FEATURE: Event on climate finance communications reveals ‘expectations gap’
Developed and developing country representatives met on Friday 11 June 2021 to respond to the UNFCCC’s first biennial communications on projected levels of climate finance flows. The event was also informed by a compilation and synthesis of biennial communications prepared by the secretariat.
The biennial communications are documents by developed countries that lay out their intentions for future flows of climate finance to developing countries. They cover: the volume of climate finance planned, the thematic focus, geographic focus and nature of funding or channel(s) to be used.
Representatives from a wide range of developing countries were unanimous in expressing their disappointment that the individual – and aggregated – data provided in the communications was piecemeal and unclear. The data did not visibly indicate that enough finance would be available to meet their needs.
For their part, donor nations stressed that this first exercise in communicating future finance flows was a ‘learning exercise’. They explained that budget cycles and hence financial forecasting are constrained by democratic processes in their countries, including the need for legislative approval of annual budgets.
The event revealed a gap in expectations between:
- developing countries’ hopes of receiving clear signals for large climate finance commitments for specific countries and regions; and
- developed countries’ idea of what can be forecast and committed based on existing procedures.
The discussion raised questions about whether donor countries can obtain domestic approval for more, multi-year climate finance commitments that will give greater certainty to recipients; and whether recipient countries can use such forecast expenditures as the basis for actively planning to implement the conditional measures in their NDCs.
(‘Conditional’ measures in the Nationally Determined Contributions are those climate actions that are stated to require financial, capacity building or technology transfer support, in order to be implemented).
First round of biennial communications on climate finance
As the name suggests, the biennial communications are to be submitted every two years to the UNFCCC. The requirement is set out in Article 9.5 of the Paris Agreement, which states that developed country Parties “shall biennially communicate indicative quantitative and qualitative information” related to the provision of financial resources to developing countries.
The type of information to be communicated is quite extensive, as set out in the annex to Article 9.5. It should include (among many other things): “(a) Enhanced information to increase clarity on the projected levels of public financial resources to be provided to developing countries, as available; (b) Indicative quantitative and qualitative information on programmes, including projected levels, channels and instruments, as available; (c) Information on policies and priorities, including regions and geography, recipient countries, beneficiaries, targeted groups, sectors and gender responsiveness; (d) Information on purposes and types of support: mitigation, adaptation, crosscutting activities, technology transfer and capacity-building….”
The first round of biennial communications was made in 2020-21, by Australia, Canada, the European Union (with 24 of its 27 member states represented), Japan, Monaco, New Zealand, Norway, Switzerland and the United Kingdom.
The UNFCCC Secretariat compiled and synthesised these communications into a report, which informed the 11 June online workshop. The UNFCCC’s synthesis report is also meant to inform the Global Stocktake of progress toward the goals of the Paris Agreement.
The purpose of Article 9.5: to make climate finance more predictable
Executive Secretary Patricia Espinosa framed the workshop discussion by emphasising the need for climate finance to be predictable. She summarised the need for robust information on future flows as follows:
- developing country governments require predictability to guide implementation of their national climate plans
- the private sector wants assurance that governments will lessen the risks of climate adaptation and mitigation-related investments
- financial investors want to governments to set a pathway to a net zero future, and
- project developers want to know about climate support programmes they can access.
Predictable finance will provide the conditions for enhanced climate ambition and action on the ground – Ms Espinosa outlined – and “will spark private investments and shift global financial flows to ensure that all financial investments take climate change into account. This is the vision we must have for Article 9.5.”
Developing countries’ disappointment
Developing countries in all their diversity – from least developed countries to small island states to high middle income countries – all expressed their disappointment at the contents of the nine individual biennial communications, and the resulting synthesis.
The biennial communications lack sufficient quantitative information, said Evans Njewa of Malawi, for the Least Developed Country (LDC) Group of Negotiators. As such, it is difficult to assess a true progression in finance commitments from rich nations over time.
Zaheer Fakir of South Africa was more outspoken:
“It’s the first time we’re doing it but it is lacking in robustness, in predictive information. If I’m providing NDCs, and I have no information about what objective funds are out there, how do I present an ambitious NDC? The information is woefully lacking and does not provide the kind of predictability that Patricia [Espinosa] was calling for.”
Alpha Kaloga of Africa Group of Negotiators stated his concern that the communications do not show how the target will be reached for $100 billion per year in climate finance to be disbursed from developed to developing countries. “We can express our concern that we are far from reaching the $100 billion goal and yet the communication is not adding any assurance towards this commitment,” Mr Kaloga said.
While there were almost unanimous calls for more quantitative data, Floridea di Ciommo of the Women and Gender Constituency also called for more qualitative information, specifically: “climate finance in support of gender equality, human rights and development needs.”
She asked donor countries to declare “how much climate finance will be provided directly toward women’s groups, youth and indigenous peoples.”
Constraints of budget approval processes in developed countries
Developed countries made a range of interventions to describe how their climate finance commitments are due to grow in the years ahead.
A common theme, however, was that democratic processes require countries’ legislatures to approve annual government budgets. This means that the executive branch cannot forecast future spending with cast-iron certainty.
Lydia Cavasin of Canada said: “providing forward-looking information is a challenge, dependent on domestic budgetary approval, including parliamentary approval.”
