WHERE WILL THE U.N GET ITS CLIMATE MONEY NOW?

Contributed by Robert Lyman @ June 4, 2017

Robert Lyman is an Ottawa energy policy consultant, former public servant and former diplomat.

Under the United Nations Framework Convention on Climate Change, the Annex II Parties* (like Canada) are committed to give significant amounts of money to developing countries to help pay for actions that those countries will take for global warming mitigation (i.e. reducing greenhouse gas emissions) or adaptation (dealing with the alleged effects of warming). In fact, the recent decision of the Trump Administration in the United States to withdraw from the COP21 agreement may have been partly motivated by the U.S. desire to avoid the financial costs. This note will attempt to summarize the present and proposed financial commitments for developed countries associated with the current climate agreements and to comment on the effects of the U.S. withdrawal.

* The Annex II countries include Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, South Korea, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, United States of America, and the European Union.

The Framework Commitments

Under the Framework Convention on Climate Change and its protocols, countries with more financial resources (identified as the Annex II countries) must provide financial resources to assist developing country Parties in implementing the Convention. The Convention established the “Financial Mechanism” to provide such funds. The operation of this mechanism is partly entrusted to the Global Environment Facility (GEF). At COP17 in 2010, the Parties decided to designate the Green Climate Fund (GCF) as an operating entity of the Financial Mechanism. The Green Climate Fund was to be scaled up to U.S. $100 billion per year by 2020. In addition, the Parties established three special funds that receive very little public attention: the Special Climate Change Fund, the Least Developed Countries Fund, and the Adaptation Fund. The U.N.’s work program has focused recently on scaling up climate finance in the 2014 to 2020 period. Each developed country must submit biennial reports on its strategies for doing this.

In the COP21 agreement of 2015, the Parties agreed that they would “provide new and additional financial resources to meet the agreed full costs incurred by developing country Parties in advancing the implementation of existing commitments.” Further, developed countries should “continue to take the lead in mobilizing climate finance through a wide variety of sources, instruments and channels… taking into account the needs and priorities of developing country Parties”. It was also decided that developed countries would continue their collective funding goal through 2025 and that prior to 2025 the Parties will set a new collective goal above the current U.S. $100 billion a year.

The Governing Instrument for the GCF states “all developing country Parties to the Convention are eligible to receive resources from the fund”. This wording means that not only the poorest countries but also the middle-income countries would be eligible to receive funding. The result would be considered quite anomalous in almost any other setting. Countries with some of the highest Gross Domestic Products (GDP) in the world like China ($11.8 trillion in 2017, according to the IMF), India ($2.5 trillion), Brazil ($2.1 trillion), Korea ($1.5 trillion) and Indonesia ($1.0 trillion) not only do not contribute to the GCF but also qualify as recipients. The countries with some of the highest per capita incomes in the world, such as Singapore ($85,382), Kuwait ($74,600), the United Arab Emirates ($70,000), and Saudi Arabia ($53,900) do not contribute. Greece, a country wallowing in debt, is required to pay. The United States objected to this arrangement, but with it out of the COP21 agreement and unlikely to contribute more to the fund, one wonders how much influence it would have over the future sourcing or disposition of the funds.

COP21 does not contain explicit targets for global emissions reductions, for individual country emissions reductions, for developed country individual financial contributions or for developing country individual allocations of available climate funds. All of these matters are to be determined through the Intended Nationally Determined Contributions (INDC) that countries must file every five years, followed no doubt by intense bargaining at future conferences.

Experience to Date

Most public and media attention has focused on the Green Climate Fund, perhaps because of the size of the financial commitments associated with it. Generally, developed countries have proven less than enthusiastic in increasing their contributions to this fund; total contributions took a few years to reach $10 billion (in total, not per year) and as of early 2017 are still in the range of $60 billion, far short of what was expected.

This has not proven to be a problem, however, as the GCF itself took more than five years to organize and fund its first projects. As of April 2016, it had approved just $168 million for eight projects. This is partly because of a shortage of suitable projects and partly because of the awkward decision-making structure of the Fund’s Board of Directors. Policies and projects must be approved by a 24-member board drawn from developed and developing countries that also must strive for gender balance. Decisions must be made by consensus. In principle, all GCF funding was supposed to be “new money”, incremental to traditional Official Development Assistance programs.  Developing countries have sometimes complained that, instead, developed countries are simply transferring to the GCF funds previously intended to support economic development.

