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The “Wild West” of Climate Finance And Its Implications for the Belgian Development Cooperation KLIMOS-Climate Seminar: March 19, 2015, 09.30-12.00 @DGD
PhD Candidate at the Centre for Studies on Sustainable Development – Université Libre de Bruxelles KLIMOS Ad Hoc Researcher
Context In Copenhagen (COP 15, December 2009), developed countries pledged collectively to provide new and additional resources approaching US$ 30 billion for the period 2010-12 (a short-term commitment called “Fast Start Finance”) with balanced allocation between adaptation and mitigation, and to mobilize jointly US$ 100 billion a year in climate finance by 2020 (UNFCCC, 2009; commitments reiterated during subsequent COP). These commitments were highly praised and are often compared in scale with current official development assistance (ODA) flows (around US$ 135 billion in 2013). If this kind of comparison needs to be qualified, these commitments nonetheless reflect growing international recognition of the need for climate finance (the commitment for adaptation finance is huge!).
Normative contestations To understand the current climate finance architecture, it is important to understand longstanding normative contestations over the nature of climate finance and its relationship to development aid. Most developing countries and some NGOs have persistently argued that climate finance should be treated differently from development assistance, since it is based on a specific “obligation” flowing from developed countries’ disproportionate contribution to climate change.
Normative contestations Developing countries have argued that climate finance should be: - Generated according to defined effort-sharing arrangements different from
those for aid;
- “Additional” in the sense of supplementary to existing aid commitments (0.7% ODA/GNI target);
- Delivered through channels separate from development finance so that newness and additionality of financial contributions are more easily assessed;
- Delivered in a way that reflects developing countries’ “entitlement” to funds, that is, • with minimal conditions attached,
• through direct access modalities (not via traditional international development institutions),
• and preferably in the form of grants rather than loans; - Evenly split between mitigation and adaptation finance.
Normative contestations Most developed countries, by contrast, have generally argued for a more integrated approach to climate finance and aid, emphasizing the complementarities between addressing climate change and promoting development. They have generally expressed a stronger interest in the support of mitigation (seen as mainly providing global benefits) rather than adaptation (mainly local benefits). According to them, climate finance is part of the bargaining package to obtain mitigation commitments by developing countries. In addition to “normative” differences, pragmatic considerations have certainly influenced these contrasting positions (developing countries trying to maximize the resources available to them, and developed countries wanting to minimize their international financing commitments).
Agreed principles Some of these elements are reflected in UNFCCC COP decisions. Examples include the fact that the US$ 100 billion target is presented « in the context of meaningful mitigation actions » from developing countries (UNFCCC, 2009 : para. 8 ; UNFCCC, 2010 : para. 98); and that financial resources pledged to developing countries as per the Fast Start Finance are supposed to be delivered with a “balanced allocation” between adaptation and mitigation (UNFCCC, 2009 : para. 8 ; UNFCCC, 2010 : para. 95). Other agreed parameters include among others that climate finance should be “new and additional”; that adaptation finance should be prioritized for the “most vulnerable developing countries such as the LDCs, SIDS and African countries”; that a “significant portion” of “new multilateral funding for adaptation” should flow through the Green Climate Fund; and that climate finance can come from “a wide variety of sources, public and private, bilateral and multilateral, including alternative sources of finance”.
Vague commitments However, those parameters are poorly defined: - Indeed, what does “balanced between adaptation and mitigation” mean?
50% each? More financial resources for mitigation in the short term and more for adaptation in the longer term?
- How should adaptation finance be prioritized between LDCs, SIDS and African countries? Which countries are those other “most vulnerable developing countries”?
- What is the “significant portion” of “new multilateral funding for adaptation” that should flow through the Green Climate Fund?
- How much of the US$ 100 billion should come from public sources? How much from private ones?
