The two hour meeting on
Friday, convened by Peru and France as outgoing and ingoing
chairs of the UN COP negotiating process on climate change, was
intended to garner support among developing countries for a
They have seen rich nations, which promised at
Copenhagen in 2009 to be channelling $100bn of finance a year
to the South from 2020, take six years and still not have a
coordinated plan for how to come up with the money.
In September, 18 developed states and the European
Commission finally agreed an outline of what should count, but
this has not been fully defined or agreed with the developing
Now, with just weeks to go till the crunch meeting in
Paris, the rich states urgently need to present a
politically credible pathway, in the commonly used
jargon this week, to the $100bn target.
That meant the $100bn would not all be accounted for
in time for Paris, but it would be clear enough to developing
nations how the target would be achieved, so that they were
willing to sign up to a deal.
In a vast hall at the Lima Convention Centre, some 50
finance ministers and 20 heads of organisations listened to 27
speeches, supposed to be two minutes each, besides the
introductory words from Peru, France, UN secretary-general Ban
Ki-Moon and the presentation of two reports on climate
The crucial one, prepared by the OECD, was the first
census of how much the rich countries are actually doing now.
It found they provided $52bn in 2013 and $62bn in
Its a bit higher than I would have thought
a very positive outcome, said Christian Grossmann,
climate director at the International Finance Corp.
Many of the speeches consisted of countries including
the Netherlands and Luxembourg and bodies such as the World
Bank committing extra funds (see table
Climate change is the preeminent
challenge of our time. We need financing to mitigate and adapt
to its impacts, said Asian Development Bank president
Takehiko Nakao, in a comment that reflects how the climate has
moved to centre stage for all the multilateral development
banks in the last few years, but especially in 2015.
Action on the
global climate is essential to attain other development goals,
such as poverty elimination, water and food security, and
sustainable economic growth, Nakao
A useful step
Peru, France, the UN and the OECD have presented the
report as a successful confidence-building exercise. It shows
the $100bn target has not been reached yet, but that at least a
common methodology has begun to be established for counting who
is doing what.
Fridays meeting was never going to produce a
formal collective decision on climate finance not even
to accept the OECD report.
During the debate that followed, both China and India
raised questions about the methodology used in the OECDs
India asked, according to the paraphrase of a witness,
are we sure this is not just a nice way to shift ODA
[overseas development assistance] from one place to
New money or old?
Ever since Copenhagen, several difficult questions
have surrounded the vague $100bn pledge. One is that it was
supposed not to be achieved by diverting money from existing
But it is hard to verify that this is not done. Asked
by Emerging Markets at a press conference on Wednesday
whether the OECD had checked that its $62bn did not include
rebadged aid, OECD secretary-general Angel Gurria, said:
Its something well only know later. We have
to count ODA and climate finance. This is not an ODA count. The
route towards $100bn is not about ODA its about
all sources of finance. Its not [just] about concessional
He added that with interest rates so low, there was
not a great difference between concessional finance and loans
at normal rates, and emphasised that we went
painstakingly into each of our sources to make sure it was a
hard number not duplication, and that we were not
counting intentions or commitments, just actual
This clarity appeared to concern only the internal
consistency of the data on 2013 and 2014, not whether this
climate finance activity was additional to what the rich states
were doing before Copenhagen, or included flows diverted from
aid budgets in intervening years.
Janos Pasztor, the UN assistant-secretary general on
climate change, has experience of trying to build a method to
check additionality, having helped to design one
for the Clean Development Mechanism that followed the Kyoto
Treaty in 1997.
Although that was completed, he said it was difficult.
Lets not push additionality too far, he said.
If you get in any formal way into the concept of
additionality, youll never get there.
Pasztor said the Copenhagen promise was that we
will mobilise $100bn annually by 2020 from all sources
so it was not explicit that no budgets that had existed
before 2009 could be counted.
Joe Thwaites, sustainability research analyst at the
World Resources Institute, pointed out that there was a tension
between the desire for additionality and
mainstreaming the idea that all development
finance should become sustainable.
