After Paris, it’s “all hands on deck” for climate finance

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COP21 Paris 2015
The December 2015 UN climate summit in Paris marked a historic step forward in international efforts to combat climate change, producing a new climate agreement that includes national commitments by 189 countries to reduce greenhouse gas emissions. While these commitments will need to be fulfilled and then ratcheted up in the years to come, they demonstrate the power of what UN Secretary-General Ban Ki Moon described as an “all hands on deck” approach to the climate challenge.

[caption id="attachment_8149" align="alignnone" width="880"]COP21 Paris 2015 General session of the COP21 for the adoption of the Paris Agreement. (Credit: Arnaud Bouissou MEDDE/SG COP21)[/caption]

This tectonic shift in the mitigation framework, away from the Kyoto Protocol model, has been rightly celebrated as the most constructive path forward. But observers have largely missed the beginnings of a similar change in the realm of climate finance – a change that could grow to be equally significant.

Over the last several years, developing countries have been ramping up their investments in low carbon infrastructure, both domestically and in other developing countries. China has been at the centre of this growth of so-called South-South Climate Finance (SSCF), which represents a major opportunity.

Negotiations over climate finance in the UN Framework Convention on Climate Change (UNFCCC) traditionally revolved around the level of financial support developing countries will receive. While such support is crucial, and developed countries must absolutely meet the goal of mobilising US$100 billion of climate finance per year by 2020, the climate challenge requires the world to mobilise not billions but trillions of dollars.

In a world in which developing countries now constitute half of global GDP, the climate finance challenge, like the mitigation challenge, can ultimately only be met through an “all hands on deck” approach.

The Paris Agreement recognises this new reality. While it reaffirms that “developed country Parties should continue to take the lead in mobilising climate finance,” it is also explicit that they act “as part of a global effort” (art. 9 paragraph 3). Moreover, “Other parties are encouraged to provide or continue to provide such support voluntarily” (art. 9 paragraph 2). To realise the full potential of this important dimension of the Paris agreement, therefore, countries must now redouble efforts to track and expand the role of SSCF so as to more effectively align it with ‘traditional’ climate finance that flows from developed to developing countries.

Fortunately, developing countries, and China in particular, which announced US$3.1 billion in bilateral climate finance on the eve of COP21, are already beginning to show leadership on this front. This year, China can use its presidency of the G20 and its leadership role in new international financial institutions such as the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (‘BRICS Bank’) to make a decisive step forward by mainstreaming low carbon financing into the colossal new financial institutions taking shape in Asia. Indeed, this task is perhaps the largest priority for climate diplomacy in 2016.

China leading on South-South Climate Finance

While there are no official or systematic global efforts to track SSCF, in a recent article in the journal Global Policy entitled “Climate Finance in and between Developing Countries: An Opportunity to Build on”, we map the current landscape drawing on the best available public reports. The Climate Policy Initiative (CPI) estimates that SSCF reached US$10 billion in 2013. That constituted as much as 30% of the total climate finance that flowed from developed to developing countries in the same period (US$34 billion). According to Climatescope 2015, investments in clean energy in 2014 in the 55 developing countries for which data were available reached US$126 billion, and more than half (US$79 billion) were South-south investments emanating from non-OECD countries.

This SSCF takes three major forms: developing countries’ contributions to established multilateral climate funds; bilateral initiatives; and new Southern-led international organisations such as the BRICS bank and the AIIB. The first category is relatively small, with developing country contributions to multilateral climate funds making up only a few percentage points of the total funds used for climate finance at institutions like the Global Environment Facility, the World Bank and regional development banks, or the newly created Green Climate Fund.

Bilateral arrangements figure more prominently at present, with China leading the way. In September 2014, China announced at the UN Climate Summit in New York that it would establish a South-South Climate Fund. Encouragingly, China is linking its SSCF directly to the UNFCCC process, signing an MoU with the UN regarding the goals and use of the fund. China’s willingness to link its own climate finance to the UN process shows how the traditional “firewall” in the UNFCCC between developed and developing countries need not impede a constructive evolution of the climate finance agenda.

Then, during Chinese President Xi Jinping’s state visit to Washington DC in September 2015, China announced that it would be providing US$3.1 billion to help developing countries combat climate change, which is a large increase over its original pledge to deliver US$80 million over the course of three years through its South-South Climate Fund.

As impressive as this announcement is, the third category of SSCF may prove to be the most significant. (continues...)

This is an extract from a longer article that appeared on DialogoChino on 11 February 2016. To read the full article, please visit DialogoChino.

Thomas Hale is Associate Professor in Public Policy at the Blavatnik School of Government. Sanjung Ha is a BSG alumna (MPP Class of 2014). Pete Ogden is a Senior Fellow at the Centre for American Progress.