Climate Finance – Are we barking up the wrong tree?

28Nov2015
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By Gareth Phillips

The US$100 billion additional finance unveiled in the run-up to CoP21 is an important sign of commitment from developed countries. In fact, many developing countries see it as the single most important issue for the Paris COP. However, while it's a significant sum, there is a danger that if we focus too much on it, we'll miss the real event.

The real event is the shift from a world of them and us (from the Annex 1 / Non-Annex 1 division) to a world where all Parties have binding responsibilities. In particular, this is reflected in the concept of Intended Nationally Determined Contributions (INDC), a bottom up mechanism for defining commitments.

The significance of this fact is that developing countries can no longer sit back and do nothing. Instead, they are expected to implement policies and measures to reduce their emissions. This changes everything. This is the paradigm shift.

Pre-2020 we can talk about climate finance, because in a divided world there is such a thing as "non-climate finance". But post-2020, there can only be climate finance. If countries are to meet their commitments, they cannot deploy non-climate finance. The development banks and donors most definitely cannot lend or donate to any program or project that runs contrary to a country's efforts to achieve its commitments - to do so would undermine whatever international climate change agreement comes out of Paris. A responsible Government can only build a coal-fired power plant if it is included within the numbers that underlie their INDC or, if trading exists, if it has the money to buy additional emission rights. Similarly, a responsible development bank, donor or investor can only finance that plant if it is satisfied that these conditions have been met.

And we need to start thinking and acting in this way immediately after Paris because the investments which we approve now will be built by 2020 and will still be operating by 2050, when global emissions need to descend to about 80% below current levels.

The fact is, developing and developed countries alike need substantial amounts of money to move onto and maintain a clean development pathway, and whether it is presented as climate finance or compensation for loss and damage is not really the point.

Instead, the international support communities need to focus on working with governments to build capacity to develop and implement policies and measures that create an environment which enables investors to finance low and zero carbon technologies without undue technical, financial and political risks. And the governments that manage their economies and environments (i.e. their sovereign assets) on behalf of their constituencies need to work with these communities to ensure that enabling environments are created. This is a win-win situation, whereby suitable investment conditions will generate income leading to improved quality of life while reducing the risks of catastrophic climate change.

Putting a price on greenhouse gas emissions either through taxation or the implementation of emission trading schemes at a domestic and later a regional level, or a combination of both, will help achieve these objective and promote climate finance. Other policies and measures which should be rapidly deployed include the removal of fossil fuel subsidies; strengthening the role of the private sector in power generation and distribution; promotion of / legislation in favour of energy efficient technologies; in preparation for future policies, monitoring and reporting of greenhouse gas emissions; and, perhaps most importantly, much greater education and awareness raising among young people. In 2040 and 2050, it is today's children who will need to take the decisions that will move us to a zero carbon world, and their peers who will need to understand the issues sufficiently to vote for them. If they have the same level of awareness as voters today, and if they expect to live the same lifestyle as their parents and role models, then there isn't much hope for staying below the 2°C target.

Yes, the US$100 billion is important; but more important are coordinated efforts to create environments which encourage and enable private sector investment in the technologies we need to deploy.


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