Vague commitments Indeterminate language in UNFCCC decisions on these issues has left considerable discretion to contributor countries as to how to implement climate finance, particularly how to interpret issues that are contested in the negotiations, such as the “additionality” of climate finance. This is as if you imagine the European Union pledging to reduce its emissions by 30 percent by 2020 without indicating if this percentage is below 1990 or 2005 levels! That was the case in Copenhagen when developed nations pledged without a reference point and therefore without a clear meaning. More fundamentally, the question of what constitutes “climate finance” is itself still not internationally agreed.
Vague commitments Individual contributing countries have been vested with significant discretion over how they deliver on their commitments (same “bottom-up”/nationally driven approach than for climate change mitigation). Many challenges faced by contributing countries: - Most developed countries heavily rely on the OECD DAC’s project-level Rio
Marker system for their financial reporting to the UNFCCC but in very different ways; This system was not designed for quantitative purposes!
- Core contributions to multilateral agencies.
Summary of Publicly Available FSF Data (million US$)
Own calculations based on WRI/ODI (2013) Fast-Start Finance Project and Programme Data Set v3.0
Contrasting statements The lack of universally agreed definitions of climate finance (and of consensus on how parties should interpret and apply agreed parameters) give rise to very different statements: « We certainly have fully delivered on fast start finance and honored our commitments », Artur Runge Metzger, lead climate negotiator for the European Commission (http://www.bloomberg.com/news/articles/2012-11-26/rich-nations-fall-short-of-30-billion-climate-change-aid-pledge). European Court of Auditors (2014), Special Report No 17/2013 – EU climate finance in the context of external aid, Luxembourg: « The extent to which the FSF commitment was fulfilled by the EU and its Member States is unclear » (European Court of Auditors, 2014 : 26). Official reply of the European Commission and the EEAS : « The FSF commitment was met within the parameters given in the relevant UNFCCC documents » (European Court of Auditors, 2014 : 47).
Contrasting statements « Il y a des engagements de 100 milliards, mais la réalité, c'est qu'on est déjà à plus que ça », Pierre Forestier, Responsable de la Division Changement Climatique de l’Agence Française de Développement, 17 septembre 2014 (https://www.youtube.com/watch?v=GwIReVuNSXc, 1:29:53). « Aujourd'hui, quand on fait les comptes, (...), on voit qu'on va arriver relativement facilement aux 100 milliards de dollars par an », Laurence Tubiana, Ambassadrice de France chargée des négociations sur le changement climatique, 25 août 2014 (https://www.youtube.com/watch?v=xMP4Ok7lpEo, 3:07:33). « About $35 billion to $40 billion a year now is flowing from western governments in the form of direct aid and loans from development banks », Todd Stern, Lead U.S. d iplomat on c l imate matters (ht tp://www.bloomberg.com/news/articles/2015-02-26/climate-finance-tops-35-billion-a-year-u-s-envoy-says).
Vague commitments The diverse approaches of contributing countries have had a continuing role in shaping what we know about the “climate finance landscape”.
Government budgets of OECD countries
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Government budgets of OECD countries
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Bilateral development banks (KfW, JBIC, etc.)
Bilateral cooperation agencies (AfD, DFID, USAid, etc.)
Non-OECD countries
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The largest share of public adaptation finance flows bilaterally, largely through existing bilateral development institutions.
Government budgets of OECD countries
Bilateral institutions
International Climate Fund (United Kingdom)
International Climate Initiative (Germany)
Hatoyama Initiative (Japan)
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Bilateral development banks (KfW, JBIC, etc.)
Bilateral cooperation agencies (AfD, DFID, USAid, etc.)
Non-OECD countries
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Dedicated bilateral climate finance initiatives have also emerged.
Government budgets of OECD countries
Bilateral institutions
International Climate Fund (United Kingdom)
International Climate Initiative (Germany)
Hatoyama Initiative (Japan)
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Bilateral development banks (KfW, JBIC, etc.)
Bilateral cooperation agencies (AfD, DFID, USAid, etc.)
