Developed countries have committed to mobilise $100 bn USD per year, from 2020 onward, to enable developing countries to reduce their emissions and to adapt to the impacts of climate change. A year ago developed countries presented a status report which depicted progress towards the $100bn target, implying that it is within reach. This of course sounds great, if it is true.
To know if we can trust the figures in the report we need to take a closer look into the accounting practices and methods of developed countries. If the accounting is not accurate, then can we trust the figures which are presented in the status report? I would like to share three critical points of doubt on this issue.
Firstly, part of the climate finance reported by developed countries will eventually be paid by developing countries themselves. This is because a considerable amount of climate finance is delivered as loans, which must be repaid. Currently, only the flow of capital to developing countries is counted as climate finance. The backflow of finance which is in the form of rents and repayments, is not accounted for. Many private investments may have the same effect, as investors are likely to move possible returns out of the countries. While both loans and private investments are crucial to promote the transition to a more resilient future, their role in being accounted for official climate finance should be questioned. It would be more reasonable to only count the grant equivalent part of the funds as climate finance. According to a report from Oxfam last year, existing figures depicting climate finance may be halved if only the grant equivalent part of loans were counted.
Secondly, the way that climate finance is identified by many developed countries, is based on a system where projects are evaluated based on certain criteria. Practices differ between countries. For example, Finland uses an approach where the amount of climate finance on a project is estimated on a scale from 0-100%, while for example Norway uses a different practice where projects are reported only as 0% or 100% climate finance. That means that large projects, with budgets of millions USD, can be reported as climate finance even if they are only partly related to climate change. A new report on the accounting practice of Norway estimates climate finance to be 10% over-reported compared to what is delivered.
Finally, most of the reported climate finance is also reported as official development assistance (ODA). Developed countries will continue to argue that this is not a problem. In this case, I would like to understand how they interpret previous UN agreements where parties decided that climate finance should be “new and additional”. If the principle of “new and additional” is not applied to climate finance we risk that there will be a diversion of funds from other development needs, such as education or healthcare, as these funds are often allocated from the same budget. Calls for increased support to developing countries will not lead to an increase of financial flows, but only in re-allocation of existing flows.
The debate about climate finance is technical and often difficult to follow. Sometimes we talk about millions, sometimes about billions and sometimes about trillions of USD. However, we should never forget that the reason climate finance is on the agenda, is that there is an urgent need for action. There is no doubt that all the funds we can mobilise are needed, but the first step should be to deliver on the agreements already made. Currently the agreed target is $100 bn USD by 2020. To make sure that these funds will promote and support adaptation and mitigation activities on the ground in developing countries, they should not be creative accounting, but they should be funds which can be used to invest in new and concrete activities.