FEATURE: What counts? Understanding where we stand on climate finance
Smita Nakhooda, Team Lead for Climate Finance at ODI, sheds clarity on the different ways of counting climate finance flows – with some pointers that could help policy-makers get to grips with this contentious issue.
Have developed countries made enough progress to mobilise $100 billion in public and private flows by 2020? This question has vexed negotiations on international climate policy since this commitment was made in the Accord reached in Copenhagen in 2009.
We all know that mobilising $100 billion is not enough to address the fundamental investment challenge before us, which is to shift trillions of dollars of investment away from business as usual towards low-carbon and climate-resilient development. But this goal is currently the primary political benchmark for assessing progress on climate finance as we prepare for the Paris climate summit at the end of 2015.
In a new paper from ODI, the Climate Policy Initiative and the World Resources Institute, we distil five key issues that affect what “counts” towards the $100 billion goal. Many tomes have been written exploring the complexities of reporting and tracking the delivery of climate finance (and our three organisations are responsible for several of these!) But our hope is that by organising different aspects of climate finance in politically-relevant ways, we can help facilitate clearer understanding and convergence on what should count.
The first (and arguably most central issue) we highlight is the motivation for an investment, or the extent to which a financial flow was spent with the intent of reducing greenhouse gas emissions or supporting adaptation to climate change. Some countries have included – in their official climate finance reporting – some flows of finance whose impact on climate change is debatable. For example, Japan included loans for coal plants in Indonesia as climate finance on the grounds that these plants were slightly more efficient than the average facility in the country – a point of controversy in the media coverage at the UNFCCC Conference of Parties in Lima, Peru last year.
The concessionality and source of the finance, or the cost of the finance being offered, and who provides it is another vital consideration. At the heart of some of these debates are differing views on the legitimacy of finance that has to be repaid (sometimes at substantial cost), and the source of the finance. Some countries have concerns about how to include private flows.
Another major issue, is causality, particularly in the context of efforts to account for private flows. To what extent has a government’s intervention (whether by investing public finance, or through a policy measure) really led to further investment in climate-relevant activities?
While it is clear that the $100 billion commitment relates to finance for developed countries, the issue of geographic origin can be complex, particularly in a global economy. For example, multilateral institutions such as the World Bank and many UN agencies are funded by both developed and developing country institutions. It is not always straightforward to establish whether a private entity is from a “developed” country or a developing one.
And finally there is the issue of the recipient of finance. Responding to climate change involves lots of different actors: international renewable energy companies, utilities that may be partly owned by governments, national development banks that invest in infrastructure, private banks that finance companies, and non-governmental and community based organisations, and a range of government ministries and funds. All of these actors might receive finance. But there are different views on which of these recipients are legitimate to “count”.
We also recognise that in order to move beyond the conceptual, numbers will need to be associated with these various considerations – they are like the connected rings of an onion. Poor data quality and availability related to some of the variables and themes is a substantial constraint. The flows around which there is less consensus (notably private flows) are likely to be larger in magnitude but also far less well documented than flows that are less “controversial”, which are also well documented and often easier to measure.
While our work does not provide definitive solutions, it supports deeper reflection on underlying assumptions and preferences. Such reflection may help to de-politicise these debates while fostering better mutual understanding.