Info Service on Climate Change (Aug16/02)
Developing countries call for clear definition of what is ‘climate finance’
New Delhi, 5 August (Indrajit Bose) — The issue of what is ‘climate finance’ was the subject of intense discussion at the 13th Meeting of the UNFCCC’s Standing Committee on Finance (SCF), held in Bonn from 18-20 July.
The issue came up repeatedly in the discussions under the agenda item on the 2016 biennial assessment and overview of global finance flows (BA).
Committee members, especially from developing countries, made a strong plea for ‘climate finance’ to be defined by the UNFCCC’s Conference of Parties (COP), stressing that climate finance should be “new and additional finance” from developed to developing countries and in accordance with the “criteria” under the Convention.
Several members stressed that having a clear definition would help countries track what exactly has been provided by developed countries and received by developing countries.
The committee members responded to largely two areas of the draft BA report: the headline numbers on climate finance flow emerging from the report, which led to the debate on the definition of climate finance; and the amount of finance flows to developing countries.
Many of the members also questioned the data and figures provided in a draft report on the biennial assessment, which some said was not verifiable and unclear as to whether it was development finance or climate finance. Some members, especially from developed countries on the other hand, said that all instruments and sources of finance should be included.
The draft summary of the report on the BA and the recommendations were presented for the consideration of the SCF members. The summary is based on a longer technical report on the BA carried out by a technical team working under the guidance of the SCF Co-chairs, Houssen Alfa (Seyni) Nafo (Mali) and Outi Honkatukia (Finland), who are also the co-facilitators of the BA.
According to the draft report presented to the SCF members for their initial consideration, in the 2013-14 period, it was estimated that global finance was in the range of USD 666 to USD 731 billion.
“If in addition available estimates of finance for sustainable transport, land use, adaptation, and domestic climate finance are included, the total could be up to USD 990 billion. Climate finance as reported by developed countries to developing countries is in the range of USD 40-80 billion,” said the summary.
Many questions and issues were raised by SCF members in relation to these figures.
Also in issue that was widely discussed among the SCF members was the statement in the report that only 40 per cent of the climate finance provided by developed countries to developing countries goes to the recipient developing country governments, with questions surrounding where the balance of the 60 per cent goes. (See further details below).
On the amount of climate finance
Outi Honkatukia (Finland), co-chair of the SCF, said that when the SCF would go public with the report, there should be one headline number and asked if the way the data was presented, in terms of global total and flows from developed to developing countries, whether this risked creating more confusion than provide clarity.
Seyni Nafo (Mali) said he already sees the headline emerging from the report that developed countries have increased their climate finance flows to developing countries and questioned if this was indeed climate finance that was committed and disbursed.
Kate Dowen (United Kingdom) said that when figures such as trillions are presented, it becomes difficult to explain why developed countries are going to their treasury for US $100 billion. She stressed the need to be clear on the numbers and to communicate the data effectively.
Purdie Bowden (Australia) said the snapshot of the total climate finance flows should be separated from flows from developed to developing countries and that this would avoid concerns that someone reading this would think that the total climate finance flows from developed to developing countries, which was not the case.
Ismo Ulvila (European Union) said the numbers should be carefully presented to avoid reputational damage.
Stephan Kellenberger (Switzerland) said there is a need to be clear about separating things in terms of numbers and put the figures in the right context.
Ayman Shashly (Saudi Arabia) said that the report shows that the world is reaching 1 trillion dollars. “I cannot justify this. When we go and tell our constituency, they will say where is the money. We cannot present a report that says a trillion dollars is flowing. In reality it is not there, but we can say proudly that we have USD 10.2 billion in the Green Climate Fund. This BA draft covers everything. Let’s identify climate finance. Let the storyline of the report say the challenges are more important than the findings,” said Shashly.
Bowden responded saying there is a mandate to capture finance flows and it would be important to present information that not all the trillion dollars are flowing in a particular direction. “This does not mean that we do not draw information on total flows. We need to make the distinction really clear,” said Bowden. She also said that the report could simply draw out facts and present them.
