OVERALL ASSESMENT/EVALUATION OF CLIMATE FINANCE: A TOPIC DIFFICULT TO DEFINE AND TO IMPLEMENT

• The Standing Committee on Finance, having analyzed five sources, could not find an unambiguous baseline of adaptation finance in 2019 to define the doubling of flows by 2025.
• The mechanism of climate finance is not transparent. To date, there is no clear definition of what flows should be counted, and, due to the different methodologies applied by countries, reports are not comparable.
• Climate finance is essential to make applicable the NDCs of developing countries, which are very ambitious but do not have sufficient resources to make them effective.

Every year at the Conferences of the Parties an item on the agenda is an evaluation of the work of the Standing Committee on Finance (SCF). The SCF was established at COP16 to assist Parties in their negotiations on climate finance mechanisms within the UNFCCC. The SCF’s tasks include (i) the coordination of fundings for climate change, (ii) the streamlining of the finance mechanism, (iii) the mobilisation of financial resources, (iv) and the verification of support provided to developing countries.

As we have read in other bulletin articles at this COP28, on climate finance there are many unresolved discussion points and much misunderstanding between countries, which makes it difficult to reach an agreement between the Global South and North. Here we will look at the results of this year’s work of the SCF, detailing why negotiations on finance are often difficult to conclude.

The country delegates found themselves analysing the report of the SCF’s activities during 2023 and the published technical reports. In particular, topics discussed at COP28 include:

• doubling of adaptation finance,
• grouping of the different types of climate finance definitions in use,
• ways to achieve Article 2.1.c of the Paris Agreement,
• forum on finance for Just Transition,
• self-assessment of SCF functions,
• draft guidelines for the operational entities of the financial mechanism.

Furthermore, the summary report that was presented covers the cooperation between SCF and subsidiary bodies of the UNFCCC, the work plan for 2024 and the list of three technical reports to be published in 2024 (overview of climate finance flows, analysis of the needs of developing countries for the implementation of the Paris Agreement, progress in achieving the target of USD 100 billion per year for climate finance).

The doubling of adaptation finance

The doubling of finance for adaptation was one of the outcomes of the 2021 CMA, when it was decided to double the funding compared to 2019 by 2025, in order to balance finance for mitigation and adaptation, and with the aim of increasing financial resources, recalling Article 9.4 of the Paris Agreement. This article refers to the need to take into account the priorities of developing countries, in particular least developed countries and small island states that are more vulnerable to the effects of climate change, and to support them through public subsidies for adaptation.

One of the most critical aspects raised by the SCF is the lack of clarity in the guidelines for measuring and tracking improvements in the achievement of doubling. Each country has different methodological approaches to measuring and reporting the funds mobilised and received, making it difficult to standardise data. In addition, there are also gaps and delays in the transmission of information. The measurement, therefore, of climate finance for mitigation and adaptation and the relationship between the two is not uniform.

For example, the SCF, based on five different sources, allocated between $7.1 billion and $20.3 billion to adaptation finance in 2019, so the doubling could range between $14.2 billion and $40.6 billion by 2025. The result is an average of $19.4 billion in 2019 to be used as a baseline.

The parties were not satisfied with the work of the SCF, which seems to have failed in its mandate to define this baseline for doubling adaptation finance, leaving it very vague. On this almost all countries agreed, but the countries of the Global North certainly took advantage of this to not take a firm position on the issue.

The same applies to the balance between adaptation and mitigation: the two flows are difficult to define, and it is difficult to define the relationship they should have with each other, given the different indications of each country.

The SCF in its report emphasises that it is necessary for developed and developing countries to improve the accounting of financed and received funds in order to have reliable data. In addition, National Adaptation Plans and NDCs need to be kept up-to-date so that a long-term adaptation finance target can be clearly defined. It was an opportunity for some developing countries, including Pakistan, to ask for support for capacity building and the transfer of expertise for proper reporting on climate finance as well.

The definition of climate finance

The other issue that the SCF should have studied further in 2023, but with which the parties are not satisfied, concerns the definition of climate finance, which is currently not unambiguous, not very detailed, and makes it difficult to understand what can be counted in the financial flows, in terms of instruments (grants, equity, soft loans, guarantees) and sources (public or private) of financing.

Article 2.1c of the Paris Agreement

Article 2.1.c of the Paris Agreement calls for making financial flows consistent with the needs for a trajectory towards low greenhouse gas emissions and climate-resilient development. The SCF was mandated to define guidelines for the implementation of the article. The SCF emphasised the importance of working consistently with the Sharm el-Sheikh Dialogue on the complementarity of Article 2.1.c and Article 9, and with the work on the new collective quantified goal on climate finance (NCQG). On this topic, some countries (South Africa, Chile, Canada, India) have pointed out that development can be understood differently by each, depending on the starting conditions and different perspectives for each country. This relates to internal differences between African countries and differences with the other countries of the G77-China group. Furthermore, there is no reference in the report to the needs of Caribbean and Latin American countries.

The UK has adequately summarised the view of the countries of the Global North on the issues that need to be explored: coherence between public investment and the climate goals of individual countries, capacity building for developing countries, how to access funds and the cost of capital (interest), transparency of the financial mechanism.

The forum on Just Transition

The COP mandated the SCF to organise a forum on finance for the Just Transition. Just Transition must lead to low-carbon and climate-resilient development, it must be integrated into national policies, and finance must be mobilised for it to be feasible. The four topics discussed during the forum are:

• integration of Just Transition into national climate plans and development strategies,
• options for mobilising and making accessible financial resources for the transition,
• defining policies to enable Just Transition,
• focus on people and the economy: the need to finance a just and inclusive transition for all.

Among the main findings in the final SCF report is the need to identify the opportunities arising from a just transition towards achieving the goals of the Paris Agreement and the Sustainable Development Goals. Again, the possibility of including the private sector in the financing of the just transition was discussed.

In general, the positioning of developing and developed countries on the results of the SCF summary report is opposite. The European Union, Norway, the USA and others are satisfied with the work of the commission, whereas the countries of the South (Ethiopia, Saudi Arabia, Panama, Pakistan) do not consider it sufficient. The mandates of the SCF are hardly achieved, the comments are vague, the finance-related needs of the parties are not well highlighted, and there are no practical suggestions in the text, which was instead expected. A definition of climate finance and the baseline for adaptation finance has not yet been found. The issue of transparency is also not sufficiently addressed in the text. Among other things, the issue of respect for human rights is not addressed.

Negotiations also continued on Article 4.5 of the Paris Agreement, in which mitigation pathways and national determined contributions are discussed. Some developing countries (Pakistan, South Africa, Bangladesh, Egypt, Kenya, India) emphasised the need for funds in order to be able to meet the targets they set in their NDCs. Often the NDCs of countries in the Global South are very ambitious, but lack the resources to put them into practice. Mitigation and adaptation actions are very expensive, and this is compounded by high damage costs of climate change. Developed countries have a responsibility towards developing countries and therefore must commit to increase their funding so that the NDCs can be implemented. Article 4.5 makes it possible to achieve the goals of the Paris Agreement, but unless the inequalities between countries and regions of the world are resolved, the work against the climate crisis risks failure.

Article 4.5 therefore requires cooperation between countries, especially in financial terms, for the effective implementation of the Paris Agreement.

Article by Francesca Casale, Italian Climate Network Delegate