Can climate finance be a policy game changer?

by Dennis Taenzler, adelphi
Tuesday, 9 December 2014 12:30 GMT

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What will flows of climate finance mean for action on climate change?

The key deliverable of the Copenhagen Climate Summit back in 2009 was the announcement of a $100 billion cheque for climate finance from 2020 on - though we already know today that financial resource for climate change mitigation and adaptation need to go beyond that

In the run up to the important climate conference in Paris next year this promise will probably be a game-changer for international climate policy. This is, first and foremost, because the climate finance topic has the potential to build the essential trust needed to develop and, even more important, implement the far reaching agreement envisioned for 2015.

Here’s how climate finance affects the game:

First, developing countries want – after many years of negotiations – to be sure that their urgent climate change needs are in fact recognized by international partners. Thus, their leaders aim at a clear roadmap on how international climate finance should be delivered and who is contributing what. In this way, especially, the efforts can be supported to make climate resilient societies a reality around the globe.

But, this won’t probably be enough. As the adaptation gap report outlines – published by the United Nation’s Environment Programme (UNEP) during the current climate negotiations in Lima – funding needs have been significantly underestimated. The costs of adaptation to climate change are likely two-to-three times higher than outlined even by the international climate science body IPCC. Hence, there is still some way to go.

Second, developed countries – or more broadly donors –have been repeatedly asking for an accountable and transparent spending of climate finance in partner countries.

As preparations in developing countries are indicating, there is lots of momentum going on to be climate finance ready. For example, in Colombia, a newly established finance committee aims at guiding the implementation of the national climate change policy by coordinating national and international partners.

Moreover, by introducing an innovative climate change budget coding system, Nepal now has the chance to monitor the share of the budget allocated by different ministries for climate change purposes.

Overall, direct access to international climate finance is increasingly an option for developing countries. The Adaptation Fund has so far accredited 21 institutions as national or regional implementing entities. But this is only one option among many.

Third, the current rules of the game are being significantly influenced by the recently established Green Climate Fund (GCF) in Songdo, South Korea. As the main global institution for climate finance it is going to be a significant catalyst for climate projects by offering windows for mitigation and adaptation finance.

Countries are required to establish national focal points and implementing entities to facilitate the partnership between GCF and countries. A private sector facility should ensure that the private sector will receive the right incentives to contribute to overall financial target set in Copenhagen.

The GCF establishment makes the playground of global climate policy even more complex but it bares important chances for successfully implementing climate mitigation and adaptation projects. Here’s why:

  • strong accountable institutions are needed to coordinate the use of climate finance within the countries;
  • overall awareness within the government and by the whole society will increase by involving key players such as the finance ministries into the climate change game,
  • programmes and projects need to be in line with national development priorities which contributes to a coherent policy framework and ownership for climate-sensitive investments in developing countries,
  • an active civil society is required to help implementing innovative project but also monitor and evaluate the results

As a result, thorough capacity building for climate finance readiness is needed. What this means in concrete terms will be discussed by the author and others during a side event in Lima at COP20 on 12 December.

Dennis Taenzler is director of international climate policy at the think tank adelphi, based in Berlin.