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Items filtered by date: March 2019
Friday, 01 March 2019 00:00

Climate finance at COP24

 Photo credits The guardian

The climate summit in Katowice, Poland, unfortunately failed to establish an adequate increase of the targets of the national climate action plans. This is quite disappointing, particularly in view of the worsening global climate crisis, which was once again underscored by the Special Report on Global Warming of 1.5°C recently released by the Intergovernmental Panel on Climate Change (IPCC). At least the parties to the UN Framework Convention on Climate Change were able to agree on a significant number of the implementation rules for the Paris Agreement. While the outcome in this regard was also mixed, the agreed set of rules is a solid technical foundation, and it is now up to the signatory states to show considerably more political will.

Decisions on international climate finance play an important role in achieving the goals of the Paris Agreement, and these are explained below.

Rules for reporting on planned and provided climate finance

Information on planned climate finance

According to Article 9.5 of the Paris Agreement, industrialized countries are required to provide “indicative, quantitative and qualitative information” on the level of their planned contributions to public climate finance every two years. The article is based on the idea of the “strategies and approaches” adopted at COP19 in Warsaw and develops them further. In accordance with the mandate in Paragraph 55 of the accompanying decision at COP 21 in Paris, one of the tasks for the Katowice summit was to identify the types of information that fulfill the requirements of Article 9.5. The process, which had already been initiated in Marrakech in 2016, has been one of the controversial topics in the climate negotiations, particularly since the climate conference in Bonn. At its core is the old debate about the predictability and sustainability of climate finance. For some time now, recipient countries have been calling for clearer information on how much funding will be provided by industrialized countries in the future.

As expected, the negotiations on Article 9.5 in Katowice were tough. The sticking points soon became apparent: The information that donor countries must provide in their reporting had long been disputed. In particular, developing countries called for clear information on the share of promised climate finance contributions that is “new and additional”, i.e. contributions that are actually based on new announcements that have not previously been made and are made in addition to official development assistance (ODA). Furthermore, the small island states in particular called for information on the funds to be provided to address loss and damage caused by now-inevitable climate change. In addition, procedural questions were raised, such as the timing of reporting and how the reports submitted by donor countries would be used as input for global stocktaking.

In the end, the parties were able to agree on rules that provide a higher degree of predictability, at least in theory. It is regrettable that the issue of dealing with loss and damage has been removed from the final version of the decision and therefore no longer appears explicitly. However, other topics are also mentioned only in form of examples, so the door remains open for the financing of climate-related loss and damage. Despite these shortcomings, the Katowice Climate Package provides a sound basis for greater clarity and transparency in climate finance: For example, donor countries are required to disclose qualitative and quantitative information on amounts, as well as the channels and instruments used; provide information on regions, recipients and target groups; disclose the purpose and type of support (climate protection, adaptation to climate change, technology transfer, etc.) and clarify which parts of the pledged contributions are “new and additional”. Reporting is to begin in 2020 and the results will be issued as a synthesis report by the Secretariat of the Framework Convention on Climate Change. A positive aspect is that the synthesis report will be taken into account every five years as input for the target review rounds. It will also be possible to update and adapt the type or amount of information provided by donor countries in 2023 once experience has been gained with reporting.

An important decision was taken under the agenda item of the Standing Committee on Finance, namely that needs assessments on climate finance must be carried out every four years in developing countries in future, starting in 2020. This was a point called for by poorer countries in particular.

Rules for reporting on provided climate finance

In addition to ex-ante reporting, Article 9.7 of the Paris Agreement stipulates that every two years, industrialized countries must provide transparent and consistent information on how they have supported developing countries through public climate finance. The aim here was to define and adopt the modalities and guidelines for reporting. After the initial elements that the framework for reporting and accounting could encompass had been discussed at COP22 in Marrakech in November 2016 and at COP23 in Bonn in November 2017, the work had to be continued at the Katowice conference.

The resolution on the rules for reporting on climate finance contributions was one of the key decisions for the rule book on the implementation of the Paris Agreement, and the topic was thus the subject of heated discussion. The round of negotiations in Bangkok in September 2018 had already provided a draft text for a decision, and the goal now was to negotiate and decide on the remaining options. The question of whether donor countries reporting on their climate finance contributions are only allowed to report the grant equivalent – i.e. whether in the case of a loan at preferential conditions, only the portion that does not need to be repaid relative to the higher market interest rate should be stated – was particularly controversial. For many developing countries, this was a core concern in order to obtain a more accurate picture of the contributions made. In addition, analogous to the negotiations on Article 9.5, the question was to what extent donor countries had to indicate which part of their climate finance was “new and additional” and how much money was being made available for dealing with loss and damage.

The Katowice Climate Package offers a detailed framework to provide more clarity and planning security for developing countries in the future. Nevertheless, there is still some leeway for donor countries – for example with regard to limiting the level of detail of their reports and determining what they consider to be climate finance. In particular, it makes no sense that the total amounts of loans or risk cover can be counted in the same way as grants. For comparability purposes, only the grant equivalent should be applied here – this would also prevent the total sum from becoming artificially inflated. It is to be hoped that the progressive countries will set a benchmark that can soon serve as an orientation for the remainder. In a few years, however, this should become compulsory for all countries. Conversely, particularly inflated crediting by other countries should be explicitly uncovered and criticized.

