Last week, in his speech at the 26th Conference of Parties (COP26) of the United Nations Framework Convention on Climate Change (UNFCCC), President Joe Biden reiterated that the United States intends to quadruple its climate-related financial commitments to developing countries by 2024. Biden first made this announcement at the United Nations General Assembly in September.
As Biden noted in his Glasgow speech, “We want to do more to help countries around the world, especially developing countries, accelerate their clean-energy transition, address pollution, and ensure the world we all must share a cleaner, safer, healthiest planet. And we have an obligation to help.”
But pre-conference discussions that were far less public suggest much of those new financial commitments could come with major strings attached.
In October, at a meeting of the UN’s climate change finance committee, the United States opposed a recommendation to define the term “climate finance.” By doing so, the United States is allowing the continuation of a troubling practice of masking restrictive loans as financial support in the name of climate action.
“The major opposition to defining climate finance came from the U.S.,” said Meena Raman, a Malaysia-based legal advisor and head of programs at the Third World Network, a nonprofit international research and advocacy organization focusing on Global North-South affairs. The United States’ position is part of a larger trend, added Raman: “Developed countries as a block have always opposed [progressive] recommendations on climate finance.”
According to Diego Pacheco, head of the Bolivian delegation to the UNFCCC and spokesperson for a coalition of nations known as the Like Minded Group of Developing Countries, such a position is par for the course. “Developed countries never want to discuss the definition of climate finance because they want to dilute their responsibilities,” said Pacheco.
Climate finance is the use of funding to help developing nations adopt low-carbon practices and technologies and adapt to the changing climate. It is widely considered the best tool to enable developing countries around the world to both adapt to a quickly warming world and help mitigate climate change via emission reduction technologies like renewable energy. At COP15 in Copenhagen in 2009, developed countries committed to a goal of jointly mobilizing $100 billion per year by 2020 to address the needs of developing countries. But the Copenhagen Accord allowed flexibility in terms of what qualifies as climate finance.
But because the term wasn’t clearly defined, climate finance essentially refers to all methods of financing, from grants to loans to guarantees, and those funds can come from all kinds of sources, including bilateral and multilateral funding and private capital. The 2015 Paris Agreement, the successor to the Copenhagen Accord, also adopted this nebulous definition by vaguely referring to a need for “mobilizing climate finance.”
Developed countries have exploited such loosely defined terms to classify loans as climate finance. According to a 2020 report by Oxfam, loans, including those given on non-concessional terms, comprise 71 percent of public climate finance. That is a problem, because loans entail interest and repayment liabilities. Such loans have even caused debt traps for countries in the Global South.
Oxfam called the overreliance on loans to fulfill climate finance obligations an “an overlooked scandal.”
Mohamed Nasr, a lead COP26 negotiator on topics related to climate finance for Egypt, told the Daily Poster that defining climate finance is “a crucial element… to avoid double-counting and greenwashing.”
Zaheer Fakir, one of the lead coordinators for the African Group of Negotiators on Climate Change (AGN), agreed. As he put it, “How can we talk of transparency and credibility in the process when we cannot have a common understanding and accounting modality for climate finance?”
The United States, meanwhile, is currently the biggest laggard when it comes to paying its fair share of climate finance.
Exploiting a Vague Term
Climate finance has proved to be an important tool in the global fight to mitigate the impacts of climate change. For example, the Green Climate Fund, established by the 2015 Paris Agreement, has helped finance solar energy projects in parts of Africa, clean cooking solutions like electric stoves in Nepal, and electric rail transportation in Costa Rica. Similarly, the Adaptation Fund, established by the 1997 Kyoto Protocol, has provided funding for improved agricultural practices and disaster risk reduction in places like Liberia and Peru.
Most developing countries only consider public grants, such as governmental funding with no repayment or interest obligation, as climate finance. But developed countries go by a different metric.
The Organization for Economic Co-operation and Development (OECD), founded by developed countries like the United States, the United Kingdom, Germany, France, and Sweden, includes loans in its annual tabulation of climate finance initiatives. Experts say this leads to an inflated measure of how much support is actually going to developing nations.
According to a 2020 report by Oxfam, while OECD members reported roughly $60 billion in average climate finance in 2017 and 2018, “The true value of support for climate action may be as little as $19-22.5 billion per year once loan repayments, interest, and other forms of over-reporting are stripped out.”
By not clearly defining climate finance, developed countries are also free to rebrand existing development aid as climate finance. “Once we have clarity on the definition, we will know eligibility criteria for real finance like what [portion of this funding] is new and additional,” said Nasr.
By loosely defining climate finance, developed countries have also in practice “constantly reneged” on their climate commitments, said Raman.
Finally, according to Fakir, by insisting on having the flexibility to use any sort of financing that they choose as climate finance, developed countries “are demonstrating a lack of confidence in multilateral processes.”
“That Is Not Part of the Mandate”
In October, at a meeting of the UNFCCC’s Standing Committee on Finance (SCF), members from developing countries tried to address the problem by supporting a recommendation to elaborate on an operational definition of climate finance. Such a revised definition would have clearly stated what sort of financial instruments climate finance refers to, and which public and private funding sources would qualify.
But the United States, represented by SCF member Randy Caruso, opposed the recommendation, arguing that the lack of a common definition of climate finance is important because countries that require support have different needs, and thus need flexible financial and technological solutions to fight climate change.
Caruso, who works in the foreign affairs department of the Department of State, added that defining climate finance was not the mandate of the SCF. “That is not the mandate,” said Caruso. “We should not be holding the entire meeting hostage to this.”
Other developed countries like Switzerland and Sweden also opposed the recommendation. Caruso and representatives of the SCF did not respond to a request for comment.
Moves to define “climate finance” or tie developed nations to firm finance commitments have always been a sticking point for the United States, regardless of which party is in power. At COP25 in 2019, the United States under President Donald Trump also opposed a proposal to draft a common definition of climate finance. And in 2015, then secretary of state John Kerry, threatened to take both the United States and other developed countries out of the Paris Agreement if they were asked to commit to financial obligations.
While a summary of the UN’s SCF meeting and related recommendations are usually forwarded to the next Climate Change Conference of the Parties, because of the lack of consensus on the issue, the recommendation to define climate finance was not forwarded to COP26.
“This is the first time that recommendations were not forwarded to COP,” Raman noted.
Still, one of the agenda items up for discussion at COP26 is climate finance, and Raman said developing countries at the conference will likely continue to push for discussions on a firm definition of the term.
Sure enough, at a November 8 plenary held by the COP26 presidency, a representative speaking on behalf of a coalition of countries known as the Group of 77 and China said “a COP without clarity on finance or an outcome of only empty or insufficient announcements that will create debt for developing countries can never be a successful one.”
Such clarity is essential, said Nasr, if the world hopes to meet its ambitious goal of keeping global warming within 1.5 degrees Celsius.
“If you want to work towards a 1.5 degree goal, you cannot play with numbers,” he said. “We can’t work on our climate targets without the right kind of finance.”