At the climate summit in Glasgow (COP 26), the issue of climate finance - how much and in what form funding is made available for climate action - is inextricably linked to success or failure. In Glasgow, past failures and shortcomings in climate finance mobilization and delivery must be ruthlessly addressed by presenting an implementation plan for future improvements.
US$100 billion versus US$6 trillion
Two figures illustrate the terrible imbalance and massive injustice behind the global community's pledge to provide funding to fight the climate crisis for the poorest countries and populations that have contributed the least and yet are the worst affected. One figure is US$ 100 billion per year by 2020, which is what rich countries pledged as funding support for climate change activities to developing countries back in 2009 at the Copenhagen climate summit. This target has not been met because too few industrialized countries are paying too little in contributions. And it is uncertain whether it can be met annually until 2025, when a new collective global climate finance goal will be set. The other figure is US$11 million per minute (or US$5.9 trillion per year). According to the International Monetary Fund, that is the total subsidies paid globally in 2020 for producing and burning oil, natural gas and coal. It includes direct subsidies such as tax breaks or price caps, and indirect ones such as costs from health impacts from air pollution or to cope with the devastating effects of climate change like heat waves and flooding. This total could rise to US$6.4 trillion in 2025 without a massive shift of financial flows toward climate compatibility.
The imbalance of both figures is a reflection of political priorities and realities. It is also a reminder that the US$100 billion financing target set back in 2009 was purely politically motivated and completely disconnected from the real financing needs of developing countries. The gap between what was thought politically feasible and what is actually needed in climate finance support for developing countries has widened since then. This is because the catastrophic impacts of climate change have become increasingly frequent and ever more depressingly visible over the past decade, especially in the global South.
Payment gap as an indictment of developed countries’ broken promises
In Glasgow, countries will discuss the results of the first official climate finance needs assessment, which shows that developing countries will require tens of trillions of contributions by 2030 to implement their commitments under the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement, including hundreds of billions in predictable, long-term international climate finance. Against this backdrop, the existing payment gap for the now 12-year-old promise by rich countries to support poor countries with annual financial transfers of US$100 billion per year for climate actions starting in 2020 is a glaring failure, especially since the Covid-19 pandemic has shown how quickly huge sums of money can be mobilized when developed countries have the political will to do so. According to the latest climate finance figures released by the OECD , only about US$80 billion was reached in 2019. And it is unrealistic to assume that the missing fifth was mobilized last year or for 2021, given the additional strain on public budgets in the context of the Covid-19 pandemic. Indeed, initial calculations for 2020 suggest a decline in climate finance transfers from developed countries to countries in the global South, and 2021 may not be much better.
The lack of adequate provision of climate finance is an indictment in many respects. It is a moral affront to the concept of climate justice, according to which those who have historically contributed most to the climate crisis must also do the most to address it. While the Framework Convention on Climate Change and the Paris Agreement emphasize the shared responsibility of the more than 190 signatory countries in combating climate change, they also precisely differentiate responsibilities according to the respective capabilities of developed and developing countries and call for financial support of poorer nations by rich industrialized nations to implement the agreements. This is not goodwill or development aid, but a contractual obligation to pay. The continued failure to do so helps disintegrate a fundamental building block for mutual trust and confidence in the multilateral climate process, at a time when the global community is more dependent than ever on collective action in the face of multiple, mutually reinforcing crises (climate, biodiversity, the Covid-19 pandemic, poverty and exclusion).
Low quality of climate funds transfers
The significant payment gap in the non-fulfillment of the US$100 billion climate finance pledge is compounded by the poor quality of the financial transfers in their impact on recipient countries in the global South. Contrary to the 2009 pledge, the majority of the funds provided is also not new and additional to still largely unfulfilled development finance pledges according to which developed countries should provide 0.7 percent of their gross national income (GNI) as official development assistance. This has become even more important with the development setbacks of recent years in the wake of the Covid-19 pandemic, which has brought home how essential functioning education and health systems, as well as broad social protection schemes, are in developing countries for mitigating the effects of multiple crises, including dealing with extreme climate events such as floods, severe storms and droughts.
Both development funding and dedicated climate finance must be significantly increased at the same time - and not one at the expense of the other by shifting or relabeling funding. The UK, as host of the Glasgow climate summit, has recently attracted negative attention in this context because it publicly celebrated the increase in its financial support for climate actions while cutting its development assistance spending at the same time. The focus of climate funding allocations is also problematic, both in terms of thematic prioritization and the list of recipient countries. Two-thirds of the funds are still allocated to mitigation, although for many developing countries, especially the poorest and small island developing states, adaptation efforts are much more urgent and their explicit funding priority. The actual split of 64 percent for mitigation to 25 percent for adaptation is miles away from a promised balanced allocation of funds, which has been demanded by developing countries for years, but runs counter to the vested self-interests of industrialized countries. By focusing more on financing relatively cheaper emission reductions in developing countries, the latter also create room for maneuver and breathing space to further delay the fulfillment of their own mitigation efforts at home. Added to this is the fact that the majority of these funds, especially for emission reductions, benefit only a small minority of emerging economies - for example, India, Brazil, South Africa, or Indonesia -- while there are many developing countries that have seen little support so far.
