Much work is needed to ensure climate change finance is delivered to those nations and communities who need it the most, explains ODI Research Fellow, Neil Bird

We are fast approaching the annual Conference of the Parties (COP) to the United Nations Framework Convention on Climate Change (UNFCCC), hosted this year in the Polish capital Warsaw. One theme certain to be high on the agenda is climate finance. This remains a contentious part of the convention discussions, reflecting a longstanding divergence between developed and developing countries.

There is consensus, of sorts, that additional public funding is needed to help the most vulnerable communities and countries respond to changing climatic conditions. But arguments continue about how much is needed, how it should be managed and the expected impact of this spending.

Considerable intellectual effort has gone into identifying the supply of climate finance; the UN Secretary-General’s High-level Advisory Group on Climate Change Financing has examined a variety of funding sources. However, less attention has been directed at the demand side of the equation. Questions remain about which programmes need funding first and the delivery mechanisms that should be in place to ensure financing meets the needs of the most vulnerable.

We at the Overseas Development Institute (ODI) have examined the delivery of climate finance in least developed countries over the past four years. We co-hosted a side event at the 2011 Durban COP and have continued our analysis in several countries since then. We have just completed two country studies in Uganda and Tanzania, working with national partners Advocates Coalition for Development and Environment (ACODE) in Kampala and the Centre for Climate Change Studies at the University of Dar es Salaam. These country studies offer insights into the demand for climate finance and the prospects for the effective use of such funding when it is deployed.

What counts as climate finance?

Climate finance is a term coined in the UNFCCC negotiations. As such, it is more a political label than a category of expenditure. So, we begin with a major challenge: to define what counts as climate finance. We have examined this question from the perspectives of adaptation, mitigation and Reducing Emissions from Deforestation and forest degradation in Developing countries (REDD). Ultimately, national definitions need to drive the debate, something that has been supported in our country studies.

Assuming that public spending on mitigation or adaptation can be identified, can it be tracked from budget allocations to actual expenditures? Marcus Manuel, Director of ODI’s Budget Strengthening Initiative (BSI), has raised the challenge of budget transparency in many countries; the same need for transparency applies to climate finance. So, empirical studies that try to track the delivery of climate finance, such as our analyses in Uganda and Tanzania, are important in raising awareness of how national governments are responding to climate change through their budgetary systems.

What have we learned?

Climate finance can come from a variety of sources, including international climate funds, bilateral and multilateral donor funds, national public funds and private sector finance. The contribution of these different sources varies between countries but national public funds are an important early source of finance everywhere.

Yet, empirical work on national budget allocations is difficult, and initial estimates of climate change spending are going to be imprecise. In Tanzania, we identified a considerable amount of spending taking place across a broad spectrum of government ministries, with USD 495 million budgeted for actions related to climate change in 2011/12. The equivalent figure for Uganda was much lower; in the same year, USD 28 million was spent through the national budget.

Our work demonstrates that the public funding element of climate finance is, ultimately, just another category of public expenditure, and hence its effectiveness is determined largely by the national public finance management system in which it is embedded. Philipp Krause, Head of Research at ODI’s BSI, highlighted just how challenging reforming such systems can be in his recent post Reforming public finances in Nepal.

One important insight from our work is that the financing of climate change actions is presently treated as a budgetary, rather than a policy, issue. In other words, insufficient policy attention is being given to identify funding priorities, to determine how different funding sources can be managed, and to find out how best to secure the most effective funding channels.

What now needs to be done?

First, we need to know how much is being spent on climate change actions for the same reasons we want to determine the level of public spending on health and education. It may be more difficult to determine, but this is an important starting point for a policy debate. Our analyses provide an important early building block in this effort, but more work is needed to support decision-making, so finite resources can be targeted towards strategic investments.

Second, ministries of finance should adopt a stronger role in administrating climate finance and ensuring that broader public finance management systems enable climate finance to be delivered effectively. This means continuing to strengthen national budgetary systems. Simple things matter; the credibility of the annual budget often needs raising to reduce within-year re-allocations so that climate change programmes can go ahead as planned.

Third, the level of awareness on climate change needs to undergo a step change within government line ministries. Most of the expenditure related to climate change that was identified by the study teams in Uganda (64%) and Tanzania (84%) during 2011/12 was within programmes where tackling climate change was not a stated objective of the expenditure. Sector planners need support to see the relevance of their planning for climate change mitigation or adaptation.

Finally, and to come back to the theme of ensuring that the most vulnerable are supported, greater emphasis should go to strengthening national to sub-national funding flows. Incorporating climate change activities in the conditional grant transfer arrangements from central government would provide one opportunity to open the fiscal space for local governments to take action now.

Neil Bird’s current research focuses on climate change policy, the international aid architecture and its relation to climate finance. At the national level, his research interests include the delivery mechanisms for climate finance, national budgetary processes, sector policies and the institutional development of public sector agencies.

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