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5 Insights from Developed Countries' Fast-Start Finance Contributions

Sven Harmeling, Takeshi Kuramochi, and Steffen Kalbekken also contributed to this post.

How are we going to deliver climate finance at a sufficient scale to help developing countries mitigate and adapt to climate change? Parties to the UNFCCC--including those at this month’s intersessional in Bonn--are struggling to agree on the answer to this question. The UNFCCC established a Standing Committee on Climate Finance to take stock of global progress towards this goal, while a work program on Long-Term Finance will continue this year.

As these various groups debate the future of climate finance, it’s important to look back at progress and trends thus far. The fast-start finance (FSF) period offers important insights into how different developed countries are approaching the challenge of delivering international climate finance. These lessons can inform future efforts.

Major Insights from the Fast-Start Finance Period

Developed countries report that they delivered more than $33 billion in FSF between 2010 and 2012, exceeding the pledges they made at COP 15 in Copenhagen in 2009. But how much of this finance is new and additional? How has it been allocated, and what is it supporting?

Strengthening Ownership and Effectiveness of Climate Finance

The Climate Investment Funds (CIFs), one of the world’s largest dedicated funding facilities for climate change mitigation/adaptation projects, have now been in operation for five years. It’s a good time to step back and evaluate what lessons we’re learning from these important sources of climate finance.

WRI recently did just that, inviting a group of representatives from countries accessing CIFs funding to speak at our offices. It became clear from the discussions that while some valuable progress has been made, there is still plenty of room for improvement. In particular, lending institutions involved with the CIFs could deploy climate finance more effectively by fostering a stronger sense of country ownership over mitigation/adaptation projects.

The Good News: Climate Investment Funds Are Contributing to Change on the Ground

We’re starting to see some countries make progress on implementing climate change mitigation and adaptation projects with funds from CIFs programs (see text box). Panelists at the WRI event highlighted a few examples:

The German Fast-Start Finance Contribution

Germany’s fast-start finance (FSF) contribution reflects a significant focus on financing climate action in developing countries. Germany exceeded its self-defined FSF pledge for the 2010-2012 FSF period, providing a total of EUR 1.29 billion, and also pledged to deliver EUR 1.8 billion in 2013...

How Much Did the United States Contribute to International Fast-Start Finance?

This post was co-authored with Jenna Blumenthal, an intern with WRI's Climate and Energy program.

As U.S. government officials take stock of last week’s Ministerial Meeting on Mobilizing Climate Finance and prepare for upcoming UNFCCC talks in Bonn, WRI’s Open Climate Network (OCN), along with Climate Advisers and the Overseas Development Institute, are taking a look back at U.S. efforts on climate finance. (See our new fact sheet).

Back in 2009, developed countries pledged to provide $30 billion in climate finance by the end of 2012 in order to help developing countries implement low-carbon, climate-resilient development initiatives. This funding period—which took place from 2010 to 2012—is known as the “fast-start finance” period.

Our analysis reveals two sides to the U.S. contribution of roughly $7.5 billion in fast-start finance: On one hand, it represents a significant effort to increase international climate finance relative to previous years, in spite of the global financial crisis. On the other, it is not clear that the entirety of the contribution aligns with internationally agreed principles, which stipulate that the finance be “new and additional” and “balanced” between adaptation and mitigation. In any case, the United States, along with other developed countries, is now faced with the challenge of scaling up climate finance to developing countries to reach a collective $100 billion per year by 2020.

The U.S. Contribution to Fast-Start Finance

FY12 Update

This fact sheet updates a May 2012 working paper on the U.S. fast-start finance (FSF) contribution over the 2010-2012 period. It analyzes the financial instruments involved in the U.S. self-reported portfolio—about $7.5 billion, or 20 percent of the total FSF commitment globally. It also...

Climate Finance in East Africa: Stories and Lessons

This post originally appeared on the Climate Development and Knowledge Network's (CDKN) website.

Having recently left the bustling streets and warm hospitality of Addis Ababa, Ethiopia, I’m taking a moment to reflect on all that I have learned at CDKN’s workshop on “Climate Finance in East Africa.” Representatives of government departments and research institutes from Ethiopia, Kenya, Rwanda, Tanzania, and Uganda--as well as members of the donor community and international think-tanks--reflected on their experiences and the challenges faced in mobilizing and effectively deploying climate change finance.

I was inspired by the sense of optimism and confidence among participants as they discussed the ways in which their countries are tackling the climate change challenge. And I was struck by the effort and considerable progress that these East African countries have already made, despite limited resources and numerous obstacles.

Climate Action in East Africa

For example, last month Kenya launched a holistic national climate change action plan, following a comprehensive planning process that brought together all key government ministries, subnational governments, civil society, the private sector, and development partners.