Non-OECD countries
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cipi
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Government budgets of OECD countries
Bilateral institutions
International Climate Fund (United Kingdom)
International Climate Initiative (Germany)
Hatoyama Initiative (Japan)
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nds
Bilateral development banks (KfW, JBIC, etc.)
Bilateral cooperation agencies (AfD, DFID, USAid, etc.)
Non-OECD countries
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Using the “adaptation marker” of the OECD Development Assistance Committee (DAC), donors indicate whether adaptation is a “principal focus” or a “significant focus” of a project. For 2013, they reported US$ 3.44 billion as “principally” targeting adaptation objectives and US$ 10,84 billion as “significantly” targeting adaptation objectives. But there is particularly limited transparency and consistency in reporting finance for adaptation at the bilateral level, with countries self-classifying and self-reporting adaptation-relevant financial flows without independent verification
Government budgets of OECD countries
Bilateral institutions
International Climate Fund (United Kingdom)
International Climate Initiative (Germany)
Hatoyama Initiative (Japan)
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nds
Bilateral development banks (KfW, JBIC, etc.)
Bilateral cooperation agencies (AfD, DFID, USAid, etc.)
Non-OECD countries
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cipi
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Government budgets of OECD countries
Bilateral institutions
International Climate Fund (United Kingdom)
International Climate Initiative (Germany)
Hatoyama Initiative (Japan)
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nds
Multilateral development banks (World Bank, African development bank, etc.)
United Nations agencies (UNDP, UNEP, FAO, WFP, etc.)
Bilateral development banks (KfW, JBIC, etc.)
Bilateral cooperation agencies (AfD, DFID, USAid, etc.)
Non-OECD countries
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Multilateral development banks also play a prominent role in delivering climate finance. All of them incorporate climate change considerations into their core lending and operations.
Government budgets of OECD countries
Multilateral institutions Bilateral institutions
Not linked to the UNFCCC
International Climate Fund (United Kingdom)
International Climate Initiative (Germany)
Hatoyama Initiative (Japan)
Pilot Program for Climate Resilience (World Bank)
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United Nations agencies (UNDP, UNEP, FAO, WFP, etc.)
Bilateral development banks (KfW, JBIC, etc.)
Bilateral cooperation agencies (AfD, DFID, USAid, etc.)
Non-OECD countries
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Multilateral development banks (World Bank, African development bank, etc.)
The World Bank positioned itself at the centre of current multilateral adaptation finance efforts, with its Pilot Program for Climate Resilience (US$ 1,16 billion pledged since 2008).
Government budgets of OECD countries
Multilateral institutions Bilateral institutions
Not linked to the UNFCCC
International Climate Fund (United Kingdom)
International Climate Initiative (Germany)
Hatoyama Initiative (Japan)
Pilot Program for Climate Resilience (World Bank)
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Multilateral development banks (World Bank, African development bank, etc.)
United Nations agencies (UNDP, UNEP, FAO, WFP, etc.)
Bilateral development banks (KfW, JBIC, etc.)
Bilateral cooperation agencies (AfD, DFID, USAid, etc.)
Non-OECD countries
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Elaborating on the OECD-DAC methodology, some multilateral development banks developed a joint approach for adaptation finance tracking. They estimated their investments in adaptation to be around US$ 4,83 billion in 2013.
Government budgets of OECD countries
Multilateral institutions Bilateral institutions
Not linked to the UNFCCC
Global Climate Change Alliance (European Commission)
International Climate Fund (United Kingdom)
International Climate Initiative (Germany)
Hatoyama Initiative (Japan)
MDG Achievement Fund – Environment and Climate Change thematic window (UNDP)
Pilot Program for Climate Resilience (World Bank)
Con
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edic
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United Nations agencies (UNDP, UNEP, FAO, WFP, etc.)
Bilateral development banks (KfW, JBIC, etc.)
