If last year has taught us anything, 2018 is promising to be a year of new climate records, of more climate-induced disasters, of the need for a raised climate ambition. But also a year where money for climate finance needs to start flowing. Climate Tracker gives you a breakdown of what you need to know about Climate Finance:

So...What is Climate Finance exactly?

To respond to the climate change threats we are all facing, there is a high need for financial investment in mitigation and adaptation measures, both in developed and developing countries. The need to mitigate and adapt to climate change, and the vast funds required to do so, has led to an array of financial flows, known broadly as climate finance.

The majority of funds for climate finance are spent domestically. Countries thus mostly invest in their own climate measures, but there is also a significant portion that is spent overseas.

International climate finance is money pledged by rich, carbon-emitting countries (who have the greater share of responsibility in causing climate change) to poorer, climate-vulnerable countries.

Are there different types of Climate Finance?

We usually consider three types of climate finance:

  • Mitigation finance: that is, to fund projects that limit (mitigate) the onset of climate change. For example: renewable energy projects, reforestation efforts and other low-carbon initiatives.
  • Adaptation finance: that is, to fund projects to adapt to climate impacts. For example: seawalls or cyclone shelters.
  • REDD+: that is, money invested in forest protection and reforestation projects, sometimes through carbon trading schemes.

Moreover, there are several Climate funds through which Climate finance takes place, the most important of them being:

The Green Climate Fund (GCF): The GCF is a major climate fund within the framework of the United Nations Framework Convention on Climate Change. Its goal is to promote adaptation, sustainable development, and decreasing emissions in developing countries. Though the fund is falling short of its goal of raising $100 billion annually by 2020, the GCF is the largest climate fund, with $10.3 billion total raised from donor governments as of December 2016.

The Global Environment Facility (GEF): The GEF was already established in 1991 to address global environmental issues, including climate finance, as a partnership of most of the countries that are party to the UNFCCC. Headquartered in Washington, D.C.,the GEF has provided $14.5 billion funding over the years, plus $75.4 billion in complementary private financing to around 4,000 projects. The GEF also manages other funds like the Special Climate Change Fund & the Least Developed Countries Fund.

The Adaptation Fund: The Adaptation Fund was established in 2001 under the Kyoto Protocol and launched in 2007 to help countries adapt to climate change. Relative to the GCF and the GEF, The Adaptation Fund has distributed far less financing: $354.9 million in 61 countries since 2010.

Climate finance sounds very much like international aid. Is it a type of aid?

No. The definition of climate finance is enshrined in UN conventions, and these make a deliberate distinction between aid and climate finance.

There’s a very good reason for this. It’s the UN’s understanding that climate finance must be “new and additional” to any aid money previously pledged, and must be specifically pledged to climate projects. (This often gets very complicated in practice, and makes transparency of funds essential to prevent an overlap between climate finance and international aid.)

Does climate finance only come from governments?

Climate finance can come from public or private sources.

Even though countries are considered responsible for the flow of climate funds, climate finance can come from the private sector, too. There is, for example, such a thing as ‘leveraged’ climate finance,  in which some climate finance from a government gets a project started, until the point where it becomes economically viable for companies to start investing in it as well.

How much money are we talking about, here?

The important word here is ‘mobilise’, which means that while governments (and international financial institutions, i.e. the climate funds) must take the lead in finding money, it does not say how much of the money must come from government pockets and how much from the private sector.

This $100 billion is supposed to flow through a purpose-built organisation called the Green Climate Fund. It is still some way short of its target, though it is still the largest climate fund, with $10.3 billion total pledged by donor governments as of December 2016.

How much is any given country supposed to give?

While governments have agreed to climate finance in principle, there is nothing to dictate how much any government should give or receive. There has been heavy discussion on what ‘a fair share’ would mean for the world’s most polluting nations, but Oxfam’s report on the matter is definitely worth a read.

U.S. and the Paris Agreement

How did the announcement that the U.S. was going to leave the Paris Agreement have such a big influence on Climate Financing?

By deciding to abandon the Paris Agreement, President Trump also walked away from the commitment made under the Obama Administration to channel US$3 billion to the Green Climate Fund (only a third of which was already delivered under Obama).

The priority shifts that took place under the Trump administration also mean that development aid and other international funding, previously available for climate and clean energy initiatives, have now been cut back severely, which means even more shortfalls on international climate finance in the future.

A fundamental aspect of implementing the Paris Agreement is figuring out how to pay for the types of necessary investments in renewables, energy efficiency, clean transportation, water management and adaptation actions that will all be necessary around the world in the coming years and decades. With the U.S. no longer willing to contribute to the funds for these investments, the global community will have to commit even more to investing into a climate-resilient future.

Will we gather enough Climate Finances without the U.S.?

With the Trump administration not committing to its climate finance and other pledges, that doesn’t mean all hope is lost: many citizens, businesses, local U.S. governments and states formed a coalition during COP23 called “We Are Still in”. The coalition, representing more than half of the US economy, fully supports the Paris Agreement – and the climate finance promises that come with it.

French president Macron’s one-planet climate summit in December 2017, which was all about climate finance, further tried to fill the finance gap that the U.S. left behind. Many countries and companies made additional pledges during the conference, but none so far has promised to fill in the $2bn gap in the Green Climate Fund that was left by the U.S., and the $100bn milestone by 2020 still seems very far away.

Arthur Wyns

About Arthur Wyns