3 Ways to Unlock Climate Finance

Ministers and senior officials from developed countries will gather this Thursday in Washington, D.C. to tackle one of the world’s foremost challenges: how to mobilize private sector capital to reduce greenhouse gas (GHG) emissions in developing countries and help them adapt to climate change’s impacts. The meeting, organized by the U.S. State Department, comes on the heels of another meeting of climate finance experts and researchers in Paris, organized by the Organisation for Economic Cooperation and Development (OECD).

This global attention on climate finance comes at a critical moment: Research shows that the world will need to invest at least $5.7 trillion in clean water, sustainable transport, renewable energy, and other green infrastructure annually by 2020 in order to keep global temperature rise below 2 degrees Celsius, thus preventing climate change’s worst impacts. We’re currently directing only about $360 billion annually toward these activities.

While these discussions are necessary, what’s more important is whether or not ministers and officials are talking about the right issues and asking the right questions. Addressing three questions—on the correct investment figures, the most effective policy and financing tools, and the importance of collaboration—will be critical to ensure that the April 11th Ministerial Meeting on Mobilizing Climate Finance achieves meaningful results.

Why Is Climate Finance So Hard to Define?

This is the first installment of our blog series, Climate Finance FAQs. The series explores the often nebulous world of climate finance, providing clarity on some of the key terms and current issues. Read more posts in this series.

Surprising as it may sound, there is no standard definition of climate finance. In fact, there are many differing views on what type of funding constitutes climate finance, how it should be delivered, and how much money developing nations will need to mitigate climate change and adapt to its impacts. This vortex of information can be confusing to navigate. Here, we'll do our best to break down all of the components that define “climate finance.”

Defining Climate Finance: Broadly to Narrowly

In its broadest interpretation, climate finance refers to the flow of funds toward activities that reduce greenhouse gas emissions or help society adapt to climate change’s impacts. It is the totality of flows directed to climate change projects—the same way that “infrastructure finance” refers to the financing of infrastructure, or “consumer finance” refers to providing credit for purchases of big-ticket household items.

The term is most frequently used in the context of international political negotiations on climate change. In this context, climate finance—or international climate finance—is used to describe financial flows from developed to developing countries for climate change mitigation/adaptation activities, like building solar power plants or walls to protect from sea level rise. This interpretation builds off the premise that developed countries have an obligation to help developing countries transform their economies to become less carbon-intensive and more resilient to climate change.

Lessons from Thailand: Mobilizing Investment in Energy Efficiency

Developing countries will need about $531 billion of additional investments in clean energy technologies every year in order to limit global temperature rise to 2° C above pre-industrial levels, thus preventing climate change’s worst impacts. To attract investments on the scale required, developing country governments, with support from developed countries, must undertake “readiness” activities that will encourage public and private sector investors to put their money into climate-friendly projects.

WRI’s six-part blog series, Mobilizing Clean Energy Finance, highlights individual developing countries’ experiences in scaling up investments in clean energy and explores the role climate finance plays in addressing investment barriers. The cases draw on WRI’s recent report, Mobilizing Climate Investment.

The development of Thailand’s energy efficiency sector is an interesting case study. It demonstrates how strong government leadership combined with strategic support from international climate finance can drive the transition toward an energy-efficient economy.

In the early 1990s, Thailand’s economy was growing rapidly at 10 percent per year; the power sector was growing even faster. The government recognized that conserving energy would provide a low-cost way to meet its citizens’ rising demand for energy.

The Private Sector and International Development: A Love Affair, or Cold Feet?

The private sector is a crucial partner in advancing sustainable development, and bilateral aid agencies are grappling with ways to learn from and leverage the activities of companies and markets. As the worlds of business and of aid increasingly intersect—and as development budgets are reined in even as demands on them grow—the pressure is to do more in partnership with the private sector. The real challenge, though, is to do better.

This was the headline message from a recent roundtable discussion with representatives from nine bilateral donor agencies and invitees from the private sector, co-organized by WRI and the International Institute for Environment and Development (IIED) in London (see notes from the roundtable).

Both sides desire a strengthened relationship. Donor agencies see the private sector as an indispensable partner for improving the effectiveness and efficiency of aid. Agencies are looking for important sources of ideas, technology, and financing to scale up development solutions.

One example is the Africa Enterprise Challenge Fund (AECF), which is funded by the Australian, British, Danish, Dutch, and Swedish aid agencies. AECF is improving livelihoods of poor people in rural Africa by supporting innovation and new business models to help small-scale farmers adapt to climate change and promote investment in the generation of low-cost, clean, renewable energy.

Private sector actors seek clearer policy signals and more consistent support from donor agencies, particularly in understanding and navigating local politics. They also seek opportunities to develop new products and new markets, benefiting from the “de-risking” role that the public sector can play.

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