The concept of climate finance originated from the need for financing both the Mitigation (reducing the root cause of Climate Crisis, greenhouse Gas emissions) as well as Adaptation (building resilience in countries, societies, communities and doing the best possible under the increasing climate impacts). The idea was that developed (rich, Annexe 1) countries, who have contributed the most in creating the climate crisis by consuming massive amounts of fossil fuels and other resources in creating wealth for their own societies, will provide grants and very low cost finances to the developing and poor countries – who have little contribution in creating the crisis, yet are suffering the most. This was accepted under the CBDR-RC principle : Common But Differentiated Responsibilities (Rich countries have more) and Respective Capacities (again, the rich have more). It was also accepted (self evident) that the poorer countries do not have the financial wherewithal to either cope with the massive losses or to invest enough in making their economies of lower carbon intensity (a necessity for averting climate catastrophe), while providing minimum “development gains” for their under-served populations.
Climate Finance was one of the four essential pillars (along with Mitigation, Adaptation and Technology Transfer) under the 1997 Kyoto protocol and the later Bali Roadmap prepared at the UN Framework Convention on Climate Change. Several estimates have shown that the annual hits the poorer economies take, and the minimum money they need to move away from a fossil carbon based development pathway, is in the hundreds of billions of US dollars. To tackle the climate crisis, there are two mechanisms created under the UNFCCC – Finance Mechanism and Technology Mechanism. Initially the Global Environment Facility GEF was the implementing body for the Finance Mechanism. In 2010, at the CoP-16 Cancun Climate Conference, the Parties (member governments) to the Convention (UNFCCC) created the Green Climate Fund GCF as the main implementing body, while the GEF, the Adaptation Fund, several targeted funds continued to operate. In addition, many DFIs/ IFIs also provide “climate finance” to both governments and private entities, as well as sub-national entities like municipalities etc.
The initial concept of Climate Finance was that these will mainly be public funds from developed /rich countries, will be grants rather than loans and will flow preferentially to poorer developing countries, and WILL BE ADDITIONAL to the Official Development Assistance ODA. The real landscape that emerged over the last 20 odd years is very different. The commitment from developed (Annex1) countries was to provide USD 100 billion / year, globally, starting 2020, and substantial amounts before that. For comparison, the US alone took a climate change driven economic hit of USD 91 billion in 2017 (NOAA estimate). The UN (UNCTAD) estimates the global economic losses in 2017 due to climatic events at about USD 320 billion. The Uttarakhand disaster of 2013 estimated a loss of about USD 2 billion just to its tourism sector, with 15000 KMs of roads destroyed, thousands of homes, hotels, schools, hospital… destroyed beyond repair. In the same year 2013, Typhoon Haiyan hit Philipines, with an estimated economic loss of USD 6 billion. The EU took a hit of over Euro 500 billion in the last decade and a half, due to climatic changes. And these estimates do not include the finance needed for a transition to low carbon economies, neither the amounts needed to compensate for undocumented / uninsured losses.
From 2010—2012, a so called Fast Start Finance – amounting to about USD 10 billion/ year was promised and “delivered”. On analysis, it was found that a substantial part of these were rebranded /repackaged ODA and other old finance flows. The ‘main vehicle for public climate finance’, the GCF, has been struggling to raise finance, with a paltry USD 10.4 billion in its first 5-6 years. The GEF, Adaptation fund etc were all struggling to raise commitments in the face of a global economic slowdown and the rise of conservatism and protectionism in many countries. The global climate finance scene is very skewed today. While the World Bank says that the Multilateral Development Banks MDBs have put in USD 43.1 billion in 2018, a substantial 22% increase over the 2017 figure of USD 35.2 billion, most of these are loans and not grants. The global Climate Finance Flows have reached some high figures of USD 579 billion per year in 2018 (averaged over 2017 & 18), a nearly 25% rise over average annual figures from 2015-16 (Paris Agreement was signed in 2015 December), according to a study by Climate Policy Initiative CPI. Private financial actors provide USD 326 billion of these, compared to USD 253 billion by public players. Again, on analysis, overwhelmingly large parts of these are loans, not grants, as originally envisaged.
On top of this, a much larger climate finance is flowing to mitigation projects – Solar and Wind power projects, low carbon transport etc, and very little in comparison to Adaptation projects that help vulnerable communities cope with severe impacts of the climate crisis. Region wise, North America and East Asia /China got the highest Climate Finance investments, NOT the poor and most vulnerable countries, the Least Developed Countries LDCs, the Small Island Developing States SIDS. To compare these seemingly high figures to what minimum is required – just the low carbon transition is estimated to need Climate Finance of between USD 1.6 Trillion to 3.8 trillion per year, from 2016 through 2050, just for the supply side energy systems transformation. In addition, the Global Commission on Adaptation estimates a minimum of USD 180-200 billion per year from 2020-30, and higher amounts thereafter.
To conclude this very brief description, Climate Finance has been disassociated from the necessary justice aspect, has been transformed in to a new profit avenue, is highly inadequate, skewed to the ‘haves’ leaving the most impacted have ‘nots’ with peanuts, and is increasingly a playground of big private financial players, complex financial instruments and fuzzy accounting.