TWN Info Service on Climate Change (Apr19/02)
8 April 2019
Third World Network

UNFCCC’s Standing Committee on Finance discusses alignment of climate finance flows with Paris Agreement objectives

Delhi, 8 April (Indrajit Bose) - The UNFCCC’s Standing Committee on Finance (SCF) had an interesting exchange of views on how to include information on climate finance flows that are aligned with the implementation of the objectives of the Paris Agreement (PA).

The SCF discussed information relevant to Article 2(1)(c) of the PA at its 20th meeting held in Bonn, Germany from 21-22 March 2019.

This discussion took place when members of the SCF were considering the preparatory work for the production of their 2020 report on the ‘Biennial Assessment and Overview of Climate Finance Flows’ (called 2020 BA).

Article 2(1)(c) of the PA relates to making finance flows consistent with a low greenhouse gas emissions and climate-resilient development pathway. It reads: “This Agreement,…, aims to strengthen the global response to the threat of climate change, …including by: (c) Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.”

The mandate for this discussion came from the 24th session of the UNFCCC’s Conference of the Parties (COP24) held in Katowice, Poland last year. According to decision 4/CP.24 (para 10), the COP requested the SCF “to map, every four years, as part of its biennial assessment and overview of climate finance flows, the available information relevant to Article 2(1)(c)…”.

(One of SCF’s functions is to assist the COP in relation to measurement, reporting and verification of the support provided to developing countries through activities such as the preparation of the BA. The SCF has produced BAs in 2014, 2016 and 2018.)

In relation to the 2020 BA, the task at hand in the SCF meeting was to agree on an overall approach; a preliminary draft outline of the BA and discuss Article 2(1)(c).

During the discussions, divergences emerged over identifying what flows could be considered aligned with the PA and what flows could not be so considered and whether the 2020 BA should get into the identification exercise of such flows at all. The example of clean coal came up several times during the discussions and how it should be treated.

Discussions on the issue were co-facilitated by Seyni Nafo (Mali) and Vicky Noens (Belgium).

Mohamed Nasr (Egypt) said that a lot of discussion was still needed to look at different criteria before starting work on Article 2(1)(c). He raised the challenge of identifying which finance flows were consistent with PA adding that while it may be easy to deal with information on emissions reduction, he asked how to deal with the adaptation issue.  

He also called for the exercise of caution, saying that by 2020, “everything will be called climate finance since there is no definition of climate finance” adding that even for fossil fuel investments, one can say that it will lead to lesser emissions and is linked to Article 2(1)(c). Nasr sad that “we have a nice approach in theory” but “will end up with a process where everything will be called climate finance.” He explained that climate finance originally was meant to be grant-based but has now expanded. “If we try to say all flows are in line with PA, then we will end up with everything as climate finance,” he elaborated further. He also said that there were challenges in relation to greenwashing, and warned that clean coal could be considered in line with the PA.

Gabriela Blatter (Switzerland) said she would be interested in seeing what is not aligned with the PA and how can that be identified. On clean coal, some are reporting it as part of climate finance, some are not, she added. She also said that the mandate of the BA is to track climate finance, which should inherently be aligned with Article 2(1)(c).

Delphine Eyraud (France) agreed with Blatter and said that non-aligned flows are part of the alignment discussions and there is an expanding body of analytical work taking place on the issue, which the SCF must tap into.

Mattias Frumerie (Sweden) said that she would like climate finance flows globally to align with PA goals. He added that investments being made on a national level or a global level should be made to fulfil the goals of the PA.

Ismo Ulvila (European Union) said that on Article 2(1)(c), different proposals were in the EU legal machinery and he hoped those to become law. He also said that these proposals relate to definitions and responsibility of fiduciary agents, which is part of the Article 2(1)(c) agenda. He added that the EU has good examples on how member states are implementing the article.

Randy Caruso (US) said he would struggle with some of the things such as whether to include clean coal or not. “We do not have the mandate to dictate what is and what is not aligned. Alignment with Article 2 can be judged over time. It would be difficult if we come up with a normative list of what is aligned with Paris. We do not have the mandate to say some NDCs (nationally determined contributions) are not aligned with Paris,” he said.

Ayman Shasly (Saudi Arabia) said he was having difficulty in digesting the concept of the article. He said if members were talking about climate finance for mitigation and adaptation, then the entire BA is Article 2(1)(c). He said the BA measures everything that moves, which we call climate finance. “We call them climate finance because either they are dealing with mitigation or adaptation or co-benefits from development. The whole exercise is Article 2(1)(c),”  he stressed. “We should not come down and put our judgement of what is or is not Article 2(1)(c). Everything is Article 2(1)(c),” said Shasly. He added that everything a country does to reduce emissions or enhance resilience is climate finance.

Pieter Trepstra (The Netherlands) said it would be good to see the other side of the alignment and state what is aligned and what is not. “From Netherlands side, we do not fund coal. Clean or not. Period. We believe it is not aligned with Paris,” said Trepstra.

In response, Shasly said that for someone to say they are banning investment in coal, that is their national strategy. To say that clean coal is not climate finance is not fair to developing countries, he said.

Reflecting on the discussions, Nafo said if through an NDC, a country is moving from dirty coal to clean coal, who was the SCF to say it is not aligned with the goals of the PA. He also said that in the exercise ahead, the job is to map how to work out Article 2(1)(c) in the flows and what measures are in place to make it Paris compatible or climate finance compatible.

Caruso added it was scientifically and mathematically difficult and it would not be credible to say a particular technology is aligned or not aligned. He also said that if all the investments were in coal, one could say it is not aligned with some temperature scenarios and that would be scientific, but just saying what is aligned or not would be politics. 

Nasr agreed with Shasly and said that clean coal serves as an example to show how difficult it will get if the BA got into an identification exercise. “This is the first time we are working on Article 2(1)(c). Let us keep it generic; let us see the outcome of the work of the co-facilitators, the secretariat and what they will come back with, but with the understanding that this is not to redefine specific finance flows but this is a way to encourage and highlight that there is a shift or there is a transition away from the business as usual model. If it is leading to reducing emissions and enhancing resilience, then it is a shift from business as usual,” said Nasr.

The SCF also discussed other aspects of the 2020 BA, including its outline and whether Article 2(1)(c) should be integrated as part of every chapter or a separate chapter should be dedicated to the issue or do both—an independent chapter as well as it being integrated in each of the chapters.

Nafo said that several committee members had proposed inclusion of emerging trends and for the 2020 BA to make evidence-based pronouncements as to what is happening over the years. He said there is an interest to have trends related to flows, thematic areas and going to the level of granularity, which is possible, and capturing new developments and going beyond the figures and identify what drives the flows and what are the incentives in doing that.

Nasr said the entire focus of the 2020 BA appeared to be shifting to Article 2(1)(c), which should not be the case and the 2020 BA should not be confined to the article. He also said that in the new BA, there should be a process to follow up on the gaps mentioned in the previous BAs. Nasr also said he could not accept an option where Article 2(1)(c) is both a standalone chapter and a part of every chapter. He also said the BA should discuss financial instruments in a standalone manner.

Blatter said that the SCF could work with the 2018 BA outline, update it and add a chapter on mapping of Article 2(1)(c), which could elaborate on the metrics, data sources and methodologies.

The SCF finally agreed that the BA co-facilitators would develop an advanced draft of the outline of the 2020 BA for consideration and finalization by the next meeting of the SCF, likely to be held in October 2019.

The Secretariat, under the guidance of the co-facilitators, is expected to develop a workplan, including outreach activities inter-sessionally. Additionally, a technical meeting is likely in 2019.