Nafo said that the challenge is that “they are not facts, but estimates and that sometimes the estimates are robust and sometimes they are not and therefore, crafting in terms of language becomes very important”.
Shashly further asked if the amounts are climate finance at all. “Or, are these development funds that have the co-benefit of mitigation and adaptation? We do not have a definition of climate finance. The simplest way is to go back to the UNFCCC, which has to do with “new” and “additional” finance.”
He added that “These are the two characteristics of climate finance. If anything is new and additional, we can call it climate finance,” said Shashly.
He further added that funds are flowing from developed to developing countries as part of political relationships. A great deal is moving South-South. All these perhaps are accounted here. Only when we have new and additional can it be termed climate finance, he stressed.
“We heard about USD 30 billion being given as fast start finance, but where is it,” he asked adding that it could not be accounted for.
Shashly also said that this was an assessment of climate finance. “When we go back to our constituency, we have to tell them the about the level of climate finance. Much of this data is not verifiable, and there is no means for us to verify the data”, he added.
To better complete the report, we may want to consider the technical challenges faced, in the sense of inability to verify the data, he said.
“When we want to undertake an assessment of climate finance, we want to see how much climate finance flows from developed to developing countries,” Shasly stressed.
Diann Black-Layne (Antigua and Barbuda) said that in the climate financing landscape, middle-income islands find it difficult to access finance and what they get are loans. “This report shows that we are already borrowing a lot of money and we are spending a lot of our money. We can demonstrate that developing countries have been spending a lot of money on climate change. The report does not separate developing country-spending and developed country-spending. That flow needs to be shown graphically,” said Black-Layne.
Edith Kateme-Kasajja (Uganda) said that the consultants (for the BA report) had done their best using the methodologies they have at their disposal. “Using those, this is what they have brought to us. This is a fact….We should have guided the COP on what is climate finance and what is not.”
She added further that if it is development finance, it will be a big amount. “If the COP had agreed on a definition, we would not have seen such a big number. The big number arises because it includes things that do not include climate finance,” stressed Kateme-Kasajja.
She proposed that the SCF recommend to the COP that before 2020, they must describe what climate finance is along with a definition that the COP could agree on.
Nafo said that it would be difficult to have a universal definition of climate finance.
Referring to the nationally determined contributions (NDCs) of countries under the Paris Agreement on their climate actions which are up to countries to define, Nafo explained the challenge. He gave an example of a country that wants clean coal in the next five years. “Because climate action is nationally determined, the country gets money for cleaner coal and the country will say it is climate finance. What will the international community say, he asked, adding that “countries have presented what they want to do and who are we to say this is not climate finance.”
He further added that there is a need to significantly increase the capacity in developing countries to track climate finance.
Black-Layne responded that climate finance is something that meets the UNFCCC criteria. She also spoke about access-related challenges.
Bernarditas Muller (Philippines) asked how one can account for “stuff” when one does not know what is being counted. “What is clearly climate finance is what is in the GCF. We talk of new and additional finance,” she added further. She also stressed that the SCF must move to the measurement, reporting and verification (MRV) of climate finance rather than just focus on assessment on the level of finance.
Randy Caruso (United States) said there are low levels of certainty about the individual sub-components of the headline numbers referred to in the draft report and sought clarity on the range. Caruso also said that there is significant misconception around the definition of climate finance which involved two points: What is climate and what is finance?
On finance, he said that “We are providing this information that we have been asked to provide. The information is in our biennial report guidelines (on concessional and non-concessional loans). We have not stopped and considered what the gaps in the guidelines are. The guidelines ask us to provide information on all instruments”.
Under the Paris Agreement, he said, “the definition of climate finance is all instruments and all sources, ” adding that the SCF does not need to do anything more.
Shashly responded and said he wanted to put on record that there were several attempts made to define climate finance in the Paris Agreement. However, he added that the definition did not materialize in the course of the negotiations. He said that members have not had a good round of discussions as there are differences between developed and developing countries on the matter.
