Overview of UNFCCC Finance

by Bohdan Zymka

In an effort to prepare for the coming COP in Warsaw, Earth in Brackets presents a brief overview of finance under the UNFCCC.

The cost of climate change is rising. South Centre put the costs of mitigation and adaptation at 600 billion USD to 1.5 trillion USD per year, 5-10 times more then what has been pledged under the UNFCCC, and the costs of loss and damage have yet to be discussed. With no new money committed in Doha last year, finance is likely to be a contentious issue at COP19 in Warsaw, Poland.

Simply put, finance under the UNFCCC means developed countries party to the UNFCCC that are listed under Annex II are responsible for financially assisting developing countries (non-Annex I) in their effort to deal with the effects of climate change. This means money flowing from the global North to the global South towards projects for mitigation, adaptation, capacity-building, technology transfer, and if a mechanism is ever established, loss and damage.

The first progress on climate finance came in 2007 from Bali Action Plan at COP13 with the establishment of the Ad-Hoc Working Group on Long-Term Cooperative Action (LCA). Concerning finance, the working group was tasked with coming up with ways to improve access to funding that was adequate, predictable and sustainable, new and additional, and addressed issues of mitigation and adaptation equitably.

Fast-forward to 2009 in Copenhagen, Denmark at COP15. With international pressure and a new international climate treaty at stake, the talks collapsed. Behind closed doors, the United States, China, Brazil, India, and South Africa drafted the Copenhagen Accord. The accord is not a legally binding decision under the UNFCCC, but countries have reaffirmed the agreement in future COPs. In the accord, developed countries made a pledge to mobilize 30 billion USD by 2012 toward mitigation and adaptation. This initiative was called Fast-Start Finance (FSF). This commitment was largely ineffective, as countries failed to provide new and additional funding in that FSF came largely in the form of repackaged Official Development Assistance, or money that would originally go to development and welfare projects. These money amounts were relabeled as climate finance in order to meet the commitment. Some reports state that as little as 10% was new and additional or climate related.

Despite self-affirmation from developed countries for the success of FSF, the money is still repackaged ODA and mostly comes in the form of loans. This type of finance under the UNFCCC falls under OECD (Organisation for Economic Co-operation and Development) regulations meaning that only 25% of finance is mandated to be delivered in the form of grants. The developed world is forcing the developing world further into economic debt in order to fix a problem they had little to no part in creating.

In Cancun, Mexico at COP16, developed countries parties pledged to mobilize 100 billion USD per year by 2020, this finance period has been deemed Long-term Finance. In COP17 in Durban, a work programme on long-term finance was established (and later extended in Doha, Qatar at COP18) to facilitate the mobilization of this finance. COP16 also created the Green Climate Fund (GCF), a fund aimed at creating direct access to funding for mitigation and adaptation projects.

What has happened so far? Nothing. Not only is the 100 billion USD per year nowhere near as adequate as need, the money was voluntarily pledged, not legally committed and almost none has been delivered. The GCF now sits in South Korea, with only 7.3 million USD committed and 3 million delivered. The work programme on long-term finance has failed to facilitate the delivery of these funds and mostly serves as a yearly powerpoint symposium.  The state of climate finance is in disarray. In order to make progress in Warsaw, finance must be framed as a legal obligation for the developed world, funds must be delivered as soon as possible and the majority of funding must be in the form of grants.

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