Development banks boost climate finance pledges ahead of key UN meet

15 October 2015

A host of the world’s top development banks announced substantial increases in financing for developing countries to reduce climate-warming emissions and adapt to the consequences of climate change, as top finance and development officials met from 9-11 October in Lima, Peru.                                                             

The World Bank Group has pledged to boost its climate finance offering from 21 percent up to 28 percent by 2020, with the support of its 188 member countries. This translates into a projected increase of direct funding from US$10.3 billion to US$16 billion by the end of the decade, according to the Bank’s press release.

The Bank also promised to continue current levels of leveraging co-financing for climate projects with governments and the private sector. This would provide an additional US$13 billion, bringing the total cumulative amount of climate-focused funding available from its multilateral coffers to US$29 billion a year by 2020.

“We are committed to scaling up our support for developing countries to battle climate change,” said the Bank’s President Jim Yong Kim.

“As we move closer to Paris, countries have identified trillions of dollars of climate-related needs. The Bank, with the support of our members, will respond ambitiously to this great challenge,” Kim continued, referring to a landmark UN climate meeting scheduled for the end of this year in the French capital.

In addition, the meet saw a doubling of finance commitments by other multilateral development banks (MDBs) and regional counterparts by 2020. For example, the African Development Bank indicated it would distribute US$5 billion of low-carbon funds, and the European Bank for Reconstruction and Development (EBRD) said it would increase climate funding from 25 percent to 40 percent.

The European Investment Bank (EIB) also pledged to increase the proportion of its lending support for climate-related investments in developing countries from 25 to 35 percent. The news was delivered at the start of the Annual Meetings of the World Bank Group and International Monetary Fund (IMF), where the reduced growth forecasts and generally gloomy economic outlook otherwise dominated the three-day meetings.  

Critical finance goal

These pledges were welcomed by many in the international community eagerly awaiting climate finance mobilisation commitments ahead of the Paris meeting where countries aim to ink the world’s first-ever universal emissions-cutting deal under the UN Framework Convention on Climate Change (UNFCCC) that will go into effect from 2020.

As negotiators continue to hammer out the details of the agreement, financing for its implementation, specifically for developing countries, remains a critical and contentious issue among parties. (See BioRes, 7 October 2015)

According to many experts, a successful deal in Paris hinges on a transparent and comprehensive proposal by developed countries to deliver on a 2009 promise to provide US$100 billion annually in climate finance starting from the end of the decade.

Laurent Fabius, France’s Foreign Minister and leader of the Paris talks, reacted positively to the announcements from the development banks. "This bodes well for meeting the goal of US$100 billion," he said during a press briefing.

A number of climate action pledges were submitted to the UN at the beginning of October, and a majority of plans put forth by developing countries make specific reference to the use of these international resources. (See BioRes, 15 October 2015)

Elusive numbers

Identifying the precise figures for climate finance flows has proven tricky, given that this depends partly on whether these are concessional grants or loans, how to factor in funds provided by MDBs, and the question of “new and additional” funding on top of existing official development assistance (ODA).

The Organisation for Economic Co-operation and Development (OECD), in partnership with the Climate Policy Initiative, released a report on 9 October designed to benchmark progress towards the US$100 billion goal. The OECD report was commissioned by the Peruvian and French governments, the current and incoming presidencies of the UNFCCC climate talks.

It estimates public and private climate finance from developed to developing countries was US$62 billion in 2014, up from US$52 billion in 2013, thus averaging US$57 billion annually from 2013-2014. Out of the US$57 billion, some 77 percent was allocated towards climate mitigation, 16 percent towards adaptation, and seven percent targeted both.

Public finance, both bilateral and multilateral, accounted for approximately 70 percent of the flows. Another 25 percent was from private finance, and export credits, mainly for renewable energy, made up the remainder.

According to further analysis, a large increase in funding from 2013 to 2014 was the result of increased efforts from multilateral development banks.

The estimates do not, however, reflect any pledges made to the Green Climate Fund (GCF), a finance institution established under the UN that is host to approximately US$10.2 billion pledged largely by developed countries. Observers hope select projects will be supported by the end of the year.    

In the report, the OECD makes it clear that while these estimates minimise double counting and capture the “best available data” it was “not possible to provide a fully complete and comprehensive picture of mobilised climate finance for climate action in developing countries.”

The report nevertheless concludes that further investigation and improvement are needed for climate finance transparency and accountability, common definitions and methodologies, and reporting approaches. The need to take into account public finance for capacity building and public policies are particularly noted.

Climate economics

Some international figures have cautioned that the Paris deal should not seek to repeat a new climate finance pledge equivalent to the US$100 billion figure for future decades. Rachel Kyte, World Bank Group vice-president and special envoy for climate change has told journalists this kind of number was not helpful when climate change now affects many aspects of a country’s development and economy.

IMF officials in Lima referred to climate change as a “macro-critical issue,” with Managing Director Christine Lagarde telling meeting participants that all countries need to integrate climate implications into their macroeconomic frameworks.

“One thing is clear: such is the nature of the challenges we face – from economic spillovers to climate change – no country can go it alone, and cooperation is key,” Lagarde added. Reports from the meeting also indicate that the IMF chief called for a scale-up of carbon taxes to help tackle planetary warming and boost government income.

Estimates suggests that global growth expectations will require some US$90 trillion worth of investments in infrastructure related to agriculture, cities, and energy, among others particularly for developing countries over the next 15 years, according to reports by the Global Commission on the Economy and Climate. The Commission has argued that these investments should be made climate-smart.

The figures and the expected consequences wrought by climate change suggests deeper structural shifts in global aid, investment, and institutions are needed, with many other experts also advocating for the use of carbon pricing and fossil fuel subsidy reform. (See BioRes, 29 September 2015)

A communiqué from the International Monetary and Financial Committee (IMFC), which is the IMF’s policy-setting body, includes a suggestion that governments consider reforming inefficient energy subsidies and taxes, “as needed,” in light of the fall in oil prices.

A separate communiqué released by the joint IMF-World Bank Development Committee, while not referring to the subsidy reform or carbon pricing issues, did highlight the risk posed by both climate change and natural disasters to “hard-earned development gains.”

A UN Environment Programme (UNEP) report was also released alongside the Lima meetings with assessments on how to make the world’s financial system fit-for-purpose to meet sustainable development needs.

While offering a compilation of initiatives from around the globe to reform financial systems in this direction, commentators on the report nevertheless signalled that much unfinished work was still needed in this area.  

ICTSD reporting;  “Action urged on climate change, growth slowdown,” WORLD BANK, 10 October 2015; “Lima finance minister meeting delivers pre-Paris climate lending boost,” BUSINESS GREEN, 12 October 2015; “Development banks boost funding to fight climate change,” NEW YORK TIMES, 9 October 2015; “Paris climate talks should not put figure on finance, says World Bank vice-president,” THE GUARDIAN, 7 October 2015; “Now is the Time for A Carbon Tax, IMF Chief Says,” CLIMATE PROGRESS, 8 October 2015. 

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