A key part of the Paris Climate Agreement and the UNFCCC is the provision of new and additional finance and resources (including technology development and capacity-building) to developing countries, to support their action to mitigate and adapt to climate change.
For climate finance this took the form of a commitment by rich countries to mobilise $100 billion US dollars annually from 2020 to 2025, aiming to achieve a balance between mitigation and adaptation finance.
In addition, at COP27 countries made the historic decision to establish a Loss and Damage Fund and new funding arrangements to address loss and damage.
In 2024 at COP29, as instructed by the Paris Agreement, Parties agreed to a new collective quantified goal for climate finance from 2025. This new goal takes the form of a core $300 billion with developed countries in the lead in delivery of finance from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources, and a broader goal for all actors of $1.3 trillion annually by 2035.
CAN Europe endorses a science-based and equitable approach to this support and considers the new collective quantified goal an inadequate response to developing country needs. Considering the scale of the climate crisis, developing countries need more support to enhance and implement their climate action and adaptation plans under the convention, and to address losses and damages from increasing climate impacts. Following the equity principle, whereby countries with a higher historical responsibility and with greater capacity to act should do more.
In setting up the new climate finance goal and the Loss and Damage Fund CAN Europe considers that countries should also agree on new sources of additional finance from new taxes and levies according to the Polluter Pays Principle, in a way that also supports long term climate objectives. Climate taxes and levies could include a climate damages tax on the heaviest polluters, particularly fossil fuel companies including profit or extraction taxes, levies on international aviation and maritime transport, and financial transactions taxes and wealth taxes.
Most developing countries are facing a spiralling debt crisis, and climate risks are making this worse. Therefore climate finance should not exacerbate but should support addressing debt burdens of developing countries through scaled up grants and only highly concessional loans.
Climate finance and support on top of existing commitments to development finance is key to ensure that people can meet their development needs, and build resilience through mitigation solutions to support the just energy transition, energy access, and adaptation measures. Grants-based finance needs to be scaled up and finance should be more accessible to communities and at the local level, delivered in a way that strengthens gender equality, takes a human rights-based approach and supports biodiversity objectives (for more see Climate, sustainable development and human rights).
Shifting all financial flows and reforming the financial system
The global financial system needs to be urgently re-orientated around climate goals, equity, and just transitions to deal with the climate crisis and growing inequalities.
As well as climate finance to support developing countries, the Paris Agreement introduced a commitment to make all financial flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development (the third long term goal of the agreement, Article 2.1c).
Key objectives of this goal should be phasing out of fossil fuel finance and harmful spending (including public and private finance), fiscal reform including taxation, ensuring financing to developing countries does not exacerbate but alleviates debt burdens, dealing with structural barriers to climate resilient development in developing countries, such as debt and cost of credit, the classification and accounting of climate finance, and alignment of finance with long term climate goals and just transitions toward 100% renewables and fully energy efficient energy systems.
Paris Agreement-alignment needs to be accelerated in public banks, the European Investment Bank (EIB) and European development finance institutions, and and driven by reform to the IMF and the World Bank, adoption of fairer global taxation rules, cancelling the debt of developing countries most exposed to climate change, and reforming the rules of global trade. This is necessary to ensure climate vulnerable countries have the means to protect their people against climate change and transform their economies in compliance with the Paris Agreement.
Re-orientating public finance away from harmful activities through phasing out fossil fuel finance or pricing carbon also offer opportunities to generate new sources of revenue for climate finance. CAN Europe also works on Financing the Transition within Europe.