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Stocktaking climate finance — a case of circles in red ink

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• GS Paper 3 Conservation, environmental pollution and degradation, environmental impact assessment.
• Tags: #climatefinance #COP28 #UNFCCC #environment #climatechange #GS3 #UPSC

Why in the news?

Climate finance plays a critical role in addressing the global climate crisis. This issue garners attention because of the urgent need to support developing countries in their transition to sustainable, low-carbon economies and enhance climate resilience.

Issues related to climate finance are expected to be prominently discussed at the upcoming United Nations Framework Convention on Climate Change (UNFCCC) Conference of the Parties (COP 28) meeting in Dubai from November 30 to December 12, 2023.

Role of Climate Finance

Climate finance plays a pivotal role in maintaining trust among developing countries in future climate change negotiations.

• Funding Mitigation and Adaptation: Climate finance provides the necessary financial resources to support both mitigation efforts (reducing greenhouse gas emissions) and adaptation measures (coping with the effects of climate change).
• Promoting Equity and Justice: Climate finance aims to rectify historical emissions imbalances by ensuring that developing countries, often most affected by climate change, receive the necessary financial support.
  • It aligns with the principles of Common but Differentiated Responsibilities and Respective Capabilities, acknowledging varying responsibilities among nations.
• Enhancing Global Cooperation: It fosters international collaboration & cooperation which is essential for achieving global climate goals like the Paris Agreement and building trust among nations.
• Encouraging Private Sector Investment: Climate finance serves as a catalyst, encouraging private sector investment in sustainable and climate-resilient projects. Public funding often leverages additional resources, increasing the overall impact.
• Capacity Building: Beyond financial resources, climate finance may include support for technology transfer in developing countries, helping them better respond to and prepare for climate-related challenges.
• Mobilizing Climate Action: By facilitating the flow of funds to climate-related projects, climate finance contributes to the realization of national and international climate targets.

Global Stocktake

• The Global Stocktake (GST) is a process under the Paris Agreement that takes place every five years to assess the collective progress of countries towards achieving the goals of the Agreement.
• The Climate Change 2023: Synthesis Report highlights that the current temperature increase of 1.1°C is contributing to more frequent hazardous weather events.
  • This scientific input will inform the global stocktake at COP, influencing climate action discussions where developing countries are likely to demand increased mitigation actions from developed nations.

Mobilizing Finances for Climate change mitigation

• Common but Differentiated Responsibilities and Respective Capabilities (CBDR & RC):
  • Providing financial support to developing countries aligns with the principle of CBDR & RC, which underlines the shared responsibility for climate action while recognizing varying capacities among nations.
  • Developed countries are obliged to provide financial resources to developing country parties, as stipulated under Article 9 of the Paris Agreement on Climate Change.
  • They are also required to report financial information in their Biennial Update Reports (BUR), including past financial contributions and projected levels of public financial support to developing countries.
• Commitment to Mobilize $100 Billion Annually:
  • At the Copenhagen Climate Conference in 2009, developed countries committed to mobilizing $100 billion per year in climate finance by 2020.
  • Under the Paris Agreement, they are collectively tasked with mobilizing $100 billion by 2025 before establishing a new collective quantified goal (NCQG) by the end of 2024.
• Green Climate Fund (GCF)
  • The GCF was established to administer a portion of the $100 billion pledged to aid developing countries in transitioning to low-emissions and climate-resilient development pathways.
  • The GCF’s second replenishment took place on October 5, 2023, in which 25 out of 37 developed countries met in Bonn and pledged $9.3 billion in new contributions.
• Voluntary Contributions from Developing Countries:
  • The additional contributions facilitate the accounting of international public climate finance, addressing debates about what qualifies as such finance.

Need for Strong Action for climate finance

• Nationally determined contributions (NDCs):
  • The Paris Agreement relies on NDCs, where each party outlines its mitigation efforts for the next five years.
  • NDCs collectively indicate a global challenge in meeting the 1.5°C temperature goal.
• Transition to Low-Carbon Energy Systems:
  • Existing financial mechanisms within the UNFCCC may not fully fund these transitions.
  • India has emphasized the need for a just transition at COP27, highlighting the reliance of 3.6 million people in 159 districts on fossil fuel-related jobs, particularly in coal mining and the power sector.
• Requirements for Climate finance:
  • Based on the NDCs of Global South countries, the estimated climate finance needs approach nearly $6 trillion until 2030.
  • India’s third BUR indicates financial needs of $206 billion for adaptation and $834 billion for mitigation purposes for the period 2015-2030.
• The developed world needs to emulate the actions taken in 2009-10 to protect the global financial system.
  • This requires a display of strong political will and urgency to address climate change and safeguard the environment.

Problems in climate finance

• Shortfall in Climate Finance:
  • The 26th United Nations Climate Change conference (COP26) in Glasgow in 2021 revealed that developed countries regretfully fell short of their commitment, mobilizing only $79.6 billion.
  • It is argued that developed countries have yet to meet the commitment of mobilizing $100 billion in climate finance.
  • The $100 billion climate finance target is seen as insufficient to address the challenges faced by developing countries in transitioning to low-carbon and climate-resilient development paths.
• Lack of a Defined Burden-Sharing Formula: While developed countries are obligated to provide financial resources to developing nations under the Paris Agreement, there is no agreed-upon approach among developed countries for sharing this burden.
  • An analysis indicates that the United States, for instance, contributed only 5% of what is considered its fair share in 2020.
• Uncertainty in Mobilizing Funds: The absence of a mandatory formula for collecting climate finance makes it challenging to predict how the required funds or the New Collective Quantified Goal (NCQG) for climate finance will be mobilized.
  • Neither the UNFCCC nor the Paris Agreement specifies criteria for mobilization, and the process relies on a replenishment mechanism.
• Role of Replenishment Mechanisms: The Global Environment Facility, designated as a funding agency by the UNFCCC, provides grants and concessional loans to developing countries and undergoes replenishment every four years.

Climate finance: The political will

Crucial factors of strong political will, urgency, and enlightened self-interest seem to be absent when it comes to addressing the essential issue of climate finance transfers.

• Climate finance transfers from developed to developing countries are vital to protect another global common, the atmosphere.
• The same level of commitment and rapid action witnessed in the financial crisis response is lacking in the context of climate finance.

In 2009-10, the Global North demonstrated strong political will, a sense of urgency, and a recognition of their enlightened self-interest in addressing a global crisis.

• This response was evident in the rapid action taken by G-20 governments to combat the global financial crisis.
• They swiftly allocated $1.1 trillion within weeks to support the International Monetary Fund and multilateral development banks, ultimately saving the global financial system.

Source: The Hindu

Mains question

Discuss the challenges and prospects of climate finance in achieving climate mitigation and adaptation goals. Analyze with examples.