Governments must enable bold action on climate finance

by Sandra Guzman and Smita Nakhooda | Overseas Development Institute
Tuesday, 16 September 2014 07:30 GMT

Indian currency of different denominations are seen in this picture illustration taken in Mumbai, April 30, 2012. REUTERS/Vivek Prakash

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Finance is one crucial area where progress needs to be made in climate talks, giving developing states clarity on the support they can expect

It’s crunch time in the long-running efforts to secure a global deal on climate change. With just over a year remaining until world leaders meet in Paris to agree a global response to climate change, there is considerable work to be done.

Finance is one crucial area where progress needs to be made, to give developing countries clarity on the international support that will be available to support them to act. In developing countries, incentives, governance and transparency need to be strengthened to enable low-carbon and climate-resilient development.

In developed countries, there is a need to enable the scale-up of climate finance. Advocates for ambitious action on climate change need to convince leaders this money is worth spending, and can yield real results.

The Peruvian hosts of the 2014 Conference of the Parties (COP) to the U.N. Framework Convention on Climate Change have positioned the upcoming meeting in December as “the finance COP”. To this end, Peru organised a set of technical meetings in Lima at the end of August, around the thorny issues of how to use finance well.

Lima Climate Finance Week brought experts, governments and practitioners together to reflect on the best options to finance ambitious action on climate change, and also convened an informal negotiators’ dialogue on potential ways forward. There are a lot of options on the table. But it will take some bold commitment to enable action.

The term “enabling environment” has gained currency in the climate finance community in recent years, including through the work programme on Long Term Finance. While the term may have different connotations, in essence it refers to the policies, regulations, institutions and governance that enable finance to support meaningful mitigation and adaptation action in both developed and developing countries.

Much attention has focused on what developing countries need to do. This involves getting fundamental pricing and incentives right – for example, by reducing subsidies for conventional energy.

It involves creating policies and regulations that allow low-carbon technologies to play a bigger role in energy and transportation systems, or incorporating information on the impacts of climate change into future investments, including national public spending.

Public climate finance can be used to support governments in their efforts to take such measures, though these investments require working in close partnership with national stakeholders. Developing country champions for such change may be empowered by the promise that there will be finance for the low-carbon and climate-resilient investments that such measures can unlock.

TRANSPARENCY

Good information and transparency are essential to foster this change. Governments and others –including civil society - in a growing number of developing countries are setting up systems to identify and monitor climate-related spending.

For example the government of Mexico is developing a system to track the international climate finance it receives, and an annex in its federal budget now seeks to identify climate-related spending. These efforts are an important step, although there is a recognised need to improve methodologies.

Civil society groups are also stepping in with their own initiatives to track climate related-spending, and seek accountability for delivery of mitigation and adaptation results consistent with national priorities.

But an enabling environment for developed countries to follow through on their commitments to deliver climate finance is also needed. There are political realities in contributor countries that allow - or impede - efforts to scale up international finance for climate action in developing countries.

Some countries have already made important efforts. Germany for example pledged $1 billion (€750 million) to the Green Climate Fund in July. Others have created channels to meet their commitments: for example Britain established an International Climate Fund that will spend $6.12 billion (£3.87 billion) between 2010 and the end of 2016.

These are important measures, but there is a need to build on them and expand them in a wider range of countries. To do this, we need to help citizens in developed countries and the politicians who represent them to understand that climate finance is worth spending, because it is delivering real climate and development benefits.

Understanding what works when it comes to climate change, and what makes it effective, is therefore key to enabling developed countries to scale up climate finance.

Progress on all of this will need to be made in capitals – from Lima, to Mexico City to London and Canberra - if the climate negotiations in December and Paris are to make real progress, including on finance.

Sandra Guzman is a Research Associate in the Climate and Environment Programme at the Overseas Development Institute and coordinator for the Climate Finance Group of Latin America and the Caribbean (GFLAC). Smita Nakhooda is a Senior Research Fellow at the Overseas Development Institute.