Tag Archives: USD 100 billion

Unblocking debate on the USD 100 billion climate finance goal

September 29, 2015 |

 

At the Sustainable Development Summit in New York last week, the question of progress toward existing climate finance targets was once again a key point of debate. While mobilizing the USD 100 billion per year that developed countries have agreed to provide to developing countries by 2020 will not meet the climate challenge by itself, it is currently the primary political benchmark for assessing progress on climate finance.

Improving understanding of different stakeholders’ perspectives on what counts towards the USD 100 billion commitment could improve the chances of reaching an agreement. That’s why Climate Policy Initiative’s latest paper, written with Overseas Development Institute (ODI), and World Resources Institute (WRI), aims to untangle the key issues arising in debates about “what counts”, and provide an approach to classifying climate finance in politically relevant ways that can facilitate discussion.

The paper takes no position on what should count towards the $100 billion. It leaves interested parties to draw their own conclusions. We feel it can help at this point in the lead up to Paris because:

  • It distills the debate into five main issues and defines and explores each in depth. They are: 1) Motivation; 2) Concessionality / source (an imperfect but useful conflation); 3) Causality; 4) Geographic origin; and 5) Recipient.
  • It represents each issue in “onion diagrams” organizing different categories into concentric circles according to political consensus. The closer to the center a category is, the more notional consensus there is among stakeholders that it should count toward the goal.

The paper ends by pulling all five variables together into diagrams like the one below that summarize the debate and help interested parties define and discuss what they feel should count.

Unblocking-debate-on-the-USD-100-billion-climate-finance-goal-All-variables

This paper does not attach quantitative estimates to the various categories of flows. This was a deliberate decision. While quantifying flows associated with the various layers and rings of each “onion” diagram is an essential step for future work, we hope that, by encouraging stakeholders to discuss the principles behind their views before focusing on the numbers, this paper may help to de-politicize these debates and support deeper reflection on underlying assumptions and preferences.

Allocating numbers to these flows will, in any case, be a challenge. Poor data quality and availability remain an issue for some variables as do accounting issues that affect how flows of climate finance are being counted by different countries and organizations.

While this paper does not provide definitive solutions on what should count towards the USD 100 billion, it supports deeper reflection on the assumptions and preferences that often underlie international climate finance negotiations. Such reflection may help to de-politicize these debates while fostering better mutual understanding of perspectives.

We also believe the insights highlighted in this paper can also facilitate constructive discussion in other ongoing debates on financing for development, what counts as official development assistance and others. The global community and by extension all countries could benefit from more common understanding.

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Reaching the USD 100 billion goal by 2020: Lessons for the G7 on scaling up climate finance

June 11, 2015 |

 

On Monday, G7 leaders in Germany reiterated their determination to mobilize USD 100 billion per year in developing countries by 2020, a commitment originally made by developed countries six years ago at the international climate negotiations in Copenhagen. They also announced initiatives to increase to 400 million the number of people in the most vulnerable developing countries covered by insurance against climate impacts by 2020, and to support the development of renewable energy in Africa and other developing countries to reduce energy poverty.

While decisions on what is included in the USD 100 billion will be taken at the international climate negotiations in Paris later this year, the experience of the last six years offers lessons to political leaders at the G7 on what developed country governments could do to ensure the USD 100 billion goal is met on time and how they can ensure the finance mobilized has the maximum possible impact in terms of helping developing countries achieve low-carbon, climate-resilient growth.

Today, flows of climate finance in developing countries have increased but still fall short of this goal. Significant new sources of international climate finance have emerged. Some sources that were expected to play a large role back at the beginning of the decade – like revenues from a global carbon price – haven’t come to fruition. Others are performing above expectations.

In 2013, public climate finance flows from developed to developing countries reached USD 32 billion, 10% of global climate finance captured. Bilateral agencies and development finance institutions chanelled USD 26.5 billion of this. Multilateral development banks and climate funds also played an important role, and with the pledges made to the Green Climate Fund and the new Asian Infrastructure Investment Bank in the process of being set up, these banks and funds will play an increasing role in future. USD 2 billion in renewable energy project investments flowed directly from private investors in OECD countries to developing countries in 2013.

In total, that makes USD 34 billion that we can track. The true figure is undoubtedly higher – data gaps in some sectors make it impossible to see how much private investment is flowing from developed to developing countries – but it is clear that public institutions such as bilateral agencies, bilateral development financial institutions, and multilateral development banks play a pivotal role channeling and mobilizing resources. So what lessons can developed countries – including G7 members – draw from these results and the experience of the last years?

1. As shareholders of development finance institutions, developed countries should require them to integrate climate considerations into all development activities. By ensuring their activities are consistent with climate goals, these institutions could achieve climate co-benefits, policy coherency and better value for money.

2. Countries should consider providing grant finance to build technical capacity and to encourage investment in climate resilience, in particular. In countries and markets where private investors are not yet investing, grant finance plays an important role by helping governments to develop the policy frameworks that enable private investments, by demonstrating the benefits of climate-resilient investments, and by building private actors’ capacity to evaluate and make those investments. Experience shows that predictable regulatory and economic frameworks are essential to mobilizing private investment which provides the majority of climate finance globally. This is particularly true for adaptation policies, which tend to lag behind those for mitigation.

3. Public institutions should provide risk instruments to attract private investment. Bilateral and multilateral development financial institutions and export credit agencies have expanded the coverage of risk mitigation instruments such as guarantees, political risk insurance, foreign exchange risk coverage, and insurance so that they are now lowering the risks, reducing the costs, and improving the returns of climate investments. However, these instruments are still used more often for high-carbon rather than climate-friendly investments. This should change. Evidence shows that where investors can balance risks and returns, private finance will follow.

4. Both the public and private sector must continue to improve understanding of how public and private interests can be aligned to most effectively mobilize finance for climate investments. A number of initiatives are working to track private climate investments and to better understand the connection between public and mobilized private finance. This should further improve understanding of how public and private interests can be aligned to most effectively mobilize finance for climate investments, and how effective policies and instruments are in balancing risks and returns of climate investments.

The capital exists to achieve a wider global transition to a low-carbon and climate-resilient future. Mobilizing it will, however, require public, private, international, and domestic financial resources to shift from a high-carbon to a low-carbon economy. Whether scaling up finance to meet the USD 100 billion commitment, or for wider low-carbon investment needs, success will depend on the willingness of governments around the world to show strong leadership to align policies, pricing signals, and financial instruments to chart a path towards a low-carbon and climate-resilient future. It will not necessarily be easy, but it is possible. A prosperous future depends on it.

A version of this blog post first appeared in Business Green

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