Road to COP24

27 Aug 2018

Climate Finance - Where are we? Where do we want to go? How do we get there?

The over-arching climate finance goal is to generate USD 100 billion to support climate actions in developing countries annually by 2020.

The major task before climate negotiators prior to COP 24 is to create an effective draft of the Paris Rulebook. The Rulebook would play an important role in determining the level of implementation of the Paris Agreement (PA). An effective and fair rulebook could be the driving force for enhancing transparency and ambition, and delivering on the means to accelerate climate actions. At SB48, many Parties recognized that it is essential to raise the level of ambition to be able to meet the 1.5 °C target. The inclusive process of Talanoa Dialogue, which aims at building trust and enhancing ambition of national commitments by 2020, received well over 200 inputs from Parties, non-state actors, and the civil society. Many non-state actors- including cities, businesses, and NGOs-shared their initiatives on combating climate change, indicative of growing support from the wider society for ambitious climate actions. Yet, the Talanoa Dialogue showed that much is yet to be achieved to protect those who are most vulnerable to adverse climate impacts and emphasized the need for innovative ideas, transformational solutions, and empathetic policies.

However, the laggard negotiating track continued to be the issue of finance. Climate finance is especially vital to making possible the participation of several developing countries in successful implementation of the Paris Agreement as it also influences other negotiating tracks in varying degrees. At SB48, developing countries' negotiating blocs emphasized the need for clear commitments on climate finance, transparency in its tracking, and a degree of predictability in the flows. Besides Article 9, Article 6 of the PA is a key building block for enabling the mobilization and flow of climate finance to developing countries. Article 6 focusses on a framework for countries to voluntarily cooperate using market and non-market based approaches to raising climate ambition. At the negotiations, the emphasis was on three sub-articles-Article 6.2 which is on carbon credits and mechanism for their international transfers, Article 6.4 which is on market mechanisms, and Article 6.8 which is about non-market approaches. In this article, we take stock of negotiations related to finance at SB 48 using the structure of the Talanoa Dialogue and its three central questions-Where are we? Where do we want to go? How do we get there?

Where are we?

Article 9.5 of the Paris Agreement states that developed countries should communicate how and to what degree they are contributing to climate finance for mitigation and adaptation. The recently released Oxfam Report highlighted that there is a need for shared and transparent accounting standards for climate finance under the Paris Agreement, as in the recent years there has been an increase in loans, with donors reporting this amount at full value, as their contribution.1 Similar discussions took place at the Suva Expert Dialogues on the issue of loss and damage. While developing countries pointed out the urgent need for finance, developed countries were largely silent on the subject or put forth insurance as the silver bullet for addressing loss and damage. Although loss and damage is not on the agenda for COP24 negotiations for finalizing a Rulebook, the differences in the approaches of developed and developing countries are instructive about future negotiations on finance.

To promote cooperation among the Parties, the PA calls for setting up new market-based mechanisms to implement Intended Nationally Determined Contributions (INDCs) effectively, and also to address the issues that prevailed in the market-based mechanisms of the Kyoto Protocol, especially environmental integrity of the mechanism on the aspects of 'additionality' and 'baselines'. The Subsidiary Body for Scientific and Technical Advice (SBSTA), besides other responsibilities, was tasked to develop and recommend the rules, modalities, and procedures for operationalizing new market-based mechanisms under Article 6.4. In this track, Parties differ on their views regarding the requirement of the level of supervision and the extent of fixed and stringent rules. While some prefer these to be under the close supervision of United Nations Framework Convention on Climate Change (UNFCCC), others were more in favour of open market-based approaches, with the countries having sovereign rights to decide on the particulars of the implementation. Further, developed countries wanted a single set of rules to be applicable to all, while developing countries, including India, desired differentiation in the applicability of rules to developed and developing countries on the basis of the CBDR (common but differentiated responsibilities) principle. It could be advantageous for developing countries to link the mechanisms under Article 6.4 explicitly to Article 2 under the PA which states that the agreement's implementation should 'reflect equity and the principle of common but differentiated responsibilities and respective capabilities, in the light of different national circumstances.'

Where do we want to go?

The over-arching climate finance goal is to generate USD 100 billion to support climate actions in developing countries annually by 2020. To ensure that there is clear and predictable finance available and national ambitions are indeed enhanced, an effective Rulebook is vital, In addition, strong political leadership, mutual trust, and some idealism are necessary to achieve the vital milestones planned for COP24. While there are still no firm commitments for this target, there have been a slew of climate actions from non-state actors, highlighting the increasing level of engagement of the private sector. For example, the investors led Climate Action 100+ was launched to engage the world's largest corporate greenhouse gas emitters on climate-related financial disclosure; financial and institutional investors, including AXA and ING, are announcing commitments to disinvest from coal power generation and focus more on green investments; the upcoming Global Climate Action Summit which plans to showcase the climate actions by states and regions, cities, companies, investors. and civil society, and secure further commitments. It is necessary to create pathways and conditions to enable and enhance private sector investments for climate actions.

Further, while there is a strong business case in mitigation which attracts private investment, finance for adaptation continues to lag and the amount mobilized is still a small fraction of the total requirements. Firm commitments and support for adaptation activities is urgently required. There is scope of leveraging Article 6.4 to enhance the scope of mitigation actions by linking them to adaptation or otherwise contributing towards enhancing climate adaptation actions. This could be by the inclusion of mitigation co-benefits of adaptation actions under these mechanisms or by generating finance for adaptation actions by levying a certain share of proceeds under these mechanisms. Such measures have been suggested as inputs and included in the informal note. However, there is also a fear that Articles 6.2 and 6.4 could lead to lowering of ambitions with the 'Buyer Parties' relying on these mechanisms instead of taking domestic climate actions to their full potential, or alternatively, with the 'Seller Parties' purposely setting low targets to be able to over-achieve these and thus create additional carbon assets for selling.

How do we get there?

While finance is the key to ensuring success at COP24, it was evident that the weak current situation with climate finance, its below target levels, and lack of communication from developed countries regarding their financing plans and targets, could prove to be the main hurdle for negotiators. COP24 is set to have highly technical as well as political negotiations and to enable tangible progress, it is required that negotiators come prepared to be able to make actual progress with the Rulebook by showing concrete support for one of the listed options under the articles being discussed.

SB48 concluded with three informal notes on the sub-articles of Article 6, with the onus being on the Parties to prepare a draft negotiating text from these for political negotiations at COP24. The next milestone to COP24 is the additional session planned to be held in Bangkok in September 2018. This signals the positive intention of the Parties to meet the deadline and deliver a Rulebook for further negotiations at COP24.

The additional session at Bangkok will be followed by the release of the IPCC Special Report on global warming of 1.5 °C in October 2018. This could be a key opportunity for countries to gauge the need for stronger climate actions and its enablers, thus also inform and strengthen political will for achieving concrete and robust outcomes from COP24 at Katowice.

Originally published in Volume 2 | Issue 2 | April-June 2018 of Mitigation Talks