We are fast approaching the annual COP season of the United Nations Framework Convention on Climate Change, hosted this year in the Polish capital Warsaw. One theme certain to be high on the agenda is climate finance. This remains a contentious part of the convention discussions, reflecting a longstanding divergence between developed and developing countries.
There is consensus (of sorts) that additional public funding is needed to help the most vulnerable communities and countries respond to changing climatic conditions. But how much is needed, how it should be managed and the expected impact of this spending are much argued about.
Considerable intellectual effort has gone into identifying the supply of climate finance; less attention has been directed at the demand side of the equation. What programmes need funding and what delivery mechanisms should be in place to ensure that financing meets the needs of the most vulnerable?
We at the Overseas Development Institute have focused on this issue over the last four years, examining the delivery of climate finance in least developed countries. We co-hosted a side event at the 2011 Durban COP and have continued our analysis in a number of countries since then.
We have just completed two country studies – in Uganda and Tanzania – working with national partners: ACODE in Kampala and the Centre for Climate Change Studies at the University of Dar es Salaam. These country studies offer important insights into the demand for climate finance and the prospects for the effective use of such funding when it is deployed.
WHAT COUNTS AS CLIMATE FINANCE?
Climate finance is a term coined in the United Nations Framework Convention on Climate Change (UNFCCC) negotiations. As such, it is more a political label than a category of expenditure. So, we begin with a major definitional challenge: what counts?
We have examined this definitional challenge from an adaptation, mitigation and REDD perspective; ultimately, national definitions need to drive the debate, something that has been supported in our country studies.
Assuming that public spending on mitigation or adaptation can be identified, can it be tracked from budget allocations to actual expenditures? Marcus Manuel has raised the challenge of budget transparency in many countries – this general observation also holds true for climate finance.
Empirical studies, such as our work in Uganda and Tanzania, that try to track climate finance delivery therefore really matter in helping to raise awareness of how national governments are responding to climate change through their budgetary systems.
WHAT HAVE WE LEARNED?
Empirical work of this nature is difficult and initial estimates of climate change spending are imprecise. In Tanzania, we identified a considerable amount of spending taking place across a broad spectrum of government ministries, with $495 million budgeted for climate change relevant actions in 2011/12. Much less spending appeared to be taking place in Uganda, where in the same year $28 million was spent through the national budget.
Climate finance can come from a variety of sources: international climate funds, bilateral and multilateral donor funds, national public funds and private sector finance. The contribution of these different sources varies between countries, but everywhere national public funds are an important early source of finance.
Our work demonstrates that the public funding element of climate finance is, in the final analysis, just another category of public expenditure, and hence its effectiveness is determined in large part by the national public finance management system in which it is embedded. Philipp Krause has recently highlighted just how challenging reforming such systems can be.
One insight from our work is that the financing of climate change actions is presently treated as a budgetary rather than a policy issue. In other words, insufficient policy attention is being given to identify funding priorities, to determine how different funding sources can be managed, and to find out how best to secure the most effective funding channels.
SO, WHAT NOW NEEDS TO BE DONE?
First, how much is being spent on climate change actions needs to be known for the same reasons that we need to know the level of public spending on health and education. It may be more difficult to determine, but this is an important starting point for policy debate.
Our analyses provide an important early building block in this effort, but more is needed to support decision making so that finite resources can be targeted towards strategic investments.
Second, Ministries of Finance need to adopt a stronger role in administrating climate finance and ensuring that broader public finance management systems allow for climate finance to be delivered effectively. This means continuing to strengthen national budgetary systems.
Simple things matter: the credibility of the annual budget often needs to be raised to reduce within-year re-allocations so that climate change programmes can go ahead as planned.
Third, the level of awareness on climate change needs to undergo a step change within government line ministries. Most climate change relevant expenditure identified by the study teams in Uganda (64 percent) and Tanzania (84 percent) during 2011/12 was within programmes where tackling climate change was not a stated objective of the expenditure. Sector planners need support to see the relevance of their planning for climate change.
Finally, and to come back to the theme of ensuring that the most vulnerable are supported, greater emphasis should go to strengthening national to sub-national funding flows. Incorporating climate change activities in the conditional grant transfer arrangements from central government would provide one opportunity to open the fiscal space for local governments to take action now.
Neil Bird is an Overseas Development Institute research fellow. His current research focuses on climate change policy, the international aid architecture and its relation to climate finance. At the national level, his research interests include the delivery mechanisms for climate finance, national budgetary processes, sector policies and the institutional development of public sector agencies.