He said that from the perspective of developed countries, climate finance could be development finance but that is not the climate finance that developing countries talk about.
For developing countries, climate finance is defined in the context of the Convention which is that “the finance is new and additional,” he stressed, adding that the dilemma (over what is climate finance) will continue until Parties “sit down and define climate finance. “We will not be able to get a good handle on the assessment of climate finance flows because there is no definition of climate finance,” emphasized Shashly further.
Muller said that “everyone talks of climate finance, but they have different methodologies of determining this. Can we get to the level of detail of how much of the loans are repaid, which means that developing countries are really not getting climate finance? How much co-financing comes from the national budget? We need that kind of information as the output of the BA.”
As regards the measurement, verification and reporting (MRV) of financial support, she also asked how, given the data, that measurement and verification of the information can be done, as right now, Parties have only been talking about reporting of the data,” said Muller.
Black-Layne said commercial loans could not be included as climate finance. She said concessional loans could figure, but it would depend on the levels of concessionality. She also said that large amounts of money given to MDBs were reported as grants. There is a misunderstanding from the donor countries’ side and this creates a lot of misunderstanding and we need to clarify how much stays as grants and how much will be presented as loans, she added further.
Kateme-Kasajja said a resolution was out of sight till the definition of climate finance was agreed upon. She also said that there should be some riders put when the report is presented so that people reading it would understand and would not rubbish the SCF.
Kyekyeku Yaw Oppong Boadi (Ghana) said that he was concerned about the uncertainty in the data. He asked what the level of uncertainty was, adding that the committee should make recommendations to ensure the BA would be more accurate and the level of uncertainties reduced. What is needed is transparency on the provision of finance and not on financial flows, he said, and added that there should be a recommendation that more work needs to be done to get more data.
Issue of what amount of finance goes to developing countries
The other contentious issue under discussion was the figure of 40 per cent of climate finance provided by developed countries going to recipient developing country governments as mentioned in the draft report. Members sought clarification on the remaining 60 per cent.
Nafo asked if 40 per cent of the climate finance reported by developed countries goes to developing country governments, where does the remaining 60 per cent go? “That brings us the challenge of tracking the 60 per cent. This is a challenge for the MRV system, to track something that does not flow to me,” said Nafo.
Black-Layne also sought clarity on the remaining 60 per cent. She expressed concerns about the message the summary would send.
Kateme-Kasajja too said that if 40 per cent goes through developing country governments, why were they not picking the route where the money could not be monitored. “This report is exposing a lot. I can assure you that 40 per cent is not going through the treasury of Uganda,” she said. “Passing money meant for a country through non-governmental organizations (NGOs) without the country knowing is wrong. Bundling up official development assistance (ODA) money as climate finance is wrong, regardless of the methodology,” she stressed.
Nafo also clarified that most of the funds were not going through NGOs and civil society. Sometimes, funds go through bilateral channels, MDBs, private sector and civil society and that this was important to bear in mind, he said.
Additionally, Muller stressed that the report should show how the SCF complied with guidance from the COP, which is to move from biennial assessment to the MRV of support.
Shashly added that he saw the difficulty as being at two levels: setting the expectations right, and being credible.
He said that “The report captures everything, but that is not the expectation. They (Parties) want to know how much money is flowing from developed to developing countries to tackle climate change. This report is much more than that. Maybe we can put this as a background document and go and tell our constituency how much of the fund is flowing from developed to developing countries.”
He added that there is also the issue of the MRV of financial support. “If we cannot MRV (the financial support), let us not report it. Those who say they are not receiving the money have to establish that they are not receiving it,” said Shashly.
“At COP22, we will need to establish a process under the COP to look at what information developed countries will provide on finance.
Honkatukia said that the intention is for the short report to have a summary of the long report and it will have to be finalized at the 14th meeting of the SCF.
Edited by Meena Raman