Why climate finance will not save us?
By: Lemuel Deinla
(First of two parts.)
In 2015, the Paris Climate Agreement brought together world leaders to address climate change. Right at the beginning, it was stated that the Agreement is anchored on the principle of climate justice — that everyone has the right to be secure from disastrous climate change-related events. Furthermore, climate justice acknowledges that developed countries are the main perpetrators of climate change and it would be their responsibility to provide support to highly vulnerable developing countries whose contributions to climate change are relatively minimal. Indeed, developed countries created a global climate finance architecture that aims to provide financial assistance to developing countries.
However, industrialized nations still keep pumping greenhouse gases like there is no tomorrow. Economic anthropologist, Jason Hickel, squarely put the blame on countries of the Global North for being the biggest polluters in the world. The Global North he referred to includes countries like the United States, Canada, member states of the European Union, the United Kingdom, Israel, Australia, New Zealand, and Japan. According to his calculations, the Global North is responsible for 92% of emissions in excess of the planetary limits. The disadvantaged countries in Latin America, Asia, Africa, and the Middle East, collectively called the Global South, therefore continue to bear the brunt of climate change while contributing little to it.
In pursuing climate justice, are developed countries truly fulfilling their responsibility toward developing countries? Have mega-corporations and the Global North been held accountable for leading us to where we are now? The question of whether the current climate financing system is effectively and sufficiently promoting climate justice, then, must be posed. Now is the time to recognize that the current actions are not enough and climate change has reached a crisis level. The climate crisis would be the end of humankind unless bold, equitable, and transformative actions are taken right now.
“The disadvantaged countries in Latin America, Asia, Africa, and the Middle East, collectively called the Global South, therefore continue to bear the brunt of climate change while contributing little to it.”
Climate Finance Architecture
Before we dive to the heart of the issue, it is helpful to understand the current system in place that attempts to address the climate crisis. Through the United Nations (UN), a climate finance architecture was developed. International funds were established to act as conduits for voluntary financial contributions from developed countries that would be used to fund mitigation (activities that aim to reduce the emission of greenhouse gases) and adaptation (activities that build the resilience of communities and nations against climate change) projects in developing countries. The first fund to become operational was the Global Environmental Facility (GEF), which served as the financial mechanism of the first international treaty on climate change, also known as the UN Framework Convention on Climate Change (UNFCCC). GEF and the UNFCCC were born out of the negotiation of 154 countries in 1992. Two more funds would be created under the UNFCCC: the Adaptation Fund (AF) of the Kyoto Protocol, which became operational in 2009, and the Green Climate Fund (GCF) in 2010.
There are also funds that exist outside of the UNFCCC. Chief among them are the Climate Investment Funds, resulting from the collaboration between developed and developing countries. There are also UN agencies that leverage climate financing to tackle specific facets of climate change, including the UN initiative to Reduce Emissions from Deforestation and Forest Degradation (UN REDD) and the International Fund for Agriculture and Development. Multilateral development banks (MDBs) like the Asian Development Bank, European Investment Bank, the African Development Bank, and many more are also hosts to other climate change funds and programs.
All of the aforementioned funds are multilateral in nature, which means they were formed through partnerships of multiple countries. However, there are also other ways to fund climate change projects. Countries, especially developed ones, can operate through their foreign affairs departments or international development agencies to establish bilateral partnerships with other countries. For example, Australia and Norway operate through their foreign affairs ministries to partner with developing countries. In the Philippines, some of the famous international development agencies include the Japan International Cooperation Agency (JICA) and the United States Agency for International Development (USAID). Several developing countries also have their own national climate change funds. Some examples include the Philippines’ People’s Survival Fund, the Indonesia Climate Change Trust Fund, and Brazil’s Amazon Fund.
Climate Funds Issues
The first and foremost issue with climate funds is the nature of how they acquire funds. All of the funds mentioned above rely on small voluntary donations from mostly developed countries. These meager donations greatly restrict what these funds are capable of doing. According to a 2014 study by the Overseas Development Institute (ODI), the Global Environment Fund only covers a small portion of the project costs with free financial assistance called grants. The rest of the project costs are funded through co-financing, where the recipient country needs to search for additional sources of funding.
In 2020, Oxfam published its Climate Finance Shadow Report. The report was meant to keep track of the pledges of developed countries to raise 100 billion US dollars by 2020 for climate funds. The Organization for Economic Co-operation and Development, the club of rich countries, stated that developed countries were confident that they would meet the 100 billion dollar pledge. Oxfam evaluated the data and proved that the contrary was true; developed countries were failing to meet the target. Oxfam found out that although the climate funding nominally increased every year, its real value was actually low. Developed countries reported that from 2015 to 2016, their contribution to climate finance was at $44.5 billion. This increased to $59.5 billion from 2017 to 2018. However, when Oxfam discounted the interest from the loans and payments made, it was revealed that the real value of the contributions, also called climate net-specific assistance, from 2015 to 2016 was only $15.5 billion and this only slightly increased to between $19 and $22.5 billion from 2017 to 2018.
There were two reasons for this low real value. Primarily, an overwhelming portion of the financial contributions that developed countries made were in the form of loans. Grants only made up 20% of the total climate finance contribution. The rest were either concessional loans (loans that have long grace periods and low-interest rates) or market loans (standard loans that have profitable interest rates). Another factor affecting climate finance is the over-accounting of funding provided. Some countries, including Japan, declare that a project’s budget was entirely dedicated to addressing climate change although the project itself does not primarily target climate action. A common practice among donor countries is to count half of the project’s budget as climate change financial contribution. Only a few countries, like the United Kingdom, calculate the exact amount of financial assistance dedicated to climate action on a project-per-project basis.
Oxfam has denounced the finance strategies of developed countries. Small developing countries should not be forced to take in loans just to protect themselves from the adverse effects of climate change to which they contributed little.
To be continued in Part 2. Stay tuned.