Significantly more loans than grants
A steadily growing percentage of public climate finance is also being provided as loans that have to be repaid rather than grants. In 2019, this was 71 percent as loans compared to only 27 percent as grants. Given the growing debt in many developing countries, exacerbated by the Covid-19 pandemic, this is morally questionable and deeply unfair for several reasons. First, in listing their contributions, industrialized countries account for the value of a loan like the value of a non-repayable grant – at full nominal value, even though a not insignificant portion of the total sum will have to be repaid in the future. So the actual net financial transfer is much smaller. Second, the percentage of climate finance loans provided at market rates, rather than concessional ones with longer maturities and low interest rates, has significantly grown. The multilateral development banks in particular stand out ingloriously as creditors of climate action at market rates, despite their mandate and the widespread debt crisis of their client countries. A full 76 percent of climate-related lending by MDBs to developing countries took place at market rates from 2026 to 2018; only 9 percent of MDB climate financing during the same time was delivered as grants.
Unfortunately, the increasing use of public loans for climate actions does not spare adaptation efforts. A quarter of adaptation funding in 2019 has been provided through developed countries’ loan transfers with expected repayments – an increasing tendency. Particularly unfair, this also affects adaptation efforts in the least developed countries, which receive 66 percent of climate finance support as loans, and in small island developing states, where half of climate funds are still received as loans. The allocation practice for these two groups of countries in particular completely turns the polluter-pays principle that should be followed in the climate regime on its head: the countries that have contributed the least to global warming have also benefited the least from fossil fuel-driven industrialization so far. Yet they are the ones hardest hit, and in many cases existentially so, by the effects of the climate crisis, such as rising sea levels, and are now expected to borrow from the main perpetrators of the climate crisis that is directly harming them. This is like the person who caused a car accident expecting the accident’s victims to pay him for the necessary repairs to their own vehicle. What would cause consternation and disgust in normal life is considered an acceptable practice in the context of the – still unfulfilled – annual US$100 billion provision of climate finance promised by developed countries.
The unfair discrimination against the poorest and most vulnerable in current climate finance allocation practices not only applies between different groups of developing countries, but is often perpetuated in the recipient countries themselves. All climate finance interventions should be gender-responsive and prioritize concrete services and benefits for often marginalized populations, such as Indigenous Peoples, minorities, women, or LGBTQ and local communities, by supporting their needs and protecting and advancing their human rights. However, the reality is different, in part because climate actions are often subject to technical, rather than people-centered, targets and success indicators. Moreover, measuring and tracking is imprecise, often lacks transparency, and industrialized countries routinely fail to provide detailed accountability for who received how much climate finance for what purpose. For example, the OECD's Rio Marker climate finance tracking efforts and its latest climate finance provision report did not catalog how much of the US$80 billion in public climate finance was spent on local climate action in 2019. Conservative estimates suggest this could be less than 10 percent. In contrast, the poorest developing countries have long called for three-quarters of climate funding flows to go directly to local authorities and communities. In particular, adaptation efforts should be as locally-led as possible and implemented by the affected communities and local authorities themselves.
No money for loss and damage
The existing US$100 billion goal, moreover, does not include money for the loss and damage that is already occurring when emissions mitigation or adaptation efforts fail. The tragic loss of life and devastation caused by massive floods, hurricanes, or droughts suffered around the world, including in Germany this year alone, are examples of what happens when a catastrophic climate event considered centennial becomes the sad norm. In the case of Germany’s massive floods this summer, federal and regional governments want to support the affected domestic regions with an aid fund worth € 30 billion. Developing countries that are repeatedly hit by such recurring climate catastrophes, such as Bangladesh or the Caribbean islands, do not have this fiscal flexibility, especially in the face of growing debt. They therefore have to also rely on climate finance payments from industrialized countries as a matter of climate justice and as a commitment to international solidarity in dealing with the global climate catastrophe. This is another reason why it is becoming increasingly clear that loss and damage financing must be included in the negotiation for a new collective climate finance goal starting in 2025 to replace the US$100 billion mark set in 2009. However, this would have to mean financial additionality of loss and damage funding to significantly increased and balanced (50:50) payment transfers for emission reduction and adaptation activities in developing countries. These discussions will begin in earnest in Glasgow.
In the run-up to the Glasgow climate summit, Germany and Canada were tasked by COP26 host the United Kingdom with developing a plan for how the annual US$100 billion in climate finance can be reliably delivered by industrialized countries over the next five years. The 48 developing countries disproportionately affected by climate change, which have joined together in the Climate Vulnerable Forum (CVF), are calling for this plan to include a clear multi-year climate finance commitment from industrialized countries of US$500 billion for the period up to 2024. But such a quantitative promise would need to be accompanied by qualitative commitments for more adaptation finance, dramatically increased grant finance, and for more gender-responsive, locally accessible, and locally implemented climate finance. Otherwise, a climate finance delivery plan for Glasgow focused only on quantity would perpetuate rather than correct the mistakes of the past.
Ultimately, success at this year's climate summit is directly linked to the willingness of industrialized countries not only to meet their commitment to achieve the US$100 billion climate finance target over the next few years, but also to significantly exceed this mark in the medium to long term. However, this will only succeed if the deficits in the quality of the current provision of climate funds are comprehensively tackled and eliminated. The hopes for this have dimmed further in Glasgow in light of the non-binding and vague professions of intent from industrialized countries in their climate finance delivery plan released shortly before COP 26.