This article is written by Clément Bultheel.
When COP 21 takes place in Paris next year, it will need to send a signal to business, investors, governments and the public that the transition to a low carbon, resilient world is inevitable. A key part of the agreement will include climate finance.
An unprecedented financial dynamics on climate finance
The year 2014 was probably the ringing bell on climate finance, on how this issue was now one of the urgencies of the moment in the fight against climate change, if not the most urgent. Developed countries provided more than US$10 billion for the Green Climate Fund. In the private sector, climate bonds are increasing tremendously. In total, about US$331 billion a year has been flowing to and within countries to support projects that can lower greenhouse gas emissions and increase resilience to the effects of climate change.
But current investments are insufficient to meet the 2°C target
But while US$331 billion in climate finance is flowing globally, it is less than half the volume required to equal the climate challenge, particularly for developing countries whose fast-growing cities are making energy and infrastructure decisions today that will set their development course for the future. To have an 80% chance of maintaining this 2°C limit, the IEA estimates an additional US$36 trillion in clean energy investment is needed through 2050 (or an average of $1 trillion more per year compared to a “business as usual” scenario over the next 36 years). That level of money is available for investment (the bond market alone is worth US$80 trillion) and innovative public and private sector leaders are finding ways to help investors overcome perceived risks and connect with projects.
Public and/or private finance for the Green Climate Fund?
That is so the question. The dynamics on climate financial flows clearly has to be continued and continuous, but a part of these flows has to be institutionalized, in order to provide the financial needs on the political area, especially support for the least developed countries, and to send positive signals on the whole.
Developed countries engaged to provide US$100 billion by 2020, but the issue remains completely blurred. Will the US$100 billion amount include private finance? And if it is, how? Does a both public & private company, like EDF in France, will be able to account its climate bonds as part of the national contribution to climate finance? All sorts of questions on which we don’t have answer yet.
Scale a public finance roadmap is crucial
Public finance is the key lever in climate finance. The public’s sector role is before everything else to leverage private investment in a low-carbon future. We need to encourage both public and private finance, but their purposes are totally different. Public finance’s purposes are firstly, to enhance the financial flows on this issue, to send positive signals to the investors, and secondly to support developing countries in order to reach equitable criteria on the contributions to the future regime, which will contribute to increase the developing countries’ contributions too.
In this regard, if financial provisions for the Green Climate Fund are not mixing together public and private finance, the flows will be much more transparent, much more in adequacy of what signals we want to send to all stakeholders, as for private investors to show them the dynamics around low-carbon technologies, as well as for the countries negotiators to improve the quality of consensus among Parties on various topics.
Finance will be a key issue in Paris. Sending positive signals on climate finance is a constant work, and, after the 2014 efforts, should continue into a clear roadmap on climate finance: Parties should agree on a detailed and time bound process for defining the pathway to US$100 billion by 2020 and anchoring this within the Paris agreement, and including as much as possible public finance. Just for the consistence of the Paris agreement, a road map to scale up climate finance to $US100 billion by 2020 (hear before) is deemed critical to build trust for the post-2020 period.
About the author: Clément Bultheel is studying international relations at ILERI in Paris. At the COP19 in Warsaw, he integrated the French climate delegation as a Young Delegate. He recently became CliMates’ Global CliMate Politics program, after joining the CliMates’ negotiation tracking team.