Meanwhile, the developing countries have steadily increased their demands for higher GCF commitments by the Annex II countries. As part of the developing country submissions to COP21 (i.e. the INDC’s), several countries listed their projected funding needs. These were analyzed by the organization Carbon Brief. The costs – or “investments” as the developing countries call them – of meeting these plans to 2030 added up to U.S. $3.5 trillion. Of this total, U.S. $2.5 trillion would be spent in India alone. Only U.S. $420 billion, however, was expected to come from international sources of finance. This total, no doubt, will grow in future.

The COP21 agreement explicitly provides that the developing countries’ implementation of it will depend on the support provided by developed countries. If developed countries fail to meet the financial “needs” defined by the developing countries, the developing countries in turn may walk away from the agreement.

The Newest Demands

During a 2013 conference of U.N. Climate representatives in Poland, the Parties agreed to establish yet another international funding institution, the Warsaw Mechanism for Loss and Damage (WIM), to pay for the loss and damage that developing countries experience as a result of climate change. The “loss and damage” category remains somewhat vague, and overlaps with adaptation, humanitarian disaster recovery, disaster risk reduction, migration programs and so on. A skeptic might be tempted to suggest that this will cover whatever developing countries can claim to be related to bad weather events.

At the recent Bonn Climate Conference in May, 2017 the Parties accepted a discussion paper examining the funding requirements for loss and damage going forward. The paper concluded that new funding from developed countries is required, starting with at least U.S. $50 billion per year by 2020 and rising to U.S. $200 billion to U.S. $300 billion per year by 2030. The paper acknowledged “it is very unlikely that developed countries will step up and fulfill their obligations under the UNFCCC as elaborated under long-term financing goals, let alone all of the loss and damaging (sic) needs additional to such goals”. The paper then recommended that new sets of financing are required. “Innovative financing (in the form of a carbon levy, aviation levies, financial transaction taxes, etc.) if implemented well, can fairly and predictably fill much of the loss and damage finance gap.”  One can only imagine how thrilled consumers would be by such charges.

Either the GCF or the Global Environment Facility would administer the loss and damage payments. Surprisingly (or not), there was almost no coverage of this proposal in the international media. It will be considered at the next COP.

Where Do We Go from Here?

Although there is no agreed-upon allocation among contributing countries of the funds that would go into the GCF (and, potentially, the WIM), a reasonable assumption is that country shares would be calculated on the basis of GDP. Using the IMF’s figures for estimated GDP in 2017, the combined GDP of the contributing countries is roughly $44 trillion. Of this, the United States constitutes $19.4 trillion (44%) and Canada constitutes $1.6 trillion, or 3.6%. If this logic were followed, the U.S. share of the $100 billion per year expected, pre-exit, would notionally have been about $44 billion and Canada’s would have been about $3.6 billion. That would roughly double Canada’s current foreign aid budget.

The United States under the Obama Administration had committed to contribute U.S. $3 billion to the GCF, and Obama managed to have U.S. $500 million sent (without Congressional approval) just before he left office. One of Prime Minister Justin Trudeau’s first acts after being elected in October 2015 was to commit CDN $2.65 billion to the GCF. Both figures are far short of what the U.N. is expecting and the developing countries are demanding. With the United States out of the COP21 agreement, the remaining countries, in theory, would have to almost double their contributions to make up the difference.

When one contemplates the magnitude of the funds involved, the gap between how much has been committed and how much has been paid, the unequal sharing of benefits and burdens, and the institutional weaknesses of the Green Climate Fund that is supposed to deliver the assistance, the entire story line surrounding the transfer of funds from developed to developing countries in this way is ludicrous.

Western countries must inevitably default on their bogus commitments, leaving the developing countries with all the justification they need to disavow their own commitments to reduce emissions when the time comes. China, which a gullible western media praises for its political commitment to COP21, has craftily widened the north-south rift to its political advantage, and even left itself eligible for contributions from others.

I can think of no better conclusion than one that recently appeared in the online news service The American Interest.

“Climate diplomacy has become the leading forum in our time for hypocritical posturing and the politics of pretense.”