Dirty deals flag need for climate finance rules

by Oscar Reyes, Institute for Policy Studies
Wednesday, 10 December 2014 00:18 GMT

A worker of state-coal miner PT Bukit Asam cleans a conveyor belt at the Tarahan coal port in Lampung province, Indonesia, Aug. 20, 2011. REUTERS/Dwi Oblo

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Japan is far from the only developed country using climate money to promote its national interests

If you stick a dollar bill under a microscope it is full of dirt. It turns out something similar is true of climate finance - the billions of dollars developed countries pay to help developing countries cope with the effects of climate change and create cleaner energy systems, industry and cities.

Last week, the Associated Press (AP) broke a story that nearly $1 billion in loans earmarked by Japan as climate finance have been used to fund the construction of three coal-fired power plants in Indonesia. Burning coal is one of the most intensive ways to contribute to climate change.

Indonesian coal plants are not the only dirty deals masquerading as climate finance, an Institute for Policy Studies analysis can reveal.

As part of the same “fast start” financing examined by AP, the Japanese Bank for International Cooperation (JBIC, the country's export credit agency) gave a $600 million loan to Brazilian state oil company Petrobras.

The loans formed part of a $1.5 billion package alongside private Japanese financial institutions, and were made to support “the purchase of equipment and services from Japanese companies” in the building of a new oil refinery near Rio de Janeiro.

Japan also provided over $1 billion in climate finance to fund the building of new electricity transmission capacity, apparently without criteria on how clean the energy provided should be. These include a $530 million loan “to deliver additional energy, generated at new Thermal Power Plants” in the Indian state of Tamil Nadu. Most of those power stations will burn coal. 

While Japan is the only major donor that has directly supported coal power, it is far from the only developed country using climate money to promote its own national interests.

MONEY FOR U.S. BUSINESS

Over a third of U.S. contributions to fast start climate finance were to promote exports and investment by American businesses. That includes, for example, almost $70 million in risk insurance and loans to support a U.S. company building gas power generators at three Coca-Cola bottling plants in Nigeria.

Elsewhere, the French national development agency (AFD) gave a $75 million (€60 million) climate loan to help build the Lom Pangar dam in Cameroon, which will sell most of the power it generates to an aluminium smelting operation partly owned by AFD. 

One of the long-standing complaints of developing countries about how climate finance is administered is that the money is only disbursed long after pledges are made, if it even materialises at all.

Despite its name, “fast start” financing has been no different. To take just one example, a 2011 promise that $350 million would be delivered via the U.S. government's Millennium Challenge Corp. has so far delivered just 1.7 percent of that total.

Cataloguing failures in how climate finance is delivered does not mean that it should be stopped altogether – the agenda of climate denialists and conservatives in the US, Australia and many other developed countries.

International funds are badly needed to help people in developing countries cope with the floods, droughts, heat waves and extreme weather events that are happening more frequently as a result of climate change. They can also give a huge boost to efforts to reduce greenhouse gas emissions, such as expanding solar power or public transport systems, in places where the private sector is unwilling to invest.

LESSONS FOR GREEN CLIMATE FUND

Climate finance is a vital strand of negotiations for a new global climate treaty, currently under discussion at U.N. talks in Lima, Peru with a deal expected in 2015. But significant reforms are needed if developed country pledges are to regain credibility.

The Lima climate conference has a chance to take a step forward by offering a clear definition of climate finance, affirming that it refers to the transfer of new and additional resources from developed to developing countries in line with the U.N. climate change convention (UNFCCC).

Binding guidelines on how that money is reported should also be adopted, ensuring that coal financing is excluded, as well as requiring donors to report on when and how money is actually disbursed.

There are important lessons, too, for the Green Climate Fund (GCF), which recently received nearly $10 billion in pledges and is intended to become the central institution for international climate finance.

A coalition of over 300 community and environmental groups has demanded that GCF funds “will not be used directly or indirectly for financing fossil fuel and other harmful energy projects or programs”.

Their demands include the need for stronger environmental and social safeguards, as well as an exclusion list that would rule out financing for coal and projects that could subvert the “transformative” change that the GCF is supposed to stand for.

Climate negotiators and GCF officials would do well to heed these warnings, or risk destroying the fund's reputation at the outset.

Oscar Reyes is an Associate Fellow of the Climate Policy Program at the Institute for Policy Studies (www.ips-dc.org

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