COMMENT: Fixation on hitting arbitrary figure distracts from true goal of building green and resilient communities
Developing countries say they need extra funding to develop climate resilient cities, farms and industry (Pic: UN Photos)
By Adis Dzebo and Pieter Pauw
2014 is a crucial year for climate finance. UN General Secretary Ban Ki Moon will host a Climate Summit in September to catalyze action on climate change.
But with an estimated investment need of US$700 billion per year for climate change adaptation and mitigation, the international debate on climate finance is increasingly focusing on the private sector.
Developing countries are rightfully concerned that the discussion is delaying the flow of public funds to meet their urgent needs.
Yet leveraging private finance is crucial for global adaptation and mitigation initiatives – including in developing countries. We just cannot let the “$100 billion question” get in the way of action.
At the Cancun Climate Change Conference in 2010 (COP16), developed countries pledged to mobilize $100 billion USD in climate finance per year, starting in 2020.
The money is meant to come from both public and private sources, and this has caused tension. Developed countries have aimed to maximize the private sector’s share, and developing countries fear that public-sector commitments will be significantly lower as a result.
The use of private finance also raises new technical questions, and the climate finance discussion has been moving towards highly complex issues such as tracking, scaling-up and replication of private climate investments.
That work should not delay action on mobilizing private-sector finance. There are proven capacities in both developed and developing countries in building public-private partnerships for adaptation and mitigation.
These should be encouraged, whether or not they can be tracked, scaled-up and replicated within the climate finance realm. The ultimate goal is not to meet the $100 billion target, but to move towards green and climate-resilient societies.
Better data
At the same time, increasing efforts are being made to quantify and track private climate finance flows.
A research collaborative led by the Organisation for Economic Co-operation and Development (OECD) has been analysing tracking methods and ways to measure mobilized private climate finance.
The assessment has, to date, mainly focused on project finance in climate change mitigation and is severely compromised by a lack of data.
The renewable energy sector might be an exception, but comprehensive financial data on mitigation sectors such as energy efficiency, transportation, agriculture and forestry currently do not exist. The situation is even more complicated with adaptation finance.
On top of that come problems of attribution, additionality and the definitions of both “private” and “climate finance”.
In the context of climate finance, attribution basically means assuring that mobilized finance is assigned to specific actors, in the case where multiple actors are involved, to avoid double counting.
Additionality in the context of private-sector finance means proving that Country X actually leveraged private investments in, say solar power in Country Y, and those investments would not have been made without X’s efforts (e.g. helping Y create an enabling policy environment to attract investments in its energy sector).
Lastly, a lack of definitions of both “private” and “climate finance” creates information gaps and subjective operationalization from different actors.
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All these issues combined lead to inaccuracies and ambiguities, and make it difficult to determine how much climate finance has flowed in recent years.
This, in turn, leaves developing countries puzzled and distrustful – both about the likelihood of meeting the $100 billion target, and about climate finance flows in the years leading up to 2020.
Another important question that the OECD is addressing – through its Climate Change Expert Group – is how to replicate and scale-up climate interventions.
The research so far has identified several examples of successful public-private interventions that have been up-scaled or replicated. Examples were found in both mitigation and adaptation, but the latter appears to be more challenging.
The research does show that replication and up-scaling can be stimulated when public finance and public policies are effectively used to build a foundation in the country, such as suitable regulatory frameworks, technical capacity, personnel, national and local institutional arrangements, and risk mitigation mechanisms.
Public financing can also be used to close the data gap, by collecting, presenting and disseminating information to draw on lessons from pilot interventions.
Private potential
It is important to keep working to resolve all the issues mentioned above, to facilitate the flow of private climate finance and build trust between developed and developing countries, most notably with regard to tracking, assigning responsibilities and verifying that investments have real impacts on the ground.
However, it must be acknowledged that some issues will either never be solved or always be contentious. The lack of resolution should not keep us from moving forward.
The Intergovernmental Panel on Climate Change (IPCC) Fifth Assessment Report and others have highlighted the urgent need for higher investments, both in mitigation – where the door to prevent dangerous climate change is closing – and in adaptation, given that climate change impacts are already being felt throughout the world.
This means we should encourage private initiatives to proceed with proven technologies and ways of cooperation, both in adaptation and mitigation.
It also means that developed countries have a responsibility to provide public financial resources, particularly for adaptation, where private-sector engagement may be more limited.
Adis Dzebo is a research associate at the Stockholm Environment Institute (SEI). Pieter Pauw is a researcher at German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE).