TWN Info Service on Finance and Development (Dec20/02)
9 December 2020
Third World Network

Divergent views over fulfilment of USD 100 billion climate finance target

Penang, 9 Dec (TWN) - A rich exchange, with diverging views over climate finance took place, at an informal heads of delegation event held on 2 Dec, as part of the UN Framework Convention on Climate Change initiated ‘Climate Dialogues’, convened virtually from 23 Nov-4 Dec.

Differences of views emerged, primarily around progress over the fulfilment of the USD 100 billion per year by 2020 commitment of developed countries; public versus private sector finance and over whose responsibility it is to provide climate finance.

The discussion centred around two guiding questions on lessons learnt from the past on mobilisation and delivery of climate finance and how to apply the lessons in the future.

In response, Zaheer Fakir (South Africa), who is the coordinator of the Group of 77 and China on finance, said the lessons learnt from the delivery of climate finance included increasing indebtedness for developing countries, rising problems in accessing such finance and the decline in replenishments to existing Funds. He said that there had been a 36 per cent decline in the replenishment of the Global Environment Facility (GEF) and a 4 per cent decline to the Green Climate Fund (GCF).

Referring to the latest Organisation of Economic Cooperation and Development (OECD) report (see further details below), Fakir said developed countries were far off from meeting the USD 100 billion commitment.

He said further that it was questionable whether the finance was new and additional. “OECD quotes that USD 152.8 billion was presented in ODA (official development assistance) and of that 25 per cent is actual climate finance; so we cannot make a distinction between what is climate finance and what is ODA,” he said further.

On financing mitigation and adaptation, he said 70 per cent of the money went to mitigation and 20 per cent to adaptation (and the remaining, to crosscutting areas), even while governments talked about the need for balance between mitigation and adaptation.

On financial instruments, he said that loans were increasing and roughly 74 per cent of the finance was in the form of loans.

Fakir elaborated further that Africa alone would require USD 3 trillion in investment by 2030 to meet their existing nationally determined contributions (NDCs) under the Paris Agreement. “We have a USD 100 billion target, which was not set or based on any of the needs; it was based on a political decision in 2009,” he said, adding that there no ambition in Paris, because the 2020 target was extended to 2025.

For the UNFCCC’s 26th meeting of the Conference of Parties (COP 26), he said Parties would continue to discuss long-term finance, initiate discussions on the new collective goal, reflect on reports by the Standing Committee on Finance (SCF) and provide guidance to the operating entities of the Financial Mechanism (the GCF and the GEF).

The heart of the matter, said Fakir, lay on how finance is provided to developing countries to ensure ambitious climate action that is required.

Referring to the 2019 report of the multilateral development banks (MDBs), he said the report revealed that the largest recipient of climate finance from the MDBs was not any developing country region but it was the European Union (EU), which received over USD 18 billion, and the largest recipient in 2019 was France, which received USD 3.6 billion. If the MDBs are considered important in the scheme of climate finance, Fakir asked why was money was flowing in that direction.

He also referred to the increasing leveraging of co-financing ratios in the GEF. “Today to get 1 USD out of the GEF, there is an expectation for developing countries to provide the notional idea of USD 7 USD,” Fakir elaborated further and asked how a vulnerable country could meet such co-financing demands. He said that the same was happening in the GCF.

“The priority is about leveraging money,” said Fakir, adding that “naturally the money will flow to investments that have the potential to leverage more money”. Referring to developed countries’ interventions during the dialogue (see below), he said that one cannot say on the one hand that the money needs to be effective and for it to get to the most vulnerable and on the other hand design policies in the Financial Mechanisms that are counterproductive to that. Fakir also said that there is a need to look at why there is lack of access to climate finance. “That is what the UNFCCC and the COP should be doing and not having all kinds of esoteric debates on all kinds of things around finance,” he said further.

Egypt for the Africa Group underscored that the conversation should not just be about mobilisation of finance since several challenges existed in terms of a lack of definition of climate finance. This it said created the problem of how co-financing or leveraged finance are accounted for. On the issue of the role of the private sector, it said one must ask what the capacity is of developing countries to attract private sector investment, especially when they are faced with increased indebtedness due to the COVID-19 pandemic.

