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Can the world clear up the confusion over climate finance?

Friday, 26 February 2016 08:17 GMT

A man counts wads of U.S. dollars on a machine at a currency exchange shop in Baghdad, Dec. 21, 2015. REUTERS/Khalid al Mousily

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Without agreement on what should count as funding for climate change action, it's impossible to know if targets are being met

There is a contradiction in the way the climate change community understands climate finance.

On the one hand, there is a strong push to mainstream climate change considerations into most development efforts. But when it comes to deciding what should and shouldn’t count as funding to tackle climate change, there are objections to any attempts to include development aid with a climate element as a part of global climate finance.

As a result, no one can agree on how far the world has really progressed towards its commitment to raise $100 billion a year in climate finance for vulnerable countries from 2020.

This causes serious problems. To take the example of the Green Climate Fund, the primary global vehicle through which climate finance will flow, in the first set of projects that were put to it for approval in November, this lack of consensus on defining climate finance resulted in concerns about the nature of some of the proposals.

Were they really “climate change” projects? Or were they just general development initiatives that should be financed through other channels? Examples of the contentious projects included one to help communities manage water shortages in the Maldives, and another on water supply and waste water management in Fiji. The board struggled to arrive at an answer.

If climate finance is to be an effective tool towards achieving the goals outlined in the recent climate agreement in Paris, then this lack of consensus on climate finance needs to be resolved.


At the centre of the global framework for climate finance is the principle that the developed world, based on the polluter pays principle, will help the developing world to mitigate and adapt to climate change. The magic number is $100 billion a year - an amount first promised in 2009, with commitments reinforced at the Paris climate change talks, to be provided from 2020 onwards.

Despite the top-level consensus, questions remain. Should this financing be provided exclusively as grants from the public purse, or should private-sector investment and loans also count? And which countries should qualify – besides the poorest nations, should emerging market economies such as India be eligible?

With governments such as Britain having committed both to an Overseas Development Assistance (ODA) target and to contributing climate finance, this ambiguity has practical implications. Without a mutually agreed definition of what aid can be included as climate finance, the perception arises that the same money is being counted twice.

Most experts argue that climate change responses should be mainstreamed into broader development efforts. Rather than being restricted to building solar and wind farms, or flood control systems, everything - from infrastructure to health and education - should have a climate perspective.

But when a report published in October by the Organisation for Economic Co-operation and Development (OECD) suggested that climate finance levels in 2013-14 were as high as $62 billion, there was a fierce reaction from aid agencies and some researchers.

They said the numbers included everything under the sun - from private-sector financing, to loans and development projects that had very little to do with climate change. India’s ministry of economic affairs called the report “deeply flawed” and only “partially correct at best”.

Counter claims suggested the actual flows may be as little as just over $2 billion.

But wasn’t the idea to incorporate climate change efforts into wider development plans in the first place? While conceptually sound, this raises a number of very practical and important challenges.


While the U.N. language calls for global climate finance to be “new and additional” to existing aid commitments, the OECD report controversy shows that developed and developing countries have a very different perspective of what this means.

To make climate finance effective, it is critical to find common ground on its definition - in particular, on what development aid should also count towards global climate finance figures. One simple way of doing this would be to put less emphasis on the $100 billion target.

If the aim is to avert a global climate change disaster, then the goal should be to raise sufficient climate finance to keep the world below 2 degrees Celsius of warming and enable countries to adapt to the effects of the climate change that will occur.

So instead of measuring the supply of climate finance against a “$100 billion a year” goal, we should measure it against the “demand” – whatever figure is necessary to achieve the global goals agreed in Paris in December.

That would allow for more transparency on the impact of climate finance, and encourage more reasonable discussions on how future funding should be scaled up.

We now have an opportunity to move ahead. The Paris climate change talks requested a technical body to clarify by 2018 what should count as climate finance.

Unfortunately, that won’t help at the next meeting of the Green Climate Fund board in March, where the issue of climate funding versus development aid is likely to crop up again in the project approval process.

However, if the U.N. technical body does its work well over the next two years, it will be a major step forward in making climate finance more effective. 

Kashmala Kakakhel is an independent consultant, working on climate finance and resilience issues.