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COP21 Guide #3: Climate finance

Finance is one of the UNFCCC’s central instruments to combat climate change: it allows for adaptation, for technology transfer, etc. Finance is also at the core of climate justice. The historical use of fossil fuel generated capital, which accumulated in so-called developed countries. At the same time, the effects of the climate crisis and the continuing fueling of it causes affects poorer countries the most.

At COP16 in Cancun, the Parties decided to set up the Green Climate Fund (GCF). From 2020 onwards, it is supposed to provide 100 billion USD per year to finance mitigation, adaptation, and capacity building in developing countries. The money should be provided by developed countries. This burden sharing reflects the principle of CBDR (Common But Differentiated Responsibility).

The 100 billion USD will not come from public sources alone. A large share will also come from the private sector, which means there will be a shift. In the past, the discussions were mainly focused on a North-South public finance flow, but now private finance is taken seriously into consideration.

From 2010 to 2012, there was a so-called Fast Start Finance. Its aim was to provide 10 billion USD per year, which was formally fulfilled. The main problem was that part of this money was not, as intended, new money but re-routed Official Development Assistance (ODA), which means that this money was counted twice, for the GCF and as ODA.

In Lima last year, the GCF reached the critical level of 10 billion USD once again and it was decided that a Private Sector Facility under the fund should be allowed to motivate the private sector and other actors to provide funding. Paragraph 4 of the Lima Call for Climate Action "urges developed country Parties to provide and mobilise enhanced financial support to developing country Parties for ambitious mitigation and adaptation actions, especially to Parties that are particularly vulnerable to the adverse effects of climate change; and recognises complementary support by other Parties".

So far, developed countries have been unable to make further commitments to the fund. There is also lack of mid-term finance. The large scale-up from 10 billion to 100 billion USD might also be difficult to handle for the fund, both regarding resources (logistics, human resources) and regarding pledges. Furthermore, there are adaptation and mitigation costs, which are not covered so far.

Another question mark is the division of the money provided between adaptation and mitigation. Most of the money provided so far aims to reduce emissions, while adaptation costs are currently not covered for the most part. Several proposals in the current negotiation draft call for more "adequate" funding. Another one calls for a 50/50 division.

This articles is part of our COP climate guide. The other articles in this series are:

  1. What is at stake in Paris?
  2. Human rights and climate change
  3. Climate financing
  4. Differentiation
  5. Mitigation
  6. Adaption
  7. Loss and damage

Learn more about the climate negotiations from FYEG's COP report which you can download here.