Egypt also said that access to mobilised finance remained a challenge for developing countries and reiterated that the USD 100 billion goal was set in 2009, way before the PA and recalled that the idea of the goal was to start initiating actors to move forward on climate finance, adding that the target itself was a very low ambition. In relation to comments by the EU to accept the operational definition of climate finance used by the SCF (see EU comments below), Egypt said the operational definition did not allow for tracking climate finance and ran the risk of accounting everything as climate finance. It added further that the mobilisation of finance is not predictable, or adequate and it must not be portrayed that trillions will flow out of the private sector.

Ecuador spoke for Like Minded Developing Countries and said that adaptation finance had been left behind, and there is the need to finance technology transfer, loss and damage, capacity-building and response measures. It underscored that mandates and obligations from agreements must be fulfilled and not diluted and that there is need to review progress towards assessing the fulfilment of the USD 100 billion goal and not repeat the mistake of assessments by external institutions, adding that the review must be part of the UNFCCC process.

Speaking for the Arab Group, Saudi Arabia said there was denial from Annex I countries on their lack of fulfilment of their obligations when they claim to be on track to achieve the USD 100 billion goal. It expressed concerns that Annex I countries were trying to change the GCF to an MDB. In relation to COP 26, it stressed the need for a firewall between climate change negotiations under UNFCCC and the other initiatives, explaining that the other initiatives had little to do with the Convention or the PA and reminded Parties that the commitment of developed countries for the provision of finance is well established due to the historical responsibility they have for causing climate change.

Argentina for Argentina, Brazil and Uruguay stressed that provision of new and additional finance to developing countries constituted a part of climate ambition and called for a multilateral process under the UNFCCC to ascertain the fulfilment of the USD 100 billion commitment, the results of which would feed into the process of setting a new collective goal. It added that the lack of a common definition on climate finance would be an obstacle in building on the lessons learned. “The multilateral climate finance architecture must be fair, transparent, equitable, based on common but differentiated responsibilities, recognising and ensuring predictability and availability of sufficient financial resources to meet the needs and challenges identified by developing countries for both mitigation and adaptation,” it said further.

Costa Rica spoke for the Independent Association of Latin America and the Caribbean said there is an urgent need to generate climate finance consistent with low carbon and climate resilient development pathways and to develop a common definition of climate finance. It also said that developed countries must faithfully follow their finance obligations under the PA and added that multilateral climate funds such as the GCF and Adaptation Fund must have sufficient funding to work and deliver results both in adaptation and mitigation action and ambition.

Belize for the Alliance of Small Island States (AOSIS) said it was quite clear that the USD 100 billion goal has not been met and that a serious uplift is needed to reach the 1.5°C target. It said that the USD 100 billion is just the starting point and efforts should be made to go beyond this and referred to partnerships to help leapfrog to a zero emissions world. It added that debt sustainability and ODA must remain as part of the discussion, and underscored the engagement of private sector. 

China stressed that it was the developed countries’ obligation to provide climate finance and that Parties must have the same ambition on finance to match their carbon neutrality targets in relation to limiting temperature rise. It also expressed concerns over recent trends at the global level in relation to the blocking of cooperation in technology, and the flow of trade, in an obvious reference to the US. 

India highlighted that the long-term finance agenda under the COP was important and must not end in 2020 and stressed the need for a multilaterally agreed definition of climate finance as this was necessary for the sake of transparency. It underscored the need for a process to review the fulfilment of the USD 100 billion commitment rather than in relying on reports of external organisations.

Zambia said USD 100 billion commitment was not based on any assessment and any new assessment to reach climate finance figures must be based on the needs of developing countries. It also said that Parties should understand what they mean by climate finance, so that it is not confused with ODA and that countries must be able to access climate finance readily.

Switzerland for the Environment Integrity Group said it was encouraged to see global finance increase to nearly USD 80 billion in 2018 as per the OECD, and that climate finance providers have lived up to their promises and increased contributions. It underscored that every country in a position to do so should support those in need for the implementation of the PA effectively and also highlighted the role the private sector in mobilising finance. It stressed the importance of the overall alignment of financial flows with the PA goals and proposed a joint approach in future, where “everyone can contribute as much as they can based on their national circumstances”.

The EU said global finance had increased and that collectively the track record was good, adding that Parties “must not get stuck on definitions” but must make do with an operational definition followed by the SCF. It said further that there is need to address the mobilisation of private finance and hoped that “we as a collective can act together to mobilise climate finance”. The EU also said Parties would need to make sure their policies and financial systems are aligned with the goals of the PA.  

Australia said there is a need for better understanding of the impacts of funding, and where and how loans and grants work or do not work. Stressing on “collective accountability”, it underscored the need to think innovatively and incentivising better action from “donors, emerging donors and the private sector”.

