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SEI Research Fellow Katherine Browne stands with hands out, palms up, with the slideshow title screen behind her as she stands at a podium, in a theater setting.
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What’s the deal with climate finance? Q&A with Katherine Browne

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Feature

What’s the deal with climate finance? Q&A with Katherine Browne

This Q&A with Katherine Browne, SEI research fellow, maps the landscape and what is at stake in the negotiations leading to the new climate finance goal to be set at the next UN Climate Conference.

Maya Rebermark / Published on 31 May 2024

Every year, as efforts to reduce greenhouse gas emissions do not hit the mark, the gap between required action and implementation of effective climate policies grows. This year is particularly intense for global policymaking to fill that gap, and specifically for climate finance.

In the 2015 Paris Agreement, wealthy countries agreed to an initial climate finance goal delivering USD 100 billion annually by 2020. While wealthy countries announced this week they achieved the goal in 2022, significant concerns remain about the quantity and quality of climate finance flows.

Of the funds which have been deposited, not nearly enough have flowed to the right places – especially to poorer and vulnerable countries most exposed to serious climate change impacts. As meaningful climate action lags, the problems that climate finance are set to tackle have become more frequent, widespread and more profoundly challenging. And as negotiations in Bonn on a new finance goal commence, developing countries are flagging that more than USD 1 trillion is needed annually. As a result of all this – and much more complexity – climate finance is a highly controversial topic.

Browne, whose work focuses on global governance, climate finance and inequality, is currently one of the few finance adaptation scholars working inside the technical track advising governments on how to create the new climate finance goal, set to be agreed at the next UN Climate Change Conference (COP29) this November in Azerbaijan. Browne and many other scholars are ensuring that scientific insights are informing critical political discussions that will lead up to that point.

Many climate finance numbers are being discussed in the negotiations under way now. What are the numbers, and how much money is needed where?

There are a few useful things to know up front. First, climate finance does different things. Some funding goes to support mitigation: countries’ efforts to reduce their greenhouse gas emissions, which is what causes warming.

Some funding goes to adaptation: countries’ efforts to help their people prepare and adjust to changes in the climate. Adaptation could be a lot of things: people tend to think of big infrastructure projects, something like building seawalls to help manage sea level rise. But it can also be things like changing agricultural practices, changing the way people earn their livelihoods.

Recently, small amounts of funding have started to go to something called loss and damage. This refers to impacts of climate change that people either cannot avoid or cannot be adapted to – things like sea level rise for a low-lying island state.

It is difficult to calculate how much funding is needed for each of these things. The short answer is “a lot”.

For mitigation, developing countries estimated that they needed USD 2.1 trillion to meet their first commitments under the Paris Agreement (their nationally determined contributions or NDCs) and effectively adapt to climate impacts.

For adaptation, the UN Environment Programme estimated in a recent report (Adaptation Gap Report 2023) that the annual need in developing countries is as high as USD 387 billion. For loss and damage, the estimates vary widely. Our best estimate is that by 2030, low- and middle-income countries will need between USD 290 and USD 580 billion a year.

All in all, we need a huge amount of money to support climate action. But current levels of finance are nowhere near this.

What is the New Collective Quantified Goal on Climate Finance? Why is it so important?

The new climate finance goal will set a new commitment for wealthy countries to provide financial support for poorer and more vulnerable countries to take climate action. It will replace the USD 100 billion goal from the Paris Agreement with a new, larger number.

Many people hope that it will do more than just set a higher number though. The USD 100 billion number was essentially pulled out of thin air. It was not grounded in anything. It was a nice, round number that sounded like a lot of money.

Many think that the new goal should be tied to something concrete: either the needs of developing countries or the goals of the Paris Agreement itself. For example, what amount of funding would be needed to limit global warming to 2°C, and ideally 1.5°C?

It is worth noting that this is a huge source of controversy and distrust.

The USD 100 billion goal is one of the few hard commitments in the Paris Agreement. Yet wealthy countries failed to meet the goal by 2020. And each year the gap between what is needed and what is provided grows larger. The distrust this creates is a real problem for the long-term success of the Paris Agreement.

Many developing countries commitments to reduce their emissions (NDCs) are contingent on receiving financial support. This means if they do not get the money needed, they cannot reduce their emissions. Climate finance is therefore vital for keeping warming at manageable levels. This is why the new climate finance goal is so important.

