Will Glasgow fix the broken climate finance promises?

The current climate mitigation plans will result in a catastrophic 2.7 degrees Celsius rise in world temperature. USD 1.6-3.8 trillion is needed annually to avoid global warming exceeding 1.5 degrees Celsius.

Rich countries have long broken their COP15 pledge, made in Copenhagen in 2009, to mobilise "USD 100 billion per year by 2020 to address the needs of developing countries." The Covid-19 pandemic has worsened the situation, reducing available finance. Poor countries, many of whom are already caught in debt traps, struggle to cope.

While minuscule compared to the finance needed to adequately address climate change, it was considered a good start. The number includes both public and private finance, but with sources—public or private, grants or loans, etc—unspecified. Such ambiguity has enabled double-counting, poor transparency, and creative accounting, the UN Independent Expert Group on Climate Finance has noted. Thus, the rich countries' Organisation for Economic Co-operation and Development (OECD) reported USD 80 billion in climate finance for developing countries in 2019.

Fudging numbers

But the OECD climate finance numbers include non-concessional commercial loans, "rolled-over" loans and private finance. Some donor governments count most development aid, even when not primarily for "climate action." Also, the dispute over which funds are to be considered "new and additional" has not been resolved since the 1992 adoption of the UN Framework Convention on Climate Change (UNFCCC) at the Rio Earth Summit.

Official development assistance redesignated as climate finance should be categorised as "reallocated," rather than "additional" funding. Consequently, poor countries are losing aid for education, healthcare, and other public goods. India has disputed the OECD claim of USD 57 billion climate finance in 2013-14, suggesting a paltry USD 2.2 billion instead! Other developing countries have also challenged such creative accounting and "greenwashing."

Climate finance anarchy

Developing countries expected the promised USD 100 billion yearly to be largely public grants disbursed via the then new UNFCCC Green Climate Fund. Oxfam estimates public climate financing at only USD 19-22.5 billion in 2017-18, with little effective coordination of public finance. The developing countries believed that their representatives would help decide disbursement, ensuring equity, efficacy, and efficiency. But little is actually managed by developing countries themselves. Instead, climate finance is disbursed via many channels: rich countries' aid and export promotion agencies, private banks, equity funds, and multilateral institutions' loans and grants.

Several UN programmes also support climate action, including the UN Environment Programme (UNEP), UN Development Programme (UNDP), and Global Environment Facility (GEF). But all are underfunded, requiring frequent replenishment. Uncertain financing and the developing countries' lack of meaningful involvement in disbursements make planning all the more difficult.

Financialisation has meant that climate funding increasingly involves private financial interests. Claims of private climate finance from rich to poor countries are much contested. Even the OECD estimate has not been rising steadily, instead fluctuating directionless from USD 16.7 billion in 2014 to USD 10.1 billion in 2016 and USD 14.6 billion in 2018.

The actual role and impact of private finance are also much disputed. Unsurprisingly, private funding is unlikely to help countries most in need, address policy priorities, or compensate for damages beyond repair. Instead, "blended finance" often uses public finance to de-risk private investments.

Putting profits first

The poorest countries desperately need to rebuild resilience and adapt human environments and livelihoods. Adaptation funds are required to better cope with the new circumstances created by global warming. The needed adaptation—such as improving drainage, water catchment and infrastructure—is costly, but nonetheless desperately necessary. But donors prefer publicisable "easy wins" from climate mitigation, especially as they increasingly gave loans, rather than grants. Thus, although the Paris Agreement at COP21 sought to balance mitigation with adaptation, most climate finance still seeks to cut greenhouse gas (GHG) emissions.

As climate adaptation is rarely lucrative, it is of less interest to private investors. Rather, private finance favours mitigation investments generating higher returns. Thus, only USD 20 billion was for adaptation in 2019—less than half the sum for mitigation. Unsurprisingly, the OECD report acknowledges that only three percent of private climate finance has been for adaptation.

Chasing profits, most climate finance goes to middle-income countries, not the poorest or most vulnerable. Only USD 5.9 billion—less than a fifth of the total adaptation finance—has gone to the UN's 46 Least Developed Countries (LDCs) during 2014-18! This is "less than three percent of [poorly] estimated LDCs annual adaptation finance needs between 2020-2030."

Cruel ironies

The International Monetary Fund (IMF) recognizes the "unequal burden of rising temperatures." It is indeed a "cruel irony" that those far less responsible for global warming bear the brunt of its costs. Meanwhile, providing climate finance via loans is pushing poor countries deeper into debt.

Increasingly frequent extreme weather disasters are often followed by much more borrowing due to the poor countries' limited fiscal space. But loans for low-income countries (LICs) cost much more than for high-income ones. Hence, LICs spend five times more on debt than on coping with climate change and cutting GHG emissions.

Four-fifths of the most damaging disasters since 2000 have been due to tropical storms. The worst disasters have raised government debt in 90 percent of cases within two years—with no prospect of debt relief. As many LICs are already heavily indebted, climate disasters have been truly catastrophic—as in Belize, Grenada and Mozambique. Little has trickled down to the worst affected, and other vulnerable, needy and poor communities.

Funding gap

Based on the countries' own long-term goals for mitigation and adaptation, the UNFCCC's Standing Committee on Finance estimated that developing countries need USD 5.8-5.9 trillion in all until 2030. The UN estimates that the developing countries currently need USD 70 billion yearly for adaptation, rising to USD 140-300 billion by 2030.

In July, the "V20" of finance ministers from 48 climate-vulnerable countries urged delivery of the 2009 pledge of USD 100 billion to affirm a commitment to improve climate finance. This should include increased funds, more in grants, and with at least half for adaptation, but the UNFCCC chief has noted a lack of progress since.

Only strong enforcement of rigorous climate finance criteria can stop rich countries from abusing the existing ambiguous reporting requirements. Currently, fragmented climate financing urgently needs more coherence and strategic prioritisation of support to those most distressed and vulnerable.

This month's UNFCCC COP26 in Glasgow, Scotland can and must set things right before it is too late. Will the new Cold War drive the North to do the unexpected to win the rest of the world to its side, instead of further militarising tensions?

Anis Chowdhury is adjunct professor at Western Sydney University and the University of New South Wales, Australia. Jomo Kwame Sundaram is a former economics professor and a former assistant secretary-general for economic development at the United Nations.

Copyright: Inter Press Service