Many donors do count ODA towards their
climate finance totals, Thwaites said, but added is it
diversion or are ODA projects simply more likely now to
tackle the climate.
At the ministerial meeting, Gurria answered
Indias question by saying that the OECD was in charge of
counting ODA as well, so was in a good position to be able to
check aid was not being diverted. This is through the
Development Assistance Committee, an international system for
accounting for aid.
Gurria said they had not seen any shifts,
said one participant at the meeting. They identified that
$19bn of the $62bn was part of ODA, but it had always been
earmarked for climate that was not a
Gurria said the OECD would be very transparent and
that if any country diverted substantial funds from one part of
ODA to climate financing, he would make sure it was brought to
China also questioned the OECDs methodology, on
a more technical point about how callable capital was
Gurria answered that the OECD had counted 10% of this,
but that if that percentage was reduced to zero, the total
figure would only fall by about $1bn.
Public or private?
A second important grey area about the $100bn pledge
is how much of it can be from the private sector. The
Copenhagen text left it open so that private money could be
counted, but gave no guidance as to how much.
In the years since, developed countries have pushed
for a high percentage of public aid, while rich states have
argued for more leeway to count private flows.
According to the OECD report, of the $57bn average
yearly financing across 2013-14, $23bn (40%) was provided
bilaterally by governments, $18bn (32%) by multilateral
development banks, $2.4bn by multilateral climate funds and UN
bodies, $1.6bn in export credits, mainly for renewable
The other 26% came from the private sector, split into
$7.3bn of co-investment with bilateral projects, and $7.4bn of
co-financing with MDB projects.
Whether money comes from public or private coffers
matters, because there is a leverage effect.
All involved in climate finance emphasise that public
investment attracts extra private dollars.
Grossmann at the IFC said that in the year to June
2015, the IFC did $2.3bn of climate financing, which brought in
$2.2bn of private co-financing.
But that means the more public money there is in the
first place, the larger, by a multiple, is the total
investment. If the leverage factor was three the rule of
used by the European Investment Bank for its normal lending
$100bn of public money would mobilise $300bn of total
investment, while $70bn of public money would bring only
The European Investment Bank, in its new European Fund
for Strategic Investment, will make riskier investments, so is
higher multiple for private financing of five.
Although developing countries have in the past pushed
the developed ones on the quantum of public money, none are
understood to have raised the issue in Fridays
The OECD has tried to be fairly conservative in its
approach to counting private money, only including amounts
provided in specific co-financing arrangements with the public
Thwaites at the World Resources Institute said:
The public sector has to lead the way. It has to show
these are safe investments. If the government puts money in, it
shows it is not a risky move for the private sector to do the
same. Whats clear is there needs to be more public
Another observation to emerge from the OECD report is
that the co-financing multiplier achieved so far has been quite
slight: only about 1.3 for the bilateral projects and 1.4 for
the MDB ones.
That is not particularly encouraging when many
involved in climate policy say at least $1tr of investment a
year will be needed, just for renewable energy never
mind other aspects of mitigating and adapting to climate
Christiana Figueres, executive secretary of the UN
Framework Convention on Climate Change, told Emerging
Markets the $100bn is a political pledge and a
commitment, but this transformation is about trillions, not
billions. It is about changes in the financial system that will
make the transition to trillions possible.
A further area of concern for developing countries is
the shortage of funds for adaptation to the effects of climate
change, rather than trying to slow the process, known as
This is typically less attractive to donors and
lenders because the needs may be harder to define, investment
cases difficult to justify because little is known about how
climate change effects will develop, and the prospects of
returns are unclear.
While wind farms and even energy efficiency projects
can generate revenues, flood defences do not.
Yet adaptation is the sharp end of the battle against
climate change for many developing countries.
This is really a defining challenge of
our generation, because we should not pass on the solution to
the next generation, Cesar Purisima, finance minister of
the Philippines, told Emerging Markets. Various
estimates have shown that just to cope with a 2% increase in
temperatures we will need over $90tr in
Purisima added that extreme weather conditions
were already happening, such as recent floods in the
After Typhoon Haiyan devastated parts of the
Philippines in 2013, the people who were just above the
poverty line slipped back into poverty because of climate
change, he said.
