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COP21 Q&A: What Role Does Finance Play in the Paris Outcome?

In politics, life and diplomacy, it’s important to follow the money. At climate negotiations in Paris this week, finance is an essential factor as the talks move into their final days. Here are some key questions and answers to clarify finance’s role in COP21’s outcome.

Why is finance critical to the Paris outcome?

Funding enables countries to be more ambitious for climate action, allowing them to take bolder steps to lower their greenhouse gas emissions and make their economies and societies more resilient in a changing climate. A Paris Agreement must send a strong signal that the poorest and most vulnerable countries will be supported, and that investors need to align portfolios for the inevitable zero-carbon future.

Where does the finance issue fit into the climate negotiations?

Finance issues are included in various areas of the climate talks: it is part of the overall Paris Agreement and the accompanying decision document that will pave the way for its implementation, as well as the decision on ensuring ambitious action before 2020, when the new agreement is expected to come into effect. Lastly, finance is mentioned in a set of other decisions to be addressed annually, such as providing guidance to funds and bodies that are part of the climate convention.

To address this array of issues, negotiations take place in several different formats. Bigger issues such as who will provide finance and at what level, along with actions to be taken before 2020 are being dealt with by government ministers, while more technical issues are taken up by working groups of negotiators. Informal consultations are dealing with language on other outstanding issues.

What are the big crunch issues?

In the lead-up to Paris, we highlighted that the negotiations need to answer vital questions on the future of climate finance. With only a few days left in COP21, most of the key issues are reflected in the negotiating text and countries will have to work quickly to decide which options they move forward.

1. Who will provide finance and at what levels?

Developed countries already have an obligation to support developing countries in their efforts to address climate change, but in recent years some developing countries have also provided financial contributions. As negotiators work to find ways to recognize contributions from a wider spectrum of countries, it is still essential that developed countries continue to take the lead. This sensitive issue will probably be among the last to be resolved, but it’s closely related to ensuring finance flows at scale. In 2009, developed countries committed to mobilize $100 billion per year by 2020. So far, countries have focused on continuing the $100 billion commitment as a minimum, noting the need to significantly increase the level of support beyond 2020. This should be captured in the accompanying decision to the agreement as an important sign that finance will continue to flow at significant levels.

2. How will the agreement encourage countries to mobilize finance domestically?

Separate from the question of who provides international climate finance, all countries should be mobilizing finance for their national climate plans and sustainable development priorities. Many countries have already outlined their ambition to spur investment in their INDCs. The outstanding question is what the Paris Agreement should encourage all countries to do. The New Climate Economy report found that between now and 2030, around $6 trillion a year in required infrastructure investments will need to be shifted to be low-emissions and resilient in order to keep global warming below 2 degrees. The deal at Paris needs to send a strong message to all investors – both public and private – to shift these trillions, including by calling for countries to reduce support for high emissions activities, like coal power; to adopt nationally-appropriate policies that promote investment in climate solutions, like renewable energy; and to mainstream climate into development priorities, such as climate resilient infrastructure. There is a great opportunity here to signal an ambitious shift in where money should flow. Countries should take it.

3. How will finance for adaptation work?

Adequate support to help the poorest and most vulnerable countries adapt to a warming world is critically important, but adaptation funding has lagged behind finance to mitigate climate change. At COP21, countries seem to have converged around the need to achieve a greater funding balance between the two. This principle could be bolstered by quantified goals for adaptation finance, with some countries suggesting a realistic target of $32 billion per year by 2020, and the need to set an additional target for 2025. Negotiators will need to consider how to capture these in both the pre- and post-2020 outcomes, as these are separate decisions being negotiated simultaneously.

4. How will the agreement ensure better reporting of how finance flows?

Accurate, transparent reporting is essential to ensure accountability for climate finance flowing to developing countries. Developing countries need to know that climate finance will continue to grow predictably so that they can make long-term plans. That means developed countries should provide information on future flows of climate finance. In addition, developed countries should continue reporting on finance they have provided. If developing countries are willing to report on finance they receive, it could help hold developed countries accountable to meet their finance commitments. Of course, this will require support to develop processes to track and report on finance received.

As negotiations move toward their conclusion, there is no time to lose. Countries need to ensure these finance issues are addressed in the Paris outcome in a way that enables all countries to take transformational action towards a decarbonized, resilient world.

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