At the COP19 climate conference in Poland, it would be a mistake for industrialised countries to expect the private sector to be the primary solution providing the financial commitments made to poorer nations, warns Simon Anderson.
At the UN climate conference in Copenhagen 2009, developed countries committed to provide funds rising to US$100 billion per year by 2020 to support developing countries in their efforts to address climate change.
But it appears that developed countries are finding it difficult to keep to their side of the bargain. Instead of allocating finance from the public purse to support developing countries, they have shifted focus to efforts to secure private finance.
Initially, we thought the upcoming COP19 climate conference in Warsaw, Poland would be an opportunity to discuss how climate finance from both public and some private sources could be brought together to ensure that developing countries can both mitigate and adapt to climate change.
However, following discussions with various parties to the negotiations it appears that private — not public — finance will be the key topic at the conference. When asked what will be on the COP19 table, developed countries keenly refer to private finance. Their vision of mobilising climate finance from private sources has also been a key theme at various recent meetings.
On 22 October, Todd Stern, US Special Envoy for Climate Change at the State Department, gave a speech in London in which the main discussion on climate finance was on ways to use the current very limited amount of public finance to leverage greater resources from the private sector. He added that: "No step change in overall levels of public funding from developed countries is likely to come anytime soon. The fiscal reality of the United States and other developed countries is not going to allow it."
A day later at the Copenhagen Climate Finance Meeting, UN Secretary General, Ban Ki-moon and ministers from developed nations said that governments with limited budgets needed to encourage bigger private investments in climate initiatives in developing countries. But discussions were largely limited to investments in climate change mitigation, and not adaptation— the more urgent priority of the poorest nations.
Two days after the Copenhagen meeting, a letter from Polish COP presidency encouraged civil society organisations to “present your own ideas on possible ways of mobilizing sources of finance in private sector."
Of course, no national governments can guarantee the delivery of any private sector finance. This might let countries neatly off the hook. Given the disappointing outcomes of the previous COP18 in Doha, Qatar, this is deeply concerning.
It is hoped that Scotland’s Climate Justice Fund can, in a modest way, show how public and private sector contributions can be channelled to resource climate adaptation by the climate vulnerable poor in developing countries. But business sector representatives discussing the Fund at a recent conference in Scotland on climate justice made it clear that if they were to support it, their support would be in-kind and not financial. And Scottish finance institutions themselves demanded a better framework from the public sector to create more incentives for private investments.
Two important points are missing from much of the recent literature on private sector climate finance for adaptation (such as this new review by Bonizella Biaginia and Alan Miller of the Global Environment Facility and the International Finance Corporation).
First, large-scale finance sector institutions (not manufacturing, technology and service businesses) need to be mobilised to get sufficient capital flows into climate adaptation. Second, investment in climate adaptation needs to benefit poor people hit hardest by the impacts of a changing climate. To do so, adaptation needs to be invested in by generating local, national and global public goods. Expecting the private sector to be good at this denies the lessons of history.
The experience of the Clean Development Mechanism – particularly across Africa, which has received under ten per cent of all CDM projects – bodes ill for the effectiveness of private sector and market mechanisms to support climate responses in developing countries.
Least Developed Countries
The world’s Least Developed Countries (LDCs) refuse to accept this overly optimistic emphasis on private climate finance. It damages their trust in the UN Framework Convention on Climate Change as hundreds of billions of dollars of public finance are still being devoted each year to encouraging the production and consumption of fossil fuels.
The small funds being made available for climate vulnerable countries are often focused on encouraging private sector contributions. So far there has been no discussion whatsoever on how the vulnerable developing countries, such as the LDCs, would benefit from private sector climate finance, particularly to help them adapt to the impacts of climate change.
Yet many of the poorest developing countries are leading the way in developing approaches to help the world keep the rise in global average temperatures to less than 2 degrees above pre-industrial levels. Many LDCS have already set out clear plans of how to reduce greenhouse gas emissions, adapt to climate change and achieve economic and social development, in a pioneering approach called low-carbon resilient development.
The LDCs need to be clear and strong on how climate finance should be generated and best used to avoid dashed expectations and more inaction for the world’s poorest people.