Bilateral cooperation agencies (AfD, DFID, USAid, etc.)
Non-OECD countries
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Multilateral development banks (World Bank, African development bank, etc.)
Other dedicated multilateral adaptation finance initiatives include the Global Climate Change Alliance (US$ 386 million pledged since 2008) of the European Union, and the MDG Achievement Fund – Environment and Climate Change thematic window (US$ 90 million pledged since 2007) of the United Nations Development Programme.
Government budgets of OECD countries
Multilateral institutions Bilateral institutions
Linked to the UNFCCC Not linked to the UNFCCC
Adaptation Fund
Global Climate Change Alliance (European Commission)
Green Climate Fund
International Climate Fund (United Kingdom)
International Climate Initiative (Germany)
Hatoyama Initiative (Japan)
Least Developed Countries Fund
MDG Achievement Fund – Environment and Climate Change thematic window (UNDP)
Special Climate Change Fund
Special Priority on Adaptation (GEF)
Pilot Program for Climate Resilience (World Bank)
2% of the sale of emission credits from the CDM
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National implemen-ting entities
Multilateral development banks (World Bank, African development bank, etc.)
United Nations agencies (UNDP, UNEP, FAO, WFP, etc.)
Bilateral development banks (KfW, JBIC, etc.)
Bilateral cooperation agencies (AfD, DFID, USAid, etc.)
Non-OECD countries
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Only a limited volume of adaptation finance has been channeled through institutions linked to the UNFCCC (US$ 501 million disbursed since 2002)
Government budgets of OECD countries
Multilateral institutions Bilateral institutions
Not linked to the UNFCCC
Adaptation Fund
Global Climate Change Alliance (European Commission)
Green Climate Fund
International Climate Fund (United Kingdom)
International Climate Initiative (Germany)
Hatoyama Initiative (Japan)
Least Developed Countries Fund
MDG Achievement Fund – Environment and Climate Change thematic window (UNDP)
Special Climate Change Fund
Special Priority on Adaptation (GEF)
Pilot Program for Climate Resilience (World Bank)
2% of the sale of emission credits from the CDM
Con
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National implemen-ting entities
Multilateral development banks (World Bank, African development bank, etc.)
United Nations agencies (UNDP, UNEP, FAO, WFP, etc.)
Bilateral development banks (KfW, JBIC, etc.)
Bilateral cooperation agencies (AfD, DFID, USAid, etc.)
Non-OECD countries
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Linked to the UNFCCC
But more than USD 10 billion (split 50% mitigation-50% adaptation over time) were recently pledged to the Green Climate Fund, which is expected to become a significant channel through which international public climate finance will flow in the future
Government budgets of OECD countries
Multilateral institutions Bilateral institutions
Not linked to the UNFCCC
Adaptation Fund
Global Climate Change Alliance (European Commission)
Green Climate Fund
International Climate Fund (United Kingdom)
International Climate Initiative (Germany)
Hatoyama Initiative (Japan)
Least Developed Countries Fund
MDG Achievement Fund – Environment and Climate Change thematic window (UNDP)
Special Climate Change Fund
Special Priority on Adaptation (GEF)
Pilot Program for Climate Resilience (World Bank)
2% of the sale of emission credits from the CDM
Con
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National implemen-ting entities
Multilateral development banks (World Bank, African development bank, etc.)
United Nations agencies (UNDP, UNEP, FAO, WFP, etc.)
Bilateral development banks (KfW, JBIC, etc.)
Bilateral cooperation agencies (AfD, DFID, USAid, etc.)
Non-OECD countries
Impl
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cipi
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Linked to the UNFCCC
The Adaptation Fund is the only one to have a source of resources independent from donor contributions, thanks to a 2% share of proceeds from emission reductions issued under the Clean Development Mechanism of the Kyoto Protocol (but the steep fall in the price of Certified Emission Reductions is a major source of concern!).
