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Quit stalling & pay up — what’s climate finance and why rich countries must step up urgently

High-emitters like US should take on greatest responsibility to tackle emissions and help — without being stalled by dialogue — finance nations most vulnerable to climate change.

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The 27th Conference of the Parties of the United Nations Framework Convention on Climate Change, or COP 27, being held in Egypt from 6-18 November, is yet another attempt to bring the nations of the world together for a serious dialogue on climate change.

Extreme weather events are becoming frequent. The world is on track to surpass the goal of limiting global warming to 1.5 degree Celsius above pre-industrial levels. While numerous pledges are made at the climate change conferences, implementation remains a concern. The Russia-Ukraine war further threatens to derail the global efforts towards emission reductions.

Advanced economies who need to play a decisive role in financing the transition towards cleaner sources of energy in the rest of the world are facing their own set of economic challenges.

There is a need for clear definition and measurable targets and flexible forms of climate finance, keeping in view the growing needs of the developing world.


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Contribution to global carbon-dioxide emissions

Advanced economies have been the dominant emitters of carbon-dioxide (CO2). For instance, the US has emitted more CO2 than any other country to date. At around 400 billion tonnes, it is responsible for 25 per cent of historical CO2 emissions from 1751 to 2017. China is the second largest national contributor. The European Union is also, historically, a large contributor. India and Brazil, which are large annual emitters today, are not the dominant contributors in a historical context.

The countries which have added most to the CO2 in our atmosphere should take on the greatest responsibility in tackling it and help finance those countries which are highly vulnerable to climate change.

Graphic by Ramandeep Kaur, ThePrint team
Graphic by Ramandeep Kaur, ThePrint team

The missed target of USD 100 billion

At the COP15 in Copenhagen in 2009, developed countries committed to a collective goal of mobilising USD 100 billion per year by 2020 for climate change in developing countries. The goal was formalised at the COP16 in Cancun, and at COP21 in Paris, the goal was extended till 2025.

According to a report by the Organisation for Economic Co-operation and Development (OECD), developed countries provided USD 83.3 billion for climate action in developed countries in 2020 —USD 16.7 billion short of the USD 100 billion goal per year by 2020.

According to the projections, the goal of mobilising USD 100 billion would be met only in 2023.

Graphic by Ramandeep Kaur, ThePrint team
Graphic by Ramandeep Kaur, ThePrint team

The OECD estimates are considered to be vastly inflated. In 2015, a discussion paper by the Ministry of Finance estimated climate finance flows to developing countries at USD 2.2. billion as compared to the estimate of USD 62 billion for 2014 by the OECD.

The paper highlighted several methodological issues with the reporting of the climate finance flows from developed to developing countries. Estimates by Oxfam suggest that the true value of climate finance is a third of what the developed countries report. The ongoing COP27 must fix the flaws in the implementation of climate finance flows to developing countries.

Mitigation versus adaptation

Most of the climate finance has gone to mitigation (for example, projects to reduce greenhouse gas emissions rather than helping people adapt to climate change). The success is clear and measurable in case of mitigation by the reduced carbon emissions, whereas it is relatively difficult to define adaptation.

Adaptation can be understood as the process of adjusting to the current and anticipated effects of climate change. Large scale infrastructure changes, such as building defence to protect against sea-level rise, is an example of adaptation measure.

According to the Adaptation Gap Report by the UN Environment Programme (UNEP), developing countries need USD 140-300 billion per year by 2030 and USD 280-500 billion per year by 2050 as climate adaptation finance.

Thus, finance is needed at a much greater scale than currently negotiated. Negotiations on climate finance flows must strike a balance between mitigation and adaptation.

Loss and damage finance

Developing nations have long demanded financing from advanced economies to compensate for climate change-induced loss and damage, for which they are least responsible. Loss and damage include the irreversible economic and non-economic costs that developing nations incur beyond their ability to adapt, making them most vulnerable to extreme climate related events.

The issue has gained momentum with the recent increase in disasters exacerbated by climate change.

For the first time since the United Nations Framework Convention on Climate Change (UNFCCC) came into force in 1994, loss and damage financing has been added to the agenda of COP. There is a difference of opinion among countries on the modalities for loss and damage funding. While less developed and vulnerable countries are pushing for a separate fund for loss and damage, advanced economies do not seem to be very keen on operationalising the financing in this summit.

India in its statement on loss and damage funding arrangements at COP27 has emphasised on the disproportionate impacts on developing versus developed nations, and the urgent need for new and additional funding that is not stalled by dialogues and deliberations by the developed world.

New Collective Quantified Goal

Discussions at the COP 27 are expected to formulate a new goal beyond the USD 100 billion from 2025: the New Collective Quantified Goal (NCQG). The goal should be extensively discussed and negotiated, taking into account not just the mitigation but also the adaptation goals of the developing countries. There could be sub-targets for mitigation, adaptation and loss and damage.

Whether the advanced economies show their commitment towards stepping up climate finance amid the economic crisis they are facing needs to be seen.

Encouragingly, the US has taken meaningful domestic action by committing to invest USD 369 billion towards climate resilient investment.

India has submitted its long-term low emission development strategy showing its commitment to decarbonisation. However, it has emphasised that timely access to finance at concessional rates and at flexible terms is critical. Grant-based funds rather than loans would be needed as loans could further aggravate the debt burden of affected countries.

Graphic by Ramandeep Kaur, ThePrint team
Graphic by Ramandeep Kaur, ThePrint team

In parallel, the regulatory framework in developing countries should facilitate the flow of climate finance. This would require harmonising the taxonomy and the disclosure framework with globally accepted standards.

Radhika Pandey is Senior Fellow and Anandita Gupta is Research Fellow at National Institute of Public Finance and Policy.

Views are personal.


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