Not possible to increase ambition of climate action without more funds

India has turned the spotlight on the question of finance ahead of the United Nations Secretary General’s Climate Action Summit. In a discussion paper, ‘Climate Summit for Enhanced Action: A Financial Perspective from India’, the Department of Economic Affairs, Ministry of Finance, addresses the question of ambition for greater climate action from the perspective of resources required for making good on ambition. “Global climate action rests on the shoulders of the means of implementation, especially on finance and technology and there is a need to solve this problem urgently.”
The paper points out that the estimated costs for implementing the nationally determined climate actions, referred to as nationally determined contributions (NDCs) in the UN parlance, is over $4 trillion. However, the finances available to realise the NDCs submitted in 2015, which even when fully achieved put the world on 3 Celsius pathway, are a fraction of what is required. The 2018 biennial assessment of the UNFCCC’s Standing Committee on Finance reported that the high-bound estimate of global climate finance (public and private finance flows) was $681 billion in 2016.

The finance gap, the discussion paper argues, still remains the critical issue. In this context, the paper makes the argument that India may