Can COP26 lay firm foundations for an ambitious new climate finance goal?

With negotiations for the post-2025 climate goal due to commence at COP26, we ask what lessons can be learned from the previous – unmet – target and explore the priority issues for least developed countries (LDCs), who will be seeking changes to both the volume and nature of the climate finance they receive.

Illari Aragon's picture
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11 October 2021

Illari Aragon is a researcher in IIED's Climate Change research group

Man stands next to a hut and a jerrycan. Another man, wearing red, points to the right.

Climate adaptation programme in Karamoja, Uganda (Photo: Denis Onyodi/URCS-DRK-Climate Centre via FlickrCC BY-NC 2.0)

In 2009, wealthy nations pledged to jointly mobilise US$100 billion of climate finance per year by 2020. This collective fund was designed to support developing nations deal with the effects of climate change and build greener economies. Yet here we are, over a decade on, and the climate finance goal remains unmet.

As COP president, the UK government has been clear: delivery of the $100bn climate finance goal is of the utmost importance. It recognises this issue as a matter of trust between developed and developing countries, as well as a matter of finance.

The least developed countries (LDCs) – who have done least to cause climate change but suffer the most devastating effects – expect the commitments made to 2020 to be honoured.

Rebuilding confidence in the ability of wealthy nations to deliver on past promises will be vital to the UN climate conference (COP26), where Parties will also begin negotiations on a new and more ambitious post-2025 climate finance goal.

How far short are we from the $100bn pledge?

According to reports, wealthy nations remain a significant way off achieving the $100bn-per-year climate funding goal. How far short exactly depends on the accounting method.

In late 2020, the Organisation for Economic Co-operation and Development (OECD) estimated that climate finance reached $79.6bn in 2019, $78.9bn in 2018 and $71.2bn in 2017.

Using a different accounting approach, Oxfam offered a considerably bleaker estimate of just $19-22.5bn in “climate specific net assistance” being made available over 2017-18.

Whichever way one cuts it, there is clearly a long way for developed countries to go to meet their commitment.

Finance reaching LDCs: too little, too costly

Although climate finance for the LDCs increased from 2016 to 2019, the figures are less encouraging when seen in the context of total volumes.

The OECD estimates that climate financing for LDCs represented just 14% of total funds during the 2016-2018 period – a hopelessly inadequate share considering the particular vulnerabilities of these nations and their minimal contribution to climate change.

Most concerning is the fact that loans are becoming an increasingly prevalent form of finance offered to the world’s poorest nations, who can ill afford interest and repayments. From 2016 to 2018, loans accounted for 66% of all climate finance provided to LDCs.

While largely geared towards mitigation, loans were also offered for adaptation. Adaptation funds will largely support activities that do not generate revenue, making repayment even more challenging.

Adaptation remains a poor relative

Of the limited climate finance that is directed finance to developing countries, the balance between mitigation and adaptation funding is far from meeting the 50:50 allocation enshrined in the Paris Agreement and UNFCCC financial institutions – a balance that LDCs fully back.

The disparity is marked: 70% of the total finance provided to developing countries in 2018 was directed to mitigation, while only a fifth (21%) went to adaptation.

A limited increase in adaptation finance in 2019 did little to introduce the promised balance, so this remains a key issue for those countries experiencing the worst impacts of climate change.

Clarity is key in negotiations for a new goal

In a few short weeks, COP26 will signal the start of negotiations for a post-2025 climate finance goal. This is a key opportunity for Parties to pave the way to a successful outcome, by agreeing a structured process for negotiations. This could include a clear road map and annual milestones that support reaching agreement by 2024.

The OECD and Oxfam reports on the current $100bn goal can support LDCs and other Parties to identify persistent challenges as well as lessons to apply in the negotiations, both of which are explored in greater depth in a new IIED policy briefing.

For example, assessment of the $100bn goal is hampered by ambiguity in the language used to describe the goal and what can be counted towards it.

So, looking to 2025, it will be important for Parties to reaching consensus on the elements that will count as climate finance under the new goal, and how to count it. For instance, Parties must decide whether climate finance should focus on grants rather than loans and how, exactly, loans should be counted.

Clarity about what counts as “new and additional” climate finance is also vital. There is no agreed baseline against which any claim of additionality could be made, which allows donor countries to take different views of what counts as ‘additional’ resource.

The chief concern of the LDC Group is that if funding is not new and additional to existing Official Development Assistance (ODA), it could be 'rebadged' as climate related, or worse, reallocated away from existing priorities such as health or education. It is crucial that donor nations do not conflate ODA and climate finance, but rather scale up both.

Guiding the goal: volume and shape

The volume of the new goal will require careful consideration. The $100bn figure was politically determined and, in many ways, symbolic.

But the Paris Agreement determined that the post-2025 goal must be guided by the reality – based on the needs and priorities of developing countries. To have confidence in an estimate of need, Parties at COP26 must discuss which sources will inform the assessment.

Debate around the ‘shape’ of the goal could focus on whether it should be aggregate one – like the current $100bn goal – or one that differentiates between the focus of climate action.

The distinct roles of mitigation and adaptation mean that a consideration of separate targets for each could be a valuable option, helping to better balance the proportion of funds supporting each.

Ultimately, for the LDC Group, the new goal must provide greater climate finance to their members: commensurate to their needs, grant-based, and prioritising adaptation.

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