Climate Fund: Need for stepping up: Daily Current Affairs

Relevance: GS-3:Conservation, environmental pollution and degradation, environmental impact assessment; /GS-2:Global groupings and agreements involving India and/or affecting India’s interests.

Key phrases: United Nations Climate Summit, Climate Finance, Adaptation and Mitigation, development finance, private finance, greenwashing, Small Island Countries (SIDs), GEF, GCF.

Highlights:

  • Twelve years ago, at the United Nations climate summit in Copenhagen, rich nations made a significant pledge to channel US$ 100 billion a year to less wealthy nations by 2020, to help them adapt to climate change and mitigate further rises in temperature. The promise is anything but broken.

Moreover, Instead of covering the shortfall, developed countries are now coercing developing nations into committing to an unreasonable target of reducing carbon emissions to net-zero by mid-century.

Issues:

  • There are many disconnects, not just in the needs, but also in basics such as estimations on funds disbursed, as a proper methodology is not used in estimating the actual finance mobilised by developed countries.
    • For example, based on recent estimates of the OECD, climate finance provided and mobilised by developed countries amounted to $79.6 billion in 2019.
    • These estimates are, however, disputed unequivocally by most recipient countries.
    • The Climate Finance Shadow Report 2020, published by Oxfam, estimates climate finance flows at $22.5 billion in 2017-18 — only about a third of the $71 billion estimated by the OECD for the same period.

  • Such inconsistency in estimating international climate finance arises primarily because of two key issues related to the classification of international climate finance:
  1. Clubbing development finance with climate finance and
  2. Counting private finance as financial support.
  • Private non-grant capital, by virtue of its commercial orientation cannot be termed international climate finance. Nor can development assistance provided by multilateral banks and development finance institutions for infrastructure projects be classified as climate finance.
  • These resources, used for the construction of roads or setting up electricity transmission and distribution infrastructure, for example, can be mobilised by developing countries in a business-as-usual scenario without any assistance from developed countries.
  • To reduce the risk of ‘greenwashing’, and cover the risks and costs of climate externalities, climate finance must be new and incremental.
  • Furthermore, only the grant-equivalent element of any claimed disbursement should be counted as climate finance.
  • Greenwashing is the process of conveying a false impression or providing misleading information about how a company's products are more environmentally sound.
  • Another cause of concern is the significantly low amount allocated for climate adaptation.
    • Article 9.4 of the Paris Agreement states that the provision of scaled-up financial resources should aim to balance adaptation and mitigation.
    • In 2016, the United Nations Environment Programme (UNEP), in its Adaptation Gap Report, estimated the annual climate adaptation costs and financing needs at $140-300 billion by 2030 and $280-500 billion by 2050.
    • In 2019, the OECD estimated the share of climate adaptation finance at $20.1 billion of the total $79.6 billion tracked.
  • There is a higher investment in mitigation projects as they are politically popular
    • They lead to a reduction in carbon emission - a global public good that benefits everyone, including the donor country.
    • Such investments also bring international recognition for being “climate conscious” as project outcomes are clearly visible and measurable.
    • Climate mitigation projects are investable, which attract private financiers.
    • On the contrary, adaptation sectors find it difficult to attract funds, especially private capital, due to high project development costs and lack of commercial viability or good investment returns.
    • The benefits are also largely confined to the recipient countries.

Way Forward:

To make up for the shortfall and fulfilment of internationally agreed climate objectives by 2030, the developed countries must take immediate action.

  • First and foremost, there is a need for clarity and consensus on the definition of international climate finance to put all controversies surrounding the classification of “climate relevant” projects to rest.
    • This includes creating a classification to make a clear distinction between development finance and climate finance and avoid possibilities of ‘greenwashing’.
  • Secondly, climate adaptation finance must be ramped up.
    • Denmark, for instance, has committed to allocating 60 per cent of its climate finance to adaptation projects.
  • Third, international climate finance should be allocated to recipient countries on a need basis.
    • Despite having a relatively smaller share in global greenhouse gas emissions historically, climate change vulnerable nations such Pacific Island Countries (PICs), Small Island Countries (SIDs), and Least Developed Countries (LDCs) are disproportionally affected by climate change.
  • Lastly, the $100-billion target should be revised to reflect the true extent of finance required to respond to existing and future adverse consequences of climate change.

Conclusion:

  • The world has seen several hydro-meteorological (floods, storms, heat waves) and climatological (droughts, wildfires) disasters, largely attributed to climate change, during this period. Unsurprisingly, the less endowed and vulnerable countries suffered disproportionately.
  • It’s time not only to honour the existing promise but also to increase the help. The $100 billion pledge has long been seen as a minimum, to increase over time. The post-2025 outlook should reflect a significant upward trend in the uptake of international climate finance by developed countries.

Climate Finance Mechanism:

  • The Global Environment Facility (GEF) has served as an operating entity of the financial mechanism since the UNFCCC’s entry into force in 1994.
  • At COP 16, in 2010, Parties established the Green Climate Fund (GCF) and in 2011 also designated it as an operating entity of the financial mechanism. The financial mechanism is accountable to the COP, which decides on its policies, programme priorities and eligibility criteria for funding.
  • In addition to providing guidance to the GEF and the GCF, Parties have established two special funds—the Special Climate Change Fund (SCCF) and the Least Developed Countries Fund (LDCF), both managed by the GEF—and the Adaptation Fund (AF) established under the Kyoto Protocol in 2001.
  • At the Paris Climate Change Conference in 2015, the Parties agreed that the operating entities of the financial mechanism - GCD and GEF - as well as the SCCF and the LDCF shall serve the Paris Agreement.

Source: The Hindu BL

Mains Question:

Q. Compared with the investment required to avoid dangerous levels of climate change, the $100-billion pledge by the developed country is minuscule. Analyse critically.