Why Latest Climate Finance Plan May Fail Developing Countries, Yet Again

In 2009, developed countries had pledged to deliver to developing countries an annual climate fund of $100 billion by 2020. The money is meant to fund climate adaptation and mitigation measures. But the latest plan says the target will need to be deferred by three years, to 2023, on the basis of an analysis by the Organisation for Economic Co-operation and Development (OECD).

Only about 65% of the $100 billion promised has been delivered by developed countries on average between 2013 and 2019, shows an analysis of OECD documents. Set in 2009, the $100 billion target itself is now inadequate because developing countries are estimated to need $600 billion a year from 2020 to 2050 to decarbonise just their energy sectors.

"The plan looks like old wine in a new bottle," said Sandeep Roy Choudhury, director, Carbon Initiative Forum, a non-profit that deals with climate policy education in India. Describing the package as "accounting sorcery", he added that it "seems like a means for the developed countries to save themselves the embarrassment of being questioned on finance again and again".

Some of the critical issues that have plagued climate finance have not been addressed in the new document. For instance, research shows that 80% of climate finance is offered as high-interest loans, and not grants, adding to poorer countries' financial stress. The new finance plan also does not address the question of compensation for loss and damage caused by climate disasters in poor countries or examine the kind of capital they need to address their climate action needs, experts say.

Failing to deliver on promise

The United Nations Framework Convention on Climate Change (UNFCCC) has been meeting regularly since 1992 to plan a model that can control global warming and its fallouts. Developed and developing countries have been discussing measures on how to reduce carbon emissions from various sources and sectors.

At the 2015 Paris climate meet, it had been decided that the rise in global temperature needed to be limited to 1.5-2°C over pre-industrial levels to avoid the worst possible results of a heating climate. However, the Paris rulebook has not found any common consensus on how these goals can be reached, as we reported earlier this month. The upcoming event in Glasgow will be the 26th Conference of the Parties to the UNFCCC--COP26 for short--and is expected to resolve many of the issues, the foremost being climate finance.

The UNFCCC recognises that the developed countries need to do more to compensate for their historical carbon emissions, and assist developing countries in adopting cleaner energy and reducing carbon emissions. The idea of climate finance was first discussed at the Copenhagen COP in 2009. Since the goals were not met, they were again discussed at the 2015 COP in Paris. In 2016, developed countries finally prepared a roadmap on how they would achieve the $100-billion target by 2020.

This too failed.

'Need trillions, not billions of dollars'

The true value of support for climate action provided so far stands at around $19-22.5 billion per year once loan repayments, interest and other forms of over-reporting are removed, according to Oxfam's Climate Finance Shadow Report 2020.

Though the new document mentions an action plan on climate adaptation, there is no mention of how developing countries will compensate for the loss and damage caused by extreme weather events, demand for which has been becoming more vociferous.

Ahead of COP26, the OECD has framed a possible scenario for developed countries to meet the goal of reaching at least $100 billion by 2023. But the current targets are highly inadequate for poor countries, said Harjeet Singh of Climate Action Network, pointing out that they need resources for development and poverty alleviation even as they struggle with the hardships caused by climate disasters.

Amphan, the super cyclone that hit India in May, 2020, and the floods that affected many parts of the country between June and October the same year ranked among the 10 most "expensive" extreme climate events the world saw in 2020, IndiaSpend had reported. These events caused damages of over Rs 10 lakh crore ($141 billion), 322 times higher than the annual budget of India's environment ministry. Various regions and sectors in India have been struggling to deal with the impact of climate disasters on their livelihoods, we reported.

"We don't need billions but trillions of dollars to reach the ambitious goal of becoming carbon neutral by 2050 and protect people from loss and damage. The $100 billion was meant to leverage those trillions," said Singh. "The climate crisis is ongoing and 50% of the climate finance is supposed to go to adaptation. But we don't see that happening."

Not targeted at developing countries' needs

Most of the loans extended as climate finance carry no concessions and have ungenerous terms requiring higher repayments from poor countries, according to the Oxfam report. Since developing countries have a higher risk assessment due to the probability of losses caused by disasters, political instability and so on, they end up paying higher interest on the loans extended as climate finance by rich countries. "Developed countries, which refer to themselves as 'donors', give out finance as favour and not as cooperation, often on commercial terms and not as grants," said Harjeet Singh, senior advisor with Climate Action Network International, a civil society organisation.

Experts say the loans should instead be issued on concessional terms. "For investments in nascent technologies and in underdeveloped parts of the world, where risks are high and business viability does not exist, we need concessional capital in the form of grants and soft loans to mobilise finance," said Arjun Dutt, programme lead with the Council on Energy, Environment and Water-Centre for Energy Finance (CEEW-CEF). "Such capital can be deployed either directly or in the form of guarantees to de-risk these investment opportunities and attract much larger flows on commercial terms."

Transition hiccup

Greenhouse gas levels breached another record in 2020, and the concentration of CO2 was reported to be 149% of pre-industrial levels, according to reports by the World Meteorological Organization.

Every sector of the economy must be decarbonised to reach the Paris agreement goal. "One of the reasons why finance has not materialised for developing countries is because developed countries have been transitioning from fossil fuel to clean energy, thereby eating a large share of [the available finance] pie," said Vibhuti Garg, an energy economist and lead for India at the Institute for Energy Economics and Financial Analysis.

Garg, who is optimistic about the future of green energy technologies, pointed out that a large pool of investment will now be available for clean energy. "Since last year the momentum of green technology adoption has picked up as policy risks are minimised and the commercial viability of many green projects in various parts of the world has been achieved with lower tariffs. Many investors have committed to bar any new investments going towards fossil fuels," she said.

But Garg agreed with other climate experts that the climate loans given to poor countries become expensive due to the risks involved in project implementation and capital recovery. "The conditions should be relaxed wherein more and more countries should be able to access the money in a justified manner," she said.

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