Climate Finance: supporting solutions & action in developing countries

Global transition

Although wealthy developed countries hold most responsibility for creating the climate crisis, the worst impacts of climate change disproportionately affect the world’s poorest countries; for example, unmanageable and frequent disasters like hurricanes and cyclones, severe and regular droughts and flooding, and long-term threats such as food and water insecurity.

Developing countries will need hundreds of billions of dollars every year to deal with climate change. Those needs will increase exponentially if wealthier economies don’t take their obligations to reduce greenhouse gas emissions more seriously. Financial support is needed for adaptation (adjusting to the unavoidable impacts of climate change) and mitigation (reducing climate pollution) in developing countries. Climate finance is one of the main concerns of CAN Europe which emphasises the importance of meeting both 2020 climate finance commitments while also maintaining the ambition to continue delivering public climate finance after 2020.

Climate finance enhances low-carbon and climate resilient development

In keeping with the principle that those most responsible for current climate change consequences, developed countries must use additional public funds to support and enable developing countries to tackle the causes and impacts of climate change. Climate finance is a key tool that can facilitate developing countries to leapfrog high-carbon and dirty energy development pathways, and to move towards ecologically sustainable economies. Providing reliable and predictable climate finance will facilitate the plans and implementation of related adaptation and mitigation projects in developing countries. With better knowledge of the support that will flow, developing countries can enhance action that will safeguard their communities and local economies.

According to the World Development Report 2010, mitigation in developing countries could cost between $140 to 175 billion per year over the next 20 years, with adaptation investments rising to an average of $30 to $100 billion a year between 2010 and 2050. The $100 billion pledge will therefore not be enough but this is at least a good start and it should be revised upwards beyond 2020.

Public finance needs to lead overall support

Public finance is necessary to guarantee that some of the most vulnerable and least developed countries will continue to be support as they face climate change impacts. Public finance can help for example to promote micro, small, and medium scale and off-grid sustainable energy solutions; lower the cost of renewable energy access for the poorest; ensure forest protection; and build capacity and policy development in developing countries. Public finance will also be essential to help close the adaptation gap – through dedicating at least half of all public finance to adaptation, efforts to safeguard people and communities on the ground can be realised more effectively.

Private finance and investments have begun to dominate the climate finance support from donor countries; accounting for 62 per cent of the total. However, the greater part of private climate finance both originates and stays in developed countries where investors are more comfortable with investment risks. This means developing nations need to target international sources of public finance to fill their funding gaps.

Guaranteeing a balance between mitigation and adaptation

94 per cent of climate finance invested in 2011 targeted mitigation actions. This trend has significant implications for the majority of developing nations which have limited carbon emissions and for which climate change adaptation is a priority.

As private finance is likely to continue prioritising mitigation, it is imperative that donor governments strive to balance the allocation of public finance between adaptation and mitigation. Doing so will be critical to the safety and protection of sectors such as food and water security, and for risk management strategies that depend on public finance. The Green Climate Fund (under UN control) has already adopted a 50:50 policy, which should now be extended to all public climate finance.

Policies to shift our financial flows

In Paris, our government must strike an agreement that effectively changes how we invest and use finance to ensure a full shift towards full de-carbonisation. Private investors, financial actors and institutions can make a positive contribution to global climate action, but it will require robust policies and regulations from governments in order to drive a more inclusive and fair transformation away from fossil fuels and towards 100% renewable energy.

[Recently, CAN Europe co-organised and spoke at an event about climate finance, held at the Directorate General for Development Cooperation. The event, organised as part of the climate month of the European Year for Development (EYD), covered various aspects of climate finance. More information on the EYD can be found here; including events on climate change throughout the month of November].

Gaétan Arnould is intern at CAN Europe