Many developing countries’ commitments to reduce their emissions (NDCs) are contingent on receiving financial support. This means if they do not get the money needed, they cannot reduce their emissions. Climate finance is therefore vital for keeping warming at manageable levels. This is why the new climate finance goal is so important.

Katherine Browne, SEI

Who is driving the new collective quantified goal on finance? What do they hope to achieve?

The new goal is being negotiated by almost all the world’s countries in a process under the UN Climate Convention (also known as the UN Framework Convention on Climate Change or UNFCCC). Because this is such a controversial issue and official negotiations have just begun, there are still very different ideas about what the goal should be.

Developing countries want it to be focused on “public” finance – that is, money that is either given as grants or provided in loans with low interest rates. This type of goal would focus narrowly on money that flows from wealthy countries to poorer countries.

In contrast, wealthy countries want an “investment” goal, which would be focused on how all countries can mobilize new sources of finance. This would be a much broader idea.

A lot remains undecided. How long will the goal be for? For 5, 10, 15 years? Will there be different goals for different types of climate action: mitigation, adaptation, and loss and damage?

One of the biggest controversies is who will give and who will receive. Under the UN Climate Convention, a set list of countries provides climate finance, and all the others receive it.

Those countries that have been traditional providers are now arguing that the world has changed a lot in the past 30 years. Some countries that were poor in 1994 are now among the biggest economies in the world, and among the biggest contributors to emissions. Traditional finance providers say countries like China and Saudi Arabia should be providing climate finance, not receiving it.

There is still a long way to go in these negotiations, which are expected to culminate in agreement on a new goal at COP29 in Azerbaijan later this year. Agreeing to a new, more ambitious goal is crucial to reinforcing the trust that underpins the Paris Agreement. If countries are able to agree, we could see an immediate impact. This is because countries are expected to submit new commitments to reduce emissions in early 2025. A more ambitious goal could mean more ambitious commitments from developing countries.

Agreeing to a new, more ambitious goal is crucial to reinforcing the trust that underpins the Paris Agreement. If countries are able to agree, we could see an immediate impact. This is because countries are expected to submit new commitments to reduce emissions in early 2025. A more ambitious goal could mean more ambitious commitments from developing countries.

Katherine Browne, SEI

Is there a way for existing financial flows to be reallocated or diverted into the climate goal fund?

First, countries have to set a new goal because they gave themselves no choice. They agreed in Paris in 2015 that they would establish a new goal starting in 2025, and that it would be a bigger number than USD 100 billion.

Beyond that, though, we need a goal that matches the scale of the need. We also need a goal that recognizes the need to shift our entire financial system to face the challenge of climate change. I am talking about the banks and the investment firms – and the corporations. Each year more funding goes to subsidizing fossil fuels than enabling climate action (according to the IMF Fossil Fuel Subsidies Data: 2023 Update). The goal must signal to these industries that we can no longer operate as though it is business as usual.

The new goal must contribute to the broader effort to make the multilateral financial system – especially big international organizations like the World Bank and the International Monetary Fund – more just and equitable, better aligned with climate goals and objectives for sustainable development. At the same time, the goal must recognize that some countries bear more responsibility for the impacts of climate change. Wealthy and industrialized nations have not only an obligation to support poorer and more vulnerable countries, they also have a vested interest in doing so.

Accountability is a big part of that. The new goal is likely to include new rules that make reporting on the climate finance that wealthy countries provide more transparent.

This will not only help us all understand whether we are reaching the new goal, but also if the money is accomplishing what it is supposed to. Does it actually reduce emissions? Does it actually reach vulnerable communities and build long-term resilience? With a better understanding of how much money is flowing, to whom and to what ends, the international community can take steps to rebuild trust and the collective effort to meet the goals of the Paris Agreement.

What are the three things you would like policymakers negotiating this goal to keep in mind?

  1. We need a huge amount of money to support climate action. But current finance is nowhere near this. Climate finance is vital to keeping warming to manageable levels, as many developing countries’ commitments to reduce their emissions are “contingent” on receiving financial support. So, we have to dig deep and reprioritize investments.
  2. We need a goal that matches the scale of the need and is fit for the sustainable future that is coming – the question is how fast. We need a goal that recognizes the need to shift our entire financial system to face the challenge of climate change. The goal must signal that current economic systems and industries can no longer operate as though it is business as usual.
  3. The new goal should provide a real opportunity to make reporting on climate finance that wealthy countries provide more transparent. Monitoring and evaluation with trustworthy data means we can really see where the money is going.

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