Randy Caruso of the United States noted that the U.S. has not yet filed its communication due to the changeover between the Trump and Biden administrations. Notwithstanding, he said it would be difficult to provide detailed ex ante communications because each year’s climate finance budget, as part of foreign assistance, goes to the U.S. House of Representatives and Senate for approval.
That said, delegates noted that governments’ commitments to the major international climate funds and multilateral development banks are typically multi-year in nature.
As stated in the UNFCCC’s synthesis report: “some Parties reported multi-year climate finance commitments, and other commitments for one or two years, with many mentioning finance committed for GCF-1 (2020–2023) and/or GEF-7 (2018–2022) and contributions to the core budgets of MDBs”.
A question arises as to how well executive agencies can map finance flows in future years for all forms of climate finance disbursement, and communicate these figures to the international community as indicative – while still submitting each year to the needed parliamentary approvals (synthesis report, page 10, sections G-H).
Tracking climate finance against ODA
The UNFCCC report summarises the different methodologies donor countries have used for projecting their future levels of climate finance “including (1) developing multi-year allocation and disbursement scenarios under which politically committed financial targets can be achieved, (2) allocating a percentage, which will increase in the future, of their annual budget for Official Development Assistance (ODA) to climate finance, (3) basing [predictions] on their financial commitments to multi-year programmes and initiatives, (4) using the OECD DAC Rio markers to account for climate finance provided in the past and (5) using OECD DAC methodologies for measuring and tracking private finance mobilized” [UNFCCC report part II, pages 3-4].
A significant number of the 2020-21 communications put the climate finance spend in the context of countries’ ODA commitments.
Honkatukia Outi of the European Union explained that tagging ODA budget lines for climate is how the EU tracks climate finance.
Gard Lindseth of Norway made a related point on aligning ODA flows with climate objectives. Even if ODA is not currently fully aligned with low-carbon, climate-resilient futures at present, it should aim to become so, he said. The Government of Norway’s challenge is to increase the “clear climate co-benefits” of its development assistance.
“We have many parts of our budget that have nothing to do with climate, but … we see how we can reduce our climate impact,” Mr Lindseth said. “It is crucial to look at the whole (ODA) budget and see if we can mainstream climate [in it].” In this respect, Mr Lindseth’s remarks chimed with broader interest in aligning finance flows as a whole with the temperature target of the Paris Agreement (Article 2.1c), which includes reducing polluting activity as well as supporting ‘green’ activities.
Enabling policies unlock private investments
On motivating private investment flows, speakers stressed that recipient governments have a key role to play in providing suitable policies and enabling environments, which gives confidence to private investors.
This may also require more detailed and nuanced dialogue in sectors and among stakeholders to align mutual expectations.
Randy Caruso of the United States noted that some actors may be used to shifting billions of dollars in large-scale projects while countries or sectors have completely different requirements: “We are still lacking … a more three dimensional narrative and nuanced understanding of the adaptation and resilience space,” he said.
“Too often countries talk about private investment and we are talking about US$2 billion investment and …others are talking about smallholder farmers”. He noted that parties therefore tend to “talk past each other a lot” and need a “more nuanced understanding” of the quantity and type of finance required by which recipients.
Understanding what is ‘new and additional’ climate finance
One of the challenges, meanwhile, for developing countries is to decipher the figures from this set of biennial communications – and to understand what climate finance is truly ‘new and additional’. Article 9.5 of the Paris Agreement and its related annex calls clearly for developed countries to communicate on newness and additionality.
The UNFCCC synthesis report recalls that newness and additionality are defined by Parties in their communications using various criteria including that: climate finance commitments are additional to ODA budget commitments; ODA budgets, of which climate finance is part, are greater than 0.7 per cent of Gross National Income; climate finance is newly committed, allocated or disbursed via new projects and programmes; and it is committed or allocated after 2009.
What is clear from the synthesis report is that, because there is no single agreed method to define new and additional climate finance, Parties are communicating in their own capacity and define their own criteria. This means that it is not feasible to aggregate the communications on new, additional funding into a collective, meaningful result.
New ideas needed to bridge expectations gap
“We can identify technical ideas to ensure the predictability of climate finance, including through the biennial communications” – Patricia Espinosa had said in her framing remarks to the workshop.
After a frank event in which many frustrations were aired at the failure of the biennial communications to offer clarity and predictability, Ms Espinosa’s remarks appeared highly prescient – and it was apparent that new approaches would be needed in the next round of biennial communications.
One seemingly simple and resonant proposal was for developed countries to provide “a single cover sheet, at the top of their communications, stating how much finance was new and additional for the climate, in a single agreed currency,” advocated Manuela Rios of AILAC. At present – as shown in the Annex of the UNFCCC’s synthesis report, the communications include a mixture of currencies, timeframes and methodologies which make it impossible for the reader to understand the overall significance and direction of travel of the whole.
Ms. Outi of the European Union concluded: “I was struck that the communications didn’t advance transparency and trust, so we’re obviously doing something wrong.”
Developing countries’ exasperation was tempered by this acknowledgement that biennial communications will need to be deeply streamlined in their next round. The overall signal of the event was that the first round of biennial communications was not sufficiently useful for developing countries. Usefulness will be a minimal threshold to pass, the next time.