Post-Bonn Reflections on Climate Finance

The finance stream of the UN climate negotiations in Bonn, Germany, last week showed a clearer narrative emerge about the key elements that should be included in the outcomes of the December climate summit in Paris. Disagreements remain on the detail of finance provisions in the new global climate agreement, so countries will need to be creative in finding convergence.

Institutions

Finance negotiators began the Bonn talks with a rich discussion on institutions to govern and channel climate finance. There was broad understanding that the new international agreement should include the existing Financial Mechanism under the Convention rather than creating a new one, but countries diverged on the level of detail on the operating entities (the Global Environment Facility and the Green Climate Fund) and specific funds it was necessary to formally recognize. Some countries worried about locking in specific funds to the agreement, since it would require a potentially complex amendment process if countries later decide to consolidate them. Another issue is how to address the Adaptation Fund, which was created under the Kyoto Protocol; some countries that intend to sign on to the new agreement do not participate in Kyoto, so negotiators will need to explore legal options to ensure the institutions of the new financial mechanism can be applicable to all countries. Whether using existing mechanisms or developing new ones, the focus should be on how to increase the effectiveness of climate finance; this will require increasing the ambition of, and resources provided to the institutional mechanisms, as well as improving their coherence and coordination.

Scale

All countries acknowledged the need for more climate finance. However, there were different interpretations of what this means. Some developed countries emphasized the importance of finance coming from the private sector and an expanded group of donor countries. Developing countries primarily focused on the need for a quantitative commitment by developed countries, building on the pledge to mobilize $100 billion a year by 2020. In the negotiations, these were often presented as opposing proposals, but in reality both elements are required. Developed countries must continue to provide public finance building on existing commitments, and ensure this plays a catalytic role in unlocking greater flows of private investment. Negotiators will need to explore ways of capturing the distinct but interlinked concepts of scaling up public finance and mobilizing private investment in a way that matches the necessary ambition on mitigation and adaptation. Several countries proposed setting up a finance cycle, alongside proposed cycles for adaptation and mitigation, where countries report on finance provided or received, as well as the domestic action they are taking to attract green investment. This may be a way of enshrining and linking the notions of scale-up and mobilization of finance in the agreement.

Adaptation Finance

Support for countries’ actions to adapt to a changing climate lags behind funding for emissions reductions, and countries recognized that there needs to be better balance between adaptation and mitigation. There were different views on how to do this. Many countries converged around a top-down commitment to ensure that future public climate finance is equally allocated between adaptation and mitigation, but others suggested that prioritizing public finance for the most vulnerable countries would allow recipient countries greater flexibility to set their own priorities for climate action, while in practice leading to increased finance for adaptation. Some countries also suggested mainstreaming climate resilience into all support as a way of ensuring adaptation is not short-changed.

Contributors

Across all elements of the Paris agreement, the new norm is that all countries should take responsibility for addressing climate change, while taking account of different historical responsibilities. This means that developed countries will continue to contribute climate finance, while some developing countries may also make contributions, as we have seen with pledges to the Green Climate Fund.. Negotiators need to think about how to recognize the contributions of developing countries without making commitments mandatory. Recognizing developing countries’ efforts to mobilize finance domestically and through South-South cooperation could maintain this element of differentiation. Whatever the final form, language on commitments should not prevent countries from doing more if they are willing and able.

Domestic Efforts to Shift and Mobilize Investment

The concept of enabling environments sparked lively debate about whether creating and improving the conditions that encourage investment in low-emissions and climate-resilient activities should be a commitment for all countries. Some negotiators raised concerns that this would be used as a condition on provision of finance. Others worried the concept could be used to limit governments’ freedom to determine their own effective climate policies. Ambitious national policies and targets, strong and effective country institutions, and informed and empowered policymakers and civil society are vital for mobilizing finance on the scale neededto transform economies to become compatible with a 2 degree C (3.6 degree F) world. In addition, regulation and policies are needed to shift investment from high carbon to low carbon activities; from risky to resilient practices. Without policy action, it will not be possible to shift and mobilize the trillions of dollars of finance necessary. Negotiators need to find a way of capturing the consensus that all countries need to act to increase green finance, while recognizing that governments need flexibility in determining nationally appropriate policies and measures.

From Bonn to Bonn – Key Political Moments Before the Next Negotiating Session

Formal negotiations will resume in Bonn on October 19, but there are a number of events before then where countries should seize the opportunity to reinforce progress in the UNFCCC, build trust and work to elaborate details on growing areas of convergence:

• Ministers met in Paris this weekend to discuss the climate agreement, with finance high on the agenda. It was an opportunity for high-level engagement around some of the more political issues underlying the technical discussions. Donor countries released a joint statement on tracking progress towards meeting the $100 billion commitment, which set out the common approach they will follow in accounting for finance mobilized. Further work will be necessary to enhance clarity on the methodologies used and to ensure that recipient countries agree with the approach.
• World leaders will gather from September 25-27 at UN headquarters in New York to launch the Sustainable Development Goals. This summit is a global stage for donor countries to come forward with new public finance pledges to meet the $100 billion commitment. WRI research has found that in one scenario, an additional $10-15 billion a year in public finance is needed.
• Finance ministers will meet to discuss climate finance on the sidelines of the annual meeting of the World Bank and IMF on October 9 in Lima. If there are new pledges from donors and consensus on a common approach for tracking finance mobilized, this meeting could be an opportunity for countries to agree on a credible roadmap to meet the $100 billion goal.

With less than 100 days until the Paris summit, there is no time to lose. As negotiators and ministers continue to discuss the technical and political detail of the finance outcomes, they need to keep in mind the ultimate goal: to ensure that collective efforts are commensurate to the scale of the problem, and to signal a shift in all investments to enable the world to stay below 2 degrees of warming.