Opinion: Getting climate finance concept right

Fund flow has become a tricky issue as no one accepts their role in contributing to the devastation

By Dr T Prabhakara Reddy

‘Shared prosperity’ had been an underlying principle for several international initiatives that we are following while trying to address the issues confronting the poor and vulnerable sections, be it poverty or inclusive growth and so on. But when it comes to the issue of climate change, we are not able to come to a consensus on some key issues, more importantly, on mobilising resources for climate finance.

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Therefore, the crux of the issue is how to convince the bigger players like the US and Europe who are reluctant to contribute to climate finance in a big way and are shirking their responsibility while leaving the vulnerable sections like developing countries in the lurch.

Triple Crisis

In fact, developing countries are confronted not only with climate change but also with the economic downturn, Covid-19, biodiversity loss and conflict etc. Besides, at a macro level, there is a triple environmental crisis ie, climate change, biodiversity loss and pollution that are interlinked and intricately related. A multi-pronged approach is, therefore, required for which financial resources are essential.

In fact, the United Nations strongly believed that the COP27 has been built on the basis of outcomes of the previous Conference of the Parties (COP26) which emphasise that there is urgency in reducing greenhouse gas emissions, building resilience, adapting to the inevitable impacts of climate change and delivering on the commitments to finance climate action in developing countries.

Climate finance is required for mitigation because large-scale investments are compulsory to significantly reduce emissions. Similarly, climate finance is equally important for adaptation, as significant financial resources are needed to adapt to the adverse effects and reduce the impacts of a changing climate.

Climate Change Contributors

The transformative imperative of climate finance is that the commitment by developed countries to jointly mobilise more than $100 billion per year in support of climate action in developing countries has been essential to the climate accords since 2009 and it displays an important symbol of trust. Added to it, developing countries precisely consider it indispensable for securing progress and meeting the goals of the Paris Agreement.

However, climate finance has become a tricky issue as no one owns it as a ‘responsibility’ and rather denies instead of
accepting their role in contributing to the climate change which occurred due to industrialisation that they have followed so far.

On the other hand, challenges pertaining to climate finance include; the definition of what it constitutes, the methodology, objective reporting mechanisms and positive and affirmative commitments from developed nations like the US and Europe who are contributors to climate change over a period of time.

The fact is that the amount of carbon emissions by the US defence is the highest even today which many are not aware of it. Developed countries have adopted the industrialisation strategy wherein they have used all fossil fuels in a substantial way knowing fully well the repercussions, and polluted the globe while pursuing their materialistic approach to make money and resources.

According to the United Nations Framework Convention on Climate Change, climate finance has been defined as “local, national or transnational financing — drawn from public, private and alternative sources of financing — that seeks to support mitigation and adaptation actions that will address climate change.” But while implementing the same, we have encountered issues with regard to the methodology, reporting and related challenges.

The second issue is the loss and damage occurrence in vulnerable areas. Apart from finance to energy, mitigation and adaptation to gender equality, the estimation of loss and damage should be a priority in view of the impact of climate change that the poor and vulnerable people are experiencing for want of no reason and they do not have a voice to express as a reckoning force.

Working Paradigm

Another important aspect is that the definition of climate finance should exclude any loans extended to developing nations and it would be designated as ‘climate assistance’ only; whereas the grants that are provided for the purpose of addressing climate change are taken into account as ‘climate finance’.

The methodology of counting climate finance has to be finalised in COP27 without further delay. Given the strategic position of India as an emerging largest economy internationally, it should influence the stakeholders in finalising the definition and methodology of counting the fund flow in collaboration with OECD and others.

India, along with other developing countries, has tried its best in COP27 discussions recently for unlocking the private sector financing for adaptation in the implementation of national adaptation plans (NAPs) and processes.

However, it seems nothing much has been achieved as the private sector is inflexible. But one thing is clear: the African nations are voicing their concerns actively and asking for climate finance at the summit being held in Sharm El-Sheikh, Egypt. More importantly, we should influence the developed nations to contribute to climate finance with a timeline invoking the ‘principle of shared prosperity’.

In case there are denials, they should be contacted by the committees concerned, constituted for the purpose, at a diplomatic level and advocate for their support in favour of a carbon-free world. In fact, the fund flow should begin immediately at least from January as the impact of climate change is affecting adversely the poor and vulnerable nations.

Multilateral institutions like the World Bank, IMF and OECD should take the lead in defining climate finance, designing reporting mechanisms by avoiding duplication and making it an obligation on the part of developed countries to contribute towards climate finance by invoking the ‘polluter pays principle’. Besides, collective and concerted action can deliver answers to the challenges we are facing today, especially in developing nations.

(The author has worked in DFID, UN Women, New Delhi, and UNICEF, Gandhinagar, Patna and Indonesia. Currently, he is associated with Satavahana Development Society, Hyderabad)