Delivering effective climate finance
Climate change influenced frequent natural disasters destroy life and homestead and turn the survivors into climate refugees
Responding to climate change requires urgent steps to prepare for climate related disasters, protect social and natural systems, arrest and reduce greenhouse gas emissions, and restructure economies towards activities with low carbon footprints. The marginal cost of this transition and trade-off with growth and development are key issues that developing countries are dealing with. In developing countries, the estimated cost of additional investments to finance mitigation and adaptation efforts are estimated to be US$100 billion per year by 2020.
The poorest countries have done the least to contribute to the problem of climate change, yet they suffer the worst impacts. Finance needs to be available to them to help them adapt to the changes in their climate and to benefit from low carbon growth.
Concrete sources of finance to meet the US$100 billion a year commitment have yet to be identified and recent events have shown the risks inherent in relying solely on voluntary public funds to meet climate finance commitments. In addition to ensuring the availability of funds, it is also necessary to improve access to funding by those most in need. The increased multiplication and fragmentation of funding streams make it more difficult to access climate finance, particularly in countries with limited capacity. There should instead be an emphasis on consolidating existing funds, simplifying application procedures and improving efficiency and effectiveness.
While climate finance commitments remain below the level that is required to support this adjustment, particularly for adaptation efforts, international and national financial allocations for climate resilience activities are increasing. In terms of the Cancun decisions, developed countries were to submit information on their commitments to fast start climate finance. So far, 10 countries have submitted reports, all of whom have reported the availability of finance for both mitigation efforts and adaptation responses. This is being complemented by developing countries' own efforts -- in India for example, 5 out of 8 priority actions arising out of a low carbon development strategy were for adaptation actions.
There are some difficulties with the comparability of the data regarding fast start finance, and actual disbursements against climate finance commitments are relatively low. Failure to release pledged funds is likely to weaken trust between developed and developing countries. Another key challenge is ensuring developing countries can swiftly access international finance; for complex procedures and bureaucratized processes are hindering access. At the national level, revenues obtained through existing tax bases as well as through new instruments such as carbon taxes will remain central to financing climate responses. Multilateral support through emerging global financial instruments such as the Green Climate Fund is critical to support developing countries with the incremental costs of the transition.
Limited resources for climate resilience should prioritize investments that deliver co-benefits such as poverty alleviation, job creation and infrastructure development. Inadequate resources for climate resilience should be leveraged with capital flows for impact at scale.
In addition, increasing private sector investment in low carbon technologies requires projects to be structured in ways that ensure bank ability. Investments from banks, holding groups, manufacturing companies and other enterprises are growing. For example, the Intergovernmental Panel on Climate Change Special Report on Renewable Energy Sources and Climate Change Mitigation concludes that renewable energy investments are rising and likely to grow further without enabling policies, but larger gains are possible with public sector policy support. This emphasizes the important role governments have to play in resolving institutional, informational, regulatory, and policy bottlenecks for enhanced private sector participation.
It is important that this fund is different to existing funds in the way it operates. It needs to be able to operate at scale, provide direct access to entities in country/ government and deliver funds to address climate change adaptation and mitigation where the need is greatest. The new fund must be effective in reducing emissions and building resilience. How it is designed, governed and delivered will have a direct impact on effectiveness and the ability of developing countries to implement adaptation and mitigation actions.
Any future international financial system that is to meet the needs of developing countries in their attempt to adapt to climate change will need to consider these points. Otherwise, the system runs the risk of the tail wagging the dog.