Canada said the OECD report shows climate finance had increased to USD 80 billion in 2018, which seemed credible, and that it would not be possible until 2022 to know if countries had achieved the goal. It underscored the need for innovative approaches to mobilise private finance, and said that public sources would never be enough to deal with the immense scale of climate change.

The interventions by the Parties took place after a workshop on long-term finance (LTF) that was held during the Climate Dialogues. During the LTF workshop, two reports were presented, one from the OECD on the progress towards the USD 100 billion goal, and the other by Oxfam International.

[TWN reviewed the OECD report titled, ‘Climate finance provided and mobilized by developed countries in 2013-18’. The report revealed that the total climate finance provided and mobilised by developed countries reached USD 78.9 billion in 2018. The report, which looks at the face value of climate finance as opposed to grant equivalence, says finance for mitigation represented over two-thirds (70 per cent) of the 2018 total, adaptation 21 per cent, and the remainder, cross-cutting (a mix of mitigation and adaptation). In relation to the financial instruments used, between 2013 and 2018, the share of loans in total public finance provided grew from 52 per cent to 74 per cent, while the share of grants decreased from 27 per cent to 20 per cent, according to the report. The OECD report also revealed that private climate finance mobilised by developed countries during 2016-18 focused almost only on climate mitigation (93 per cent)].

[The key takeaways from the Oxfam report titled, “Climate finance shadow report 2020: Assessing progress towards the $100 billion commitment”, was that of the USD 59.5 billion in public finance reported by developed countries, climate-specific net assistance may just be USD 19-22.5 billion in 2017-18. The report also states that around 20 per cent of the reported public finance was estimated to be grants, compared to 80 per cent reported as loans and other non-grant instruments, and that of all reported climate finance, about 40 per cent was non-concessional finance. The report states that the excessive use of loans and the provision of non-concessional finance in the name of climate assistance is an “overlooked scandal”. According to Oxfam, about 25 per cent of reported public climate finance was for adaptation, and 66 per cent was for mitigation.]

Tracy Carty, Senior Policy Advisor at Oxfam International, in her presentation at the LTF workshop said that the overall takeaway in terms of total scale is that the value of climate finance to developing countries is likely to be significantly lower than the reported numbers would suggest. She also said that their report presents numbers on a grant equivalent basis rather than face value and therefore “taking into account loan repayments by developing countries and other costs to them”, with the disclaimer that developed countries are not mandated to report climate finance on a grant equivalent basis.

“If we really want to understand how the extent to which developing countries are benefitting, we should just not be counting the money they receive but the money they also have to pay back. When you look at climate finance on a grant equivalent basis, the way loans are reported does not reflect donor efforts very well,” said Carty. She gave the examples of Japan and France which reported climate finance support to developing countries worth USD 9.7 billion and USD 4.8 billion. These numbers when calculated on a grant equivalent basis changed to about USD 5 billion and USD 1.3 billion, she said.

[TWN’s review of the Oxfam Report shows that the provision of non-concessional loans had shot up, and that non-concessional finance was USD 24 billion a year in 2017-18, around 40 per cent of the total public climate finance. The report states that of the climate finance provided to Small Island Developing States in 2016-18, 50 per cent comprised loans; in the case of the Least Developed Countries (LDCs), 66 per cent of support provided comprised loans. Adaptation finance was only around 20-25 per cent, the report found. The report also states that climate finance has been taking up increasing share of development finance, and that climate finance is likely to be displacing spending on other essential areas such as health and education].

[TWN also reviewed another report titled, the ‘Joint report on Multilateral Development Banks’ climate finance’ presents an overview of climate finance committed in 2019 by the African Development Bank (AfDB), the Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), the Inter-American Development Bank Group (IDBG), the Islamic Development Bank (IsDB) and the World Bank Group (WBG). The report states that collectively, the MDBs committed USD 61 billion in climate finance in 2019, of which 76 per cent was for climate change mitigation.  The report also indicated that 73 per cent of total climate finance was committed through investment loans and 63 per cent of total adaptation finance was committed through investment loans].

[According to the MDBs, loans are transfers for which repayment is required. “Investment loans can be used for any development activity that has the overall objective of promoting sustainable social and/or economic development, in line with the MDBs’ mandates. Proceeds used for activities included in the joint MDB methodology for tracking climate finance count as climate finance,” states the report].