The OECD estimated 77% of North-South climate
financing is going to mitigating (slowing) climate change, 16%
to adaptation and 7% to activities that have elements of both.
For the private flows, over 90% went to mitigation.
Manuel Pulgar-Vidal, Perus environment minister,
said the shortage of adaptation finance was discussed at the
ministers meeting and that it was important to
explore ways to increase the flow.
Thwaites said one possibility might be a commitment by
the developed countries to commit a certain percentage of their
contributions to adaptation finance, and perhaps a pledge that
this part would be public funds.
Which is which?
After the OECD report, the UN presented to ministers
another report prepared by its climate team under Pasztor on
trends in private sector climate finance.
It highlighted progress in five areas: financial
institutions committing hundreds of billions of dollars
in additional finance; the growth of the green bond
market; companies adopting internal carbon pricing; investors
expressing concern about carbon-intensive companies; and the
insurance sector covering more climate and weather
A final issue that may need to be defined in the Paris
talks is which countries count as developed and which as
developing, and whether all of the developing states should be
eligible for climate finance, or choose to ask for
The two camps are defined by criteria in the UN
Framework Convention on Climate Change, signed in 1992. Since
then, some countries wealth has changed
But although there have been some changes to the lists
over the years, securing agreement is difficult because it
China, Singapore and South Korea are all still classed
as developing countries, while Turkey counts as
Asked by Emerging Markets at a press
conference on Saturday whether the meeting had helped to
reassure developing nations about the developed worlds
commitment to climate finance, Michel Sapin, French finance
minister, said: The OECD methodology to assess the
current climate financing has not been questioned. I have noted
a great concern of course regarding possible cuts in
development financing, which would be transformed into
financing against climate
change. Of course, such concern has been
But I think there is no
opposition between these two elements, this is the
argument we have been developing. Both are priorities regarding
the selection of projects. What
I can say is that there has been a positive and considerable
increase in mutual understanding during this
Nevertheless, forbearance will be required from
the developing countries.
Bob Ward at the Grantham Research Institute on
Climate Change and the Environment at the London School of
Economics, chaired by Lord Nicholas Stern, told Emerging
Markets sister publication GlobalCapital
recently that countries pledges to cut emissions so far
implied that the world would be emitting 55bn-60bn tonnes of
CO2 by 2030, up from 50bn now. A path
that would give us a 50-50 chance of avoiding 2°C warming
would need to be around 35bn tonnes by 2030, and below 20bn by
If there is a deal in Paris, it looks set to
put the world on a path to warming of 3°C to 4°C.
Jean-Paul Adam, the
Seychelles minster of finance, trade and the
blue economy, said this week: There is a
very big risk that when we add up the contributions we will
probably not meet the target of 2°, which is the essential number. But there is no way that developed
countries can expect island states to sign up to any agreement
that locks in more than two degrees, because that is
essentially saying that we accept that certain islands are
But Adam added: If we cannot reach the
target in Paris, it does not mean the end of the road. Rather,
it should mean we redouble the efforts to achieve the targets.
Im always optimistic, and the level of engagement is much
higher than it has been at any point in the past. The fact
weve had had such high profile announcements from the US,
China, EU are steps in right direction. There is a spur to
action, and a real understanding in developing countries such
as China that they are already being affected by climate
change. If we build on the political momentum that exists now
it is feasible.
Asked what his countrys needs were,
Maalia Toafa, finance minister of Tuvalu, said: Primary
one is to save Tuvalu and save the people of Tuvalu. Our
people dont want to leave Tuvalu. That is the
primary objective and in the government we have to come up with
a way to save the country.
Some commitments on climate
Present figure 2020 promise
14% of financing 25%-30%
at least 25% of financing (implying c$22bn), but much of this
may be spent in EU, not developing countries
World Bank Gp
$3bn pledge to Green Climate Fund
Rmb20bn ($3.2bn) to set up China South-South Climate
Sources: World Resources Institute,