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Naila Nazir, Ph.D.
Department of Economics
University of Peshawar
Climate Finance:
Assessing Commitments, Challenges, and Recent Developments
Climate
finance is closely linked to several Sustainable Development Goals (SDGs),
primarily falling under SDG 13: Climate Action, SDG 7: Affordable and Clean
Energy, and SDG 17: Partnerships for the Goals
In
a world grappling with the impacts of climate change, the landscape of climate
finance remains intricate. This article discusses the intricacies of climate
finance, exploring its origins, challenges, and recent developments, with a
particular focus on the commitments made by developed nations. Examining data
from the previous Conference of Parties- COP15 onward, the article sheds light
on the disparity between the resources allocated for adapting to climate change
and mitigating its effects.
The
absence of a standard definition and the uneven distribution of funds for
mitigation and adaptation efforts underscore the ongoing challenges. As there
is no standard definition of climate finance, there is a wide array of programs
and projects to which the funds contribute. There is no official assessment of
each country’s share of the goal. The climate finance landscape has been shaped
by the commitment made by developed countries at the 15th Conference of Parties
(COP15) in 2009 to mobilize 100 billion U.S. dollars annually for climate
action in developing countries by 2020. During COP 16 in 2010, it was decided
to create the Standing Committee on Finance (SCF) with the purpose of aiding
the Conference of the Parties (COP) in carrying out its responsibilities
related to the financial mechanism of the Convention. It is noteworthy that the
assessment of the 2019-2020 delivery by Oxfam[1] revealed a skewed
distribution, with 33 percent allocated to adaptation and 59 percent to
mitigation. The need for balanced spending gained recognition at COP21, and at
COP26, a commitment to doubling adaptation finance by 2025 was made. However,
challenges persist in tracking progress, relying on the OECD, which covers a
limited group of 23 countries. The broader financial needs, estimated by the
IPCC at 2 to 3 trillion U.S. dollars annually for developing countries, showed
the urgency for comprehensive and equitable climate finance solutions.
Urmi
Goswami and FermÃn Koop (2023, November 29), in their work titled
"Q&A: COP28 and the 100 Billion U.S. Dollar Climate Finance
Commitment" in Climate & CO2 Finance International, mentioned that this
pledge, lacking a precise analysis of countries' actual needs, is a benchmark
for evaluating developed nations' commitment to climate action. Challenges
persist, including the absence of an official assessment of each country's
share and an imbalance between funds allocated for mitigation and adaptation.
The Overview of Climate
Finance Flows, prepared by the UNFCCC's Standing Committee on Finance (SCF) and
presented to COP27 in 2022, also found that in 2019-2020, mitigation received a
higher share than adaptation, as summarized in the table below:
Table:
Mitigation received high share compared to Adaptation (2021)
|
Area/ Source |
Bilateral Climate Finance |
Multilateral Climate Fund |
Climate Finance from *MDBs |
|
Adaptation |
28% |
19% |
36% |
|
Mitigation |
57% |
37% |
62% |
Multilateral Development Banks
Adaptation
is the proactive adjustment of systems to climate changes, involving
modifications to mitigate harm and exploit opportunities. While significant
strides have been made in recognizing the importance of adaptation and
establishing frameworks under the UNFCCC, there are challenges in achieving
widespread and effective implementation. Despite the existence of bodies like
the Adaptation Committee (2010), Least Developed Countries Expert Group (LEG)
(2001), and workstreams such as the Global Goal on Adaptation, the
actualization of comprehensive adaptation measures worldwide remains uneven.
There is a need for greater global cooperation, increased financial support,
and enhanced collaboration among stakeholders to bridge the gap in implementing
adaptation actions. Additionally, the full integration of adaptation into
socioeconomic and environmental policies, as well as the incorporation of
diverse knowledge systems, including traditional and indigenous knowledge, pose
ongoing challenges. Further efforts are essential to ensure that adaptation
strategies are not only developed but also efficiently implemented at various
levels to address the multifaceted dimensions of climate change impacts.
