What do we mean when we talk about climate finance?

Climate finance refers to international financing that provides resources to developing countries to address climate change, and specifically to support mitigation and adaptation actions. The United Nations Framework Convention on Climate Change (UNFCCC) (1992), the Kyoto Protocol (1997) and the Paris Agreement (2015), all require developed countries to provide climate finance to developing countries. The UNFCCC specifically highlights SIDS and LDCs as those in urgent need of climate finance.

What is climate finance for?

Climate finance is crucial for mitigation, as large scale investments are required to drastically reduce greenhouse gas (GHG) emissions, allowing a transition to a sustainable development model;

  • There’s also urgent need for finance for adaptation, which allows countries to prepare for and reduce the impacts of climate change and adapt to them.
  • As climate change is generating impacts today that cannot be avoided, developed countries must agree as well on making finance available for loss and damage, providing relief and financial support to vulnerable communities and countries to cover the costs of emergency, recovery and reconstruction from increasingly severe climate extreme events, slow onset events and environmental hazards.
  • It is also important that the climate finance channelled to developing countries is gender-transformative, integrating a gender perspective from the outset of any programme or project.

Climate finance is part of the reparations for the huge climate debt owed by governments, elites, and corporations of rich, industrialized countries. It is an obligation of ‘developed countries’ to ‘developing countries’.

Lidy Nacpil, APMDD

The majority of existing climate finance is earmarked for mitigation and the rest for adaptation. There is currently no support allocated to loss and damage. Investments in mitigation and adaptation, and resources to cover for loss and damage after a climate event, are particularly out of reach in the global south where there are limited fiscal resources for such investments. Increasing debt makes those fiscal resources even more limited. Climate finance is therefore key to fighting inequalities, eradicating poverty, ensuring human rights, and achieving climate justice for all.

Developed countries have committed to mobilise up to US$100 billion per year by 2025, a goal that is neither close to being achieved, nor sufficient to deal with the challenges that countries in the global south have to face. Actually,  this figure is widely considered to be a compromise figure meant to present COP15 as not being a failure, as opposed to being a figure based on current and future needs identified by developing countries. A new climate finance goal will be agreed before 2025. According to Oxfam’s latest calculations, based on current pledges and plans, “wealthy governments will continue to miss the $100 billion goal and reach only US$ 93 billion to US$ 95 billion per year by 2025, five years after the goal should have been met. This means that climate-vulnerable countries could miss out on between US$ 68 billion and US$ 75 billion in total over the six-year target period”.

The most recent OECD progress report on climate finance affirms that financing provided by developed countries for climate action in developing countries reached US$79.6 billion in 2019. This includes both public (US$62.9 billion, of which US$ 28.8 billion is bilateral financing and US$ 34.1 billion multilateral public climate finance attributed to developed countries), publicly supported finance through Export Credit Agencies (US$2.6 billion), and private funds (US$14.0 billion).

Climate finance provided and mobilsed (US$ billion)

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However, the total public climate finance provided could be much less. According to Oxfam calculations there are inaccuracies in how the climate component of the financed projects is counted, and most loans offered as climate finance are counted “at their full-face value, rather than as the amount of money given to a developing country once repayments, interest and other factors are accounted for (the grant equivalent)”. Considering these elements, Oxfam estimates that public climate net assistance in 2018 could be as low as US$19 to US$22.5 billion.

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