified and the SCF should be mandated by the COP to enhance the existing operational definition. Zaheer Fakir (South Africa) said the lack of definition of climate finance would defeat the purpose of all the work of the BA. He said he was unable to understand why despite talking about the urgency of climate finance for developing countries, Parties were not willing to agree on a common understanding of climate finance and how it is accounted. “The reluctance is dumbfounding,” he said. He also said that the figures presented in BA did not represent global climate finance since each actor has a different definition. He stressed there must be recommendations to reflect the gap and the SCF needs to inform the COP to address the matter. “The point is if we are wanting to channel climate finance towards achieving the Convention and the PA, we need a common language and a clear definition so that everybody who is dealing with this knows what they are doing. This is the problem we are facing,” stressed Fakir. Ayman Shasly (Saudi Arabia) said the recommendations from the SCF are important and this needs to be communicated to the COP that there are challenges in relation to the definition of climate finance, especially in relation to its accounting, as developed countries count every form of finance relevant to climate change as climate finance and yet when it comes to investing money via the Green Climate Fund (GCF), high scrutiny is exercised in relation to the climate rationale of projects that come to the GCF’s Board for approval. Shasly also said that had there been an agreed definition of climate finance, there would be no need for so many caveats around data challenges in the BA. He added that the lack of clarity on what is climate finance renders the BA useless since “we don’t know what we are measuring” and that is why the recommendations to continue work on the definition of climate finance are important. Zerihun Mekuria (Ethiopia) supported Nasr and Shasly. Gabriela Blatter (Switzerland) said the climate finance definition issue was contentious and that the SCF would not be able to agree on the details of a definition. She suggested sticking with the existing operational definition of climate finance used by the SCF. Blatter’s preference was to delete the recommendation. She said the decision from Madrid was clear that work on the definition was in the context of the BA, which had happened based on Parties’ submissions and “that was it”. There was no mandate foreseen for the SCF to continue work, she added and said further that a common definition would not be in line with the “self-determined” approach of the PA under which each Party had a right to define climate finance the way it sees fit. Blatter then added that if the expectation was to work on an existing operational definition, then they could talk about it. Randy Caruso (US) said each Party defines what constitutes climate finance and there is nothing more that the SCF could do in the BA 2020 summary and recommendations in relation to the definition. He supported Blatter and said that the fact that there is no common definition of climate finance is important because countries that need support have different definitions and seek different technologies for climate change solutions towards mitigation and adaptation. He questioned what members were proposing and if there is to be “a harmonized system of what can and cannot be considered as climate finance”, adding that imposing one definition of climate finance would mean renegotiating the bottom-up structure of the PA. Ismo Ulvila (EU) said the mandate of Decision 11/CP.25 required the SCF to enhance technical work on the operational definition in the context of the BA 2020 and that he saw it as a one-off exercise. Mattias Frumerie (Sweden) said Sweden uses the OECD definition when reporting their action on climate finance and that is clear for them. He further added that climate finance flows through multiple channels and they should be working to make sure finance is available to countries to transition to climate neutrality. Ivan Zambrana Flores (Bolivia) responded to Frumerie and said that there is nothing called carbon neutrality in the PA and that such definitions (by Sweden) could create problems. He gave the example that interpretation of language from the PA on peaking of emissions had become about net zero for each country in 2050. “We are not talking of mitigation or adaptation anymore. That is how a lack of definition can divert from the consensus we arrived in the PA,” he added further. Since there was no consensus on the recommendation, it could not be adopted. Another related proposed recommendation that became contentious read as follows: [Encourage financial institutions and climate finance providers when assessing projects to take into account the operational definitions of climate finance by the SCF and others.] Fakir suggested inserting operating entities of the Financial Mechanism since they are accountable to the COP. Caruso said he was not comfortable with the language. He said including the operating entities of the Financial Mechanism would entail changing the eligibility criteria based on the operational definition of the SCF, which the US was not comfortable with. He suggested “when assessing projects” should be removed from the formulation. Shasly and Fakir objected to this suggestion. Nasr clarified that it has nothing to do with the eligibility criteria and the operating entities were merely being encouraged to take into account the operational definitions of climate finance. He pointed to the paradox of climate finance contributors wanting the flexibility in defining climate finance but adopting a stringent approach when it came to approval of projects under the GCF and Global Environment Facility (GEF), which are the operating entities of the Financial Mechanism of the Convention. “We cannot as a contributor say I want to report on climate finance and apply the most flexible approach as per my own definitions and then I would sit on the other side of the table as provider of climate finance and say that I will not apply such flexibility on the projects that are trying to access funding and I will have a strict approach in relation to the climate rationale, net zero and carbon neutrality,” explained Nasr. (There have been several disagreements among developing and developed countries in the GCF Board, especially in relation to adaptation projects being questioned for their climate rationale. See related TWN Update. Further, at the recently concluded thirtieth meeting of the GCF Board, some developed country Board members imposed a condition of net neutrality on the reaccreditation of Development Bank of Southern Africa. See related TWN Update.) Following further discussion, it emerged that there was no consensus on the recommendations from the SCF. Nasr suggested sending the recommendations to the COP in brackets, but Blatter was not in favour of this. Eventually, the SCF decided to forward just the summary of the BA 2020 to the COP. Contention over Article 2.1 (c) of the PA In relation to mapping information relevant to Article 2.1(c), the adopted BA 2020 summary states that “as with tracking climate finance, emerging methodologies relevant to tracking consistency with the long-term goal under Article 2, paragraph 1(c) of the PA, also need to overcome issues related to definitions, scope or boundary of tracking, data availability and comparability”. The summary also states that “the lack of a common interpretation of or guidelines on what information qualifies as relevant presents a challenge in adequately capturing the scope and depth of related action”. The summary also states that “assessing the real-economy impact and the risk of greenwashing remains a challenge”. Given the challenges around Article 2.1 (c) findings in the report, the following recommendations were proposed, which proved contentious: · “Encourage Parties to continue to pursue efforts with a view to achieving consistency of finance flows with a pathway toward low GHG emissions and climate-resilient development, within the context of sustainable development and efforts to eradicate poverty. · Encourage relevant public and private international, regional and national financial institutions to clearly articulate how their efforts to align with the PA will be achieved through making finance flows consistent with a pathway towards low-GHG emissions and climate-resilient development, in line with the latest scientific information. · Encourage finance initiatives seeking to align with the goals of the PA to increase the inclusivity and geographical representation of members, to enhance learning, knowledge-sharing and common understanding of the efforts needed to achieve consistency of finance flows with a pathway towards low-GHG emissions and climate-resilient development. · Encourage data providers, methodology developers and research institutions to enhance the availability and transparency of underlying assumptions, metrics and indicators used in identifying pathways towards low-GHG emission and climate-resilient development.” Zaheer Fakir (South Africa) proposed deleting the recommendations. “We are asking people to do alignments in the absence of any clear guidance or guidelines of that nature. There is no common understanding of what alignment means, so I am not comfortable asking people to articulate how they are aligning,” he said. Diann Black-Layne (Antigua and Barbuda) agreed with Fakir and said that not enough leg work had been done on the issue to ask international financial institutions to report on it and the SCF runs the risk of legitimizing any information that they send without any guidance. Since there was no consensus on these paragraphs along with the proposed recommendation on the continuation of work on the definition of climate finance, the recommendations could not be adopted.
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