6 Things to Look for on Finance at the Paris Climate Negotiations

Finance will be one of the big issues discussed at the UN climate negotiations over the next two weeks. Funding is essential to enable developing countries to undertake ambitious action, both in terms of reducing their greenhouse gas emissions and building resilience to the devastating impacts of a warming world. It will be important to watch for six signs in particular to gauge progress, including:

1) Confirmation that support will continue to flow at scale

In 2009, developed countries made a commitment to mobilize $100 billion in climate finance a year by 2020 from a variety of sources, both public and private. We are now more than halfway towards that deadline, and developing countries are looking for evidence that donors are on track. Yesterday, at the opening day of the summit, heads of state from Canada, Spain, Norway, Australia and Japan announced increases in their climate finance by 2020, demonstrating some progress towards the target. They join other European countries and multilateral development banks who made announcements earlier in the year (see summary tables below). However, methodological questions remain about what types of finance to count, and how it should be counted. Donors need to provide the details behind the headline numbers to build trust that they are delivering on their pledges. Look out for potential further finance announcements as negotiations proceed. To ensure funding continues to scale up after 2020, the Paris Agreement should include language that commits countries to increasing finance beyond the level of $100 billion a year.

2) Recognition of the growing number of countries that contribute climate finance

The scale of the climate challenge means that all countries—both developed and developing—need to be taking action domestically including improving their policy frameworks to attract green investment and scaling down support for high-emissions activities like coal-fired power plants. Encouragingly, a growing number of developing countries are also showing willingness to provide international support. South Korea, Mexico, Peru, Colombia, Panama, Chile, Indonesia and Mongolia have all contributed to the Green Climate Fund, and last month, China announced that it would provide ¥20 billion ($3.1 billion) in climate finance through its South-South Cooperation Fund. Look out for language that recognizes that, over time, a growing group of countries will become contributors of climate finance.

3) Increased funding for adaptation

One of the most important issues for a huge number of vulnerable countries from Africa, Asia and Latin America is funding for adaptation. Yet adaptation finance has lagged behind funding for mitigation, receiving, at best, a quarter of mobilized climate finance. Donors showed some recognition of the need to increase this, with 11 countries yesterday announcing pledges totaling $248 million to the Least Developed Countries Fund (see details in table below), which helps the poorest nations with adaptation. The Paris agreement will need to ensure this trend continues. One option would be a commitment to balance the allocation of public funding between mitigation and adaptation. African countries have also asked for a doubling of current levels of adaptation finance to $32 billion by 2020, so there may be a numerical goal. Also watch for language about prioritizing grant finance for the poorest and most vulnerable countries.

4) Improved reporting of finance flows

Accurate and transparent reporting is important for holding donor governments accountable for meeting their funding pledges, and ensuring that the money is used in transformative ways. The current reporting system lacks coherence and universality, so look for provisions requiring all countries to report every two years on the finance provided or received, as well as domestic efforts to attract climate-friendly investment and shift funding from high- to low-emissions activities.

5) A finance cycle to ensure funding is regularly increased

Developing countries need to know that climate finance will continue to grow in a predictable way so that they can make long-term plans. Look out for a finance cycle in the Paris agreement, which could include a regular assessment of the levels of finance flowing and how well this is meeting the mitigation and adaptation goals of the agreement. Countries could then set targets for replenishing the Green Climate Fund and other multilateral climate funds.

6) Signals on the need to shift trillions

Significant amounts of climate finance are flowing in the global economy, through bilateral and multilateral public funds, but the majority comes as private investments (in 2014, the UN climate convention’s Standing Committee on Finance estimated global total climate finance flows to be between $340-650 billion). However, trillions of dollars, not just billions, are needed to address climate change. So look out for language on the need to ensure all finance flows - both public and private – are shifted from high emissions to low-emissions activities, and from risky to resilient projects.

Finance is one of the big issues in the negotiations, in part, because it is one of the most contentious. Resolving differences won’t be easy, but progress on finance is essential for enabling greater ambition in emissions reductions and ensuring urgent adaptation needs are met. Yesterday’s announcements by world leaders sent positive signals. It’s now up to negotiators to follow their guidance.

Heads of State climate finance announcements for developing countries on 30 November

_{Source: WRI Compilation}

Earlier climate finance announcements in 2015

_{Source: WRI Compilation based on this report}

Least Developed Countries Fund pledges made on 30 November

_{Source: WRI Compilation based on this report}