Long-term climate finance: 100 billion and more

Unfortunately, there has been little progress with regard to the requirements for long-term climate financing. This agenda item, which is of especially great political importance, traditionally describes the general orientation of climate finance until 2020 and is thus directly related to the annual USD 100 billion pledged by the industrialized countries by 2020. Two years ago, the donor countries presented a roadmap that set out how this goal is to be achieved in the coming years. COP 24 failed to provide more clarity in this respect, for example with a decision to update the roadmap. Information in this regard was only provided by the third Biennial Assessment and Overview of Climate Finance Flows, which was presented at COP24 by the Standing Committee on Finance. According to the assessment, just under USD 65 billion (2015) and USD 75 billion (2016) flowed from industrialized to developing countries in the years 2015 and 2016. Much of this is stated as assumptions and projections and thus involves a certain degree of uncertainty, especially with regard to private finance flows mobilized by the public sector. Nor were more concrete measures adopted to combat the imbalance between the total financial support for climate change mitigation and for dealing with the impact of climate change (adaptation in particular). The latest decision only calls on industrialized countries to step up their efforts to achieve a balance and allocate more public money toward adaptation.

There were also protracted discussions about a new common target for climate finance. The Paris Agreement calls for a new global target for international climate finance to be adopted before 2025. It is already clear that this will not be achieved by the traditional donor countries alone. Up to now it had not been clear what the process to set this target – above all the subject of hot political debate – should look like. After lengthy negotiations, the parties were able to agree on a decision that at least provides some clarity in this respect: discussions will begin on the definition of a new collective target at COP26. It is clear that the new target will be based on the lower limit of USD 100 billion annually.

The Katowice decision thus fulfills the minimum requirement of adopting a process for setting a new long-term target. The challenge now is to ensure that the mistakes made when setting the USD 100 billion target are avoided. That target was above all a politically motivated benchmark that was too general and unspecific. Therefore, there was always room for interpretation and, depending on the calculation method, different bases of assessment with regard to reaching the target. A new target should therefore be broken down into different sub-targets (such as for adaptation financing or mobilized private funds) to improve measurability while taking into account the real needs of recipient countries.

The future of the Adaptation Fund

The Adaptation Fund was also an ongoing topic of discussion in Katowice. The conference spent considerable time grappling with a decision to clarify whether, and how, the Adaptation Fund should serve the Paris Agreement in the future. The controversial issue was how the fund would be transferred from the Kyoto Protocol to the Paris Agreement and how the transitional period would be managed. Representatives of the developing countries worried that breaking the link with the Kyoto Protocol could lead to a renegotiation of the modalities of the Adaptation Fund, such as the composition of its Board. The debates thus dragged on for a long time. Another sticking point was the question of its future financing. Industrialized countries made it clear early on that a formal replenishment process was out of the question for them; developing countries balked at the reference to “innovative sources of finance” and the link to emissions trading.

In the end, a good compromise was found that gives the Adaptation Fund the necessary perspective in the international climate finance architecture: Starting January 1, 2019, the fund will serve both the Kyoto Protocol and the Paris Agreement. As soon as revenues can be generated from emissions trading, which is to be reorganized by Article 6 of the Paris Agreement, the Adaptation Fund will be fully transferred to the Paris Agreement. In future, the fund is to be replenished by a levy on international emissions trading, as well as voluntary public and private sources.

Further financial resources were pledged to the Adaptation Fund in the course of the conference, enabling it to clearly meet its fundraising target of USD 90 million for 2018 (see Table 1). Once again, Germany set a good example, thus expressing its appreciation of the fund.

Table 1: New pledges to the Adaptation Fund

Donor country Announcement in national currency Announcement in US dollars

European Commission

EUR 10 million

USD 11.38 million

France

EUR 15 million

USD 17 million

Sweden

SEK 50 million

USD 5.5 million

New Zealand

NZD 3 million

USD 2 million

Germany

EUR 70 million

USD 80 million

Brussels-Capital Region

EUR 0.5 million

USD 0.57 million

Walloon Region

EUR 4 million

USD 4.5 million

Italy

EUR 7 million

USD 8 million

Total

 

approx. USD 129 million

The pledges of USD 129 million made at COP24 are a new record. This is to be applauded. However, as these are one-off voluntary contributions, it will be important to secure more stable sources of finance for the Adaptation Fund in the coming years.

Summary

The decisions on climate finance can be rated as good overall. The above-mentioned agreements on the transparency of climate finance are of key importance. Furthermore, the future of the Adaptation Fund under the Paris Agreement was secured by a decision in Katowice. Also, a process was set up to come up with a new long-term target for climate finance from 2025, starting in 2020. In addition, the Standing Committee on Finance of the Framework Convention on Climate Change was tasked with important mandates, the outcomes of which could serve as vital input for further debates in the context of global stocktaking and elsewhere. These include producing a regular report identifying the needs of developing countries with regard to implementing the Paris Agreement and a regular stocktaking of the direction of global financial flows.

The rules and institutions for climate finance have been strengthened – but now more money is needed as well. The replenishment of the Green Climate Fund (GCF) will also be due in 2019. Germany and Norway have announced that they would double their contributions to the Green Climate Fund (Germany: EUR 1.5 billion for the next few years). The other rich countries must follow suit and at least double their contributions next year, ideally by using the countries with the highest relative contributions as a guideline. The GCF website shows this transparently. Sweden, for example, is in the lead with a per-capita contribution of around USD 60 (in the first round), while Germany’s relative contribution is less than half of that, even considering the announced doubling. Per unit of GDP, however, Germany’s new contribution puts it among the leaders.

By David Eckstein, Germanwatch

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