Climate finance (CF) had always been at the core of negotiations under the UN Framework Convention on Climate Change (UNFCCC). In recent years, it has become so intractable that often discussions on CF, which this time had 11 agendas under different bodies of the UNFCCC, spill over beyond the scheduled closing date of the Conference of Parties (COP).
This time was no exception. The agendas covered long-term finance, review of the functions of the Standing Committee on Finance, its report along with reports of the Global Environment Facility and Green Climate Fund and their guidance from the COP, Adaptation Fund, developed country parties’ ex-ante submission of indicative quantitative and qualitative information on financial support to the UNFCCC Secretariat and accounting modalities of CF. Negotiations this time have mostly dragged over the last two agendas.
However, before going into those crunch issues, let us first see the new pledges on CF by some EU countries: Germany, Sweden, Italy, Belgium and its southern region of Wallonia, and Ireland made a total of $185 million in new financial pledges, roughly about half going to the Adaptation Fund and to the Least Developed Countries Fund.
These two funds support adaptation needs in the vulnerable countries. The decision was taken that the Adaptation Fund now under the Kyoto Protocol will be formally linked to the Paris Agreement next year, when the rulebook for its implementation will be adopted at COP24.
It may be recalled that COP21 in Paris in 2015 decided the Fund “may” serve the Agreement. At COP22 in Morocco last year, Parties went a step further, deciding the Fund “should” serve it, pending final decisions on its governance and safeguards to be taken by 2018.
So a decision to this effect has assured the developing countries of its continuity, but what would be its governance process or sources of support perhaps will be discussed later.
Besides, there were two other important announcements on insurance at COP23. The first was the launch of the InsuResilience Global Partnership, an expansion of a G7 initiative first announced at Paris but now a joint venture between the G20 and the V20 (the group of vulnerable nations, of which there are actually 49 now).
The multilateral development banks, civil society organisations, and private sector insurers have also joined the state actors. The central objective of the partnership is to enable more timely and reliable post-disaster response and to better prepare for climate and disaster risk through the use of climate and disaster risk finance and insurance solutions, helping the poor and vulnerable people recover more quickly, increasing local adaptive capacity, and strengthening local resilience.
The partnership already has about $550m of funding, which could make a big difference in vulnerable communities through targeting properly the risks to their livelihoods. We only hope the actual fund deployment to the ground will speed up.
The other announcement was a clearing house on insurance data, to be run by the UNFCCC and named in honour of the Fiji presidency, the Fiji Clearing House on Risk Transfer. Its main feature is a service called “risk yalk,” providing online access to those seeking “solutions” to insurance needs.
Such access to all types of insurance and risk financing information is likely to help develop and write insurance policy proposals and locate support from the available funding sources.
However, negotiations proved most rancorous over the transparency of financial support developed countries provide to developing countries. Negotiators have grappled with two key questions of how countries would communicate about financial support for climate action.
The communication of ex-post support in terms of finance, technology, and capacity building was agreed and practiced by the industrial countries initially through their national communications and then through their biennial reports submitted to the UNFCCC secretariat.
But the quantitative information supplied as claimed delivery of CF to developing countries were regarded as inflated, as double/triple, or even quadruple counted. The methodology for such accounting was recognised by the donors themselves as kinky or faulty.
The problem was compounded by a lack of agreed definition of what CF is and this allowed diverse approaches to accounting of CF by the developed countries. Obviously the discrepancy between the claims and actual delivery of CF remains Himalayan.
So at COP21, the Subsidiary Body on Scientific and Technical Advice, was tasked to working out modalities of accounting of CF, for final adoption at COP24 next year. But not much agreement has yet been reached at COP23 on its methodology, but the work will continue for next year.
As for communication of financial support ex-ante, the Paris Agreement stipulated that developed countries would provide in advance indicative qualitative and quantitative information to developing countries, so that developing countries can plan for their adaptation actions.
Again there was no agreement as to what kind of information or what processes will be followed for such ex-ante provision of information on financial support. Obviously, there was the sense that developed countries are more interested in providing support for ensuring developing country transparency under Article 13 of the Paris Agreement, rather than their own transparency of support under articles 9.5 and 9.7 of the Agreement.
This is evident from the obligatory nature of funding for capacity building for transparency, than for generic capacity building. Such an approach will not ensure ownership of CF projects and programs by the developing countries, as stipulated in the Paris Agreement.
Against these methodological glitches, the central issue -- the agenda of long term finance (LTF) focused mostly on reviewing the workshop report on assessing developing country needs and their readiness to access and utilise CF.
The discussion on mobilisation of $100bn pledged by the developed countries back in 2009 in Copenhagen for making available by 2020 -- was not there at all. This was frustrating.
Actually, since the last decade, discussions have been held on mobilising extra-budgetary sources of public finance through levies on activities, such as international aviation and shipping, financial transaction tax, emissions trading, etc. There is an evolving consensus on some of these sources. But because of opposition from few powerful quarters, no consensus can be reached yet.
The most fundamental of the solutions of climate change lies in the basic, foundational teaching of economics: Correcting the market failures, ie internalisation of externalities (negative effects) generated by the human activities, particularly by burning of fossil fuels.
So explicit carbon pricing can raise revenue efficiently. Ensuring revenue neutrality via transfers to the poor communities and countries and reductions in other taxes should be the policy option.
And the Commission on Carbon Pricing, established about two years ago and co-chaired by famous economists Joseph Stiglitz and Nicholas Stern, explored multiple designs on the level of carbon pricing that could keep the temperature goal of the Paris Agreement.
About 42 countries and 25 sub-national entities of the world, both developed and developing, are imposing carbon tax in different forms. Therefore, unless some agreement is reached on taxing activities which generate emissions, public CF from just budgetary sources of developed countries can never be adequate at a minimum level. So the continued gap in CF is likely to widen the gap in trust between the developed and developing countries.
Mizan R Khan is a Professor at North South University.