Despite the
establishment of financial mechanisms like the Global Environment Facility
(GEF) in 1991, the Special Climate Change Fund (SCCF) in 2001, the Least
Developed Countries Fund (LDCF) in 2001, and the Green Climate Fund (GCF) in
2010, to support climate finance initiatives, challenges persist in fully
realizing financial commitments and ensuring equitable distribution. Delays and
gaps exist in mobilizing the pledged funds to meet the adaptation and
mitigation needs of developing countries. While the financial mechanism is
accountable to the Conference of the Parties (COP) in setting policies and
priorities, there remains a gap between the pledged financial resources and the
actual disbursement, hindering the effective implementation of climate-related
projects. Additionally, negotiations on the role of the Adaptation Fund in
serving the Paris Agreement are ongoing, reflecting complexities in aligning
financial mechanisms with evolving climate goals. Achieving the financial
commitments outlined in these mechanisms is crucial for addressing climate
change comprehensively and fostering global cooperation.
The
UNFCCC website hosts a climate finance data portal designed to enhance
understanding of the climate finance process and provide a gateway to
information on activities funded in developing countries for implementing
climate action. The portal features three modules. First, the National
Communications Module presents data on financial resource provision as reported
by contributing countries. Second, the Fast-start Finance Module offers details
on resources provided by developed countries in line with their commitment to
contribute. The third module focuses on Funds Managed by the GEF, jointly
managed by the UNFCCC secretariat and the GEF. Additionally, the portal
includes information on projects and programs supported by the Adaptation Fund,
established under the Kyoto Protocol to finance concrete adaptation initiatives
in developing countries that are Parties to the Protocol.
It
is important to mention here that the Climate Change Knowledge Portal (CCKP) is the World Bank's
designated climate data service
(see
https://datacatalog.worldbank.org/search/dataset/0065627).
The COP28 summit saw significant
financial commitments toward climate action. Vice President of the USA.
announced a $3 billion contribution from the US to the Green Climate Fund,
aligning with President Joe Biden's goal of delivering $11 billion in climate
finance by 2024. The EU pledged €2.3 billion ($2.5 billion) over two years for
the global energy transition. The United Arab Emirates committed $100 million
to a World Bank fund supporting methane reduction by national oil companies in
developing countries. Additionally, over $1 billion in grant financing was
raised by the US, EU, and philanthropic donations to cut methane emissions
globally. Notably, major oil companies, including Exxon Mobil and Aramco,
pledged to reduce emissions from their operations, focusing on methane
reduction and eliminating routine flaring. The European Investment Bank (EIB)
plans to invest €5 billion ($5.5 billion) in the EU wind sector through
counter-guarantees, while the International Renewable Energy Agency (IRENA)
expressed confidence in the feasibility of tripling global renewables. The US
also announced $568 million in concessional finance for clean energy supply
chain development. Furthermore, the COP28 summit witnessed initiatives like the
Industrial Transition Accelerator and discussions on the need for a unified
standard for green products. However, the noteworthy advancement on the
issue here is that the political leaders of prominent parties in developed
nations are working fervently to demonstrate that their commitment to achieving
net zero emissions does not come at the cost of household budgets or consumer
choice. There is a possibility that these leaders could reassess their promises
regarding climate finance, driven by a combination of serving national economic
interests and the desire to secure electoral victories in their respective countries.
Researchers
caution that the Earth has experienced a temperature increase of 1.2 degrees
Celsius compared to the preindustrial era, and it is projected to rise to
approximately 2.5 degrees Celsius by the end of the century unless there is an accelerated
transition to clean energy worldwide. To
address the challenges and enhance the effectiveness of climate finance,
several key suggestions can be considered. Firstly, there is a need for a
standardized and transparent assessment framework to determine each country's
fair share of the climate finance goal, ensuring an equitable distribution of
funds based on actual needs. Additionally, efforts should be intensified to
bridge the gap between mitigation and adaptation funding, aligning with the commitment
made at COP26 to double adaptation finance by 2025. Global cooperation should
be strengthened, involving increased collaboration among stakeholders,
including governments, international organizations, and the private sector.
Moreover, the ongoing negotiations on the role of the Adaptation Fund in
serving the Paris Agreement should be expedited to provide clarity and
coherence in financial mechanisms. To expedite the implementation of
climate-related projects, mechanisms for timely disbursement of pledged funds
need to be established, with a focus on minimizing delays and gaps. A
comprehensive integration of adaptation into socioeconomic and environmental
policies, along with the incorporation of diverse knowledge systems, will
contribute to more effective adaptation measures worldwide. Finally, winning
the electoral is one thing, and fulfilling the climate commitments is another.
The former should not come at the cost of the latter. These suggestions, when
implemented collectively, can contribute to a more robust, balanced, and
equitable climate finance landscape, fostering global cooperation in addressing
the multifaceted dimensions of climate change impacts.
[1] https://www.oxfam.org/en/what-we-do/issues/tackling-climate-crisis