CLIMATE FINANCE

• Climate finance entails substantial financial investments directed toward initiatives aimed at either mitigating or adapting to the impacts of climate change.
• In the context of adaptation, it involves proactively addressing the anticipated adverse effects of climate change and implementing measures to prevent or minimize potential damage.
• For instance, constructing infrastructure to safeguard coastal communities against rising sea levels is a tangible example of adaptation measures.
• Conversely, in the realm of mitigation, the focus is on curbing the emission of greenhouse gases (GHGs) into the atmosphere, thereby lessening the severity of climate change impacts.
• Mitigation efforts encompass strategies such as increasing the utilization of renewable energy sources, expanding forest cover, and other measures designed to reduce overall GHG emissions.

Developing nations demand climate finance for several reasons:

• Developed nations have historically emitted far more greenhouse gases than developing nations. Since the Industrial Revolution, the Global North has emitted a disproportionate share of the greenhouse gases that are now causing climate change. While developing nations are now rapidly increasing their emissions, the historical responsibility for the problem lies primarily with developed countries.
• Developing countries are disproportionately vulnerable to the negative impacts of climate change, such as extreme weather events, rising sea levels, and changes in agricultural productivity. They often lack the resources to adapt to these changes and build resilience.
• Developing countries have limited financial resources to invest in clean energy technologies and other climate solutions. They need financial assistance from developed countries to bridge the gap and make these investments.
• The principle of Common But Differentiated Responsibilities (CBDR) is enshrined in the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement. This principle recognizes that all countries have a responsibility to address climate change, but that developed countries have a greater responsibility due to their historical emissions and greater financial capacity.
• Many argue that developed countries have a moral obligation to help developing countries address climate change, as they are the ones who are most vulnerable to its impacts and have the least responsibility for causing the problem.

International Agreements

The demand for climate finance is backed by international agreements, including:

• The 1992 United Nations Framework Convention on Climate Change (UNFCCC) agreement established the principle of CBDR and required developed countries to provide financial assistance to developing countries.
• 2009 Copenhagen Accord Developed countries committed to providing $100 billion per year by 2020 to developing countries.
• The 2015 Paris Agreement reaffirmed the commitment to provide $100 billion per year by 2020 and extended it to 2025.

• As of 2021, the UNFCCC standing committee's analysis suggests that developing countries require a minimum of $5.8 trillion by 2030 to fulfil the objectives outlined in their Nationally Determined Contributions (NDCs).
• These contributions serve as a framework for their initiatives to both reduce national emissions and adapt to the impacts of climate change.
• This translates to an annual need of around $600 billion, a figure significantly below the commitments made by developed nations.
• Complicating matters further, a report from the London School of Economics notes that the lack of available data, tools, and capacity in several countries may result in underestimations of these financial needs.
• Additionally, the UNFCCC estimate does not encompass the substantial expenses incurred by governments to address the impacts of extreme weather events like floods, droughts, and wildfires attributed to climate change.
• These costs are now being considered separately under the funding mechanism for loss and damage, announced by countries at COP27 in 2022 and officially launched during COP28. However, the scale and replenishment cycle of this mechanism remains unclear.
• In a report from 2022, Nicholas Stern, a prominent climate economist, estimated that an annual investment of approximately $2 trillion will be necessary by 2030 to assist developing countries in reducing their greenhouse gas emissions and coping with the consequences of climate breakdown.

Different organizations provide contrasting figures on the amount of climate finance reaching developing countries.

• The Organisation for Economic Cooperation and Development (OECD), largely composed of wealthy nations, reported $83.3 billion provided in 2020.
• Oxfam challenges the data, accusing developed countries of inflating their contributions by as much as 225%. Their estimate places the real value of climate finance provided in 2020 at $21-24.5 billion.
• Developed countries are criticized for offering much of the funding as non-concessional loans, adding to debt burdens in developing nations.
• A study by CARE International revealed that 52% of climate finance between 2011-2020 was diverted from existing development budgets, including critical areas like health, education, and women's rights.

Concerns and implications

• The discrepancy in reported figures raises questions about transparency and accountability in climate finance.
• The prevalence of non-concessional loans increases debt burdens and limits the effectiveness of climate finance in developing countries.
• Diverting funds from essential development priorities can exacerbate existing challenges in developing nations.

6. The Way Forward

The question of how much climate finance reaches developing countries remains contested. Deeper scrutiny and transparency are needed to ensure effective resource allocation and support meaningful climate action in vulnerable nations while safeguarding their development priorities.