Government budgets of OECD countries
Multilateral institutions Bilateral institutions
Not linked to the UNFCCC
Adaptation Fund
Global Climate Change Alliance (European Commission)
Green Climate Fund
International Climate Fund (United Kingdom)
International Climate Initiative (Germany)
Hatoyama Initiative (Japan)
Least Developed Countries Fund
MDG Achievement Fund – Environment and Climate Change thematic window (UNDP)
Special Climate Change Fund
Special Priority on Adaptation (GEF)
Pilot Program for Climate Resilience (World Bank)
2% of the sale of emission credits from the CDM
Con
trib
utor
s D
edic
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nds
National implemen-ting entities
Multilateral development banks (World Bank, African development bank, etc.)
United Nations agencies (UNDP, UNEP, FAO, WFP, etc.)
Bilateral development banks (KfW, JBIC, etc.)
Bilateral cooperation agencies (AfD, DFID, USAid, etc.)
Non-OECD countries
Impl
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Linked to the UNFCCC
So far, the bulk of adaptation finance has been delivered bilaterally (aid with a principal adaptation objective: US$ 3,44 billion in 2013; aid with a significant adaptation objective: US$ 10,84 billion in 2013) and multilaterally (US$ 4,83 billion in 2013), outside of the UNFCCC, largely through existing development channels (but significant over-coding?).
Institutions linked to the UNFCCC have played a limited role in the international adaptation finance architecture (US$ 348 million since 2002) (but significant role in « testing » innovative adaptations?); however, recent pledges to the Green Climate Fund could represent a change in this landscape.
Conclusions - More financial pledges/intermediate pledges on the road to 2020 will not
help much in gaining trust in the negotiations. Except regarding climate funds under the UNFCCC.
- What is probably needed is a robust MRV system designed under the UNFCCC. Not sure it is politically achievable.
- OECD DAC: refinement of the Rio Marker methodolodgy under way…
Definition of climate finance : huge opportunities and risks (which can be compared with those linked to the definition of ODA).
DAC RECOMMENDATION DEVELOPMENT ASSISTANCE OECD DAC Recommenda7on on Good Pledging Prac7ce 7 April 2011 -‐ DCD/DAC(2011)12/REV1 Conscious of the need to ensure that donor aid pledges are credible, achievable, and properly monitored, DAC members will strive to observe, to the largest extent possible, the following principles in their future pledging prac7ce in respect of financial undertakings towards developing countries. 1. Clarity. Pledges should specify all parameters relevant to assessing their achievement. These include, but are not limited to, the date or period covered, the source and terms of finance, and the baseline against which to assess any claims of addi=onality to exis=ng flows or exis=ng commitments. 2. Comparability. Global pledges by the donor community should be an actual sum of individual donor pledges, and these pledges should as far as possible be compa=ble in their terms, dates, baselines, and units of measurement. 3. Realism. Pledges should be made for periods and amounts over which those pledging have an appropriate degree of control and authority. The pledges should be reasonable and achievable in the donor’s budgetary and economic circumstances. 4. Measurability. Pledges should be made on the basis of exis=ng measures of aid and other resource flows wherever possible. If the data necessary for monitoring a pledge are not already available, then monitoring responsibili=es should be specifically assigned. 5. Accountability and transparency. Pledges should respond in a =mely and efficient fashion to priority needs iden=fied by aid beneficiaries, and donors should provide informa=on sufficient to allow beneficiaries and third par=es to track performance.
- KLIMOS Working Paper
- Valentine van Gameren, Romain Weikmans, & Edwin Zaccai (2014), L’adaptat ion au changement climatique, Collection Repères, Editions La Découverte (10 euros).
- My Ph.D. Thesis (Summer 2015)
Thank you for your attention.
Romain Weikmans Ph.D. Candidate KLIMOS ad hoc Researcher Centre for Studies on Sustainable Development, Université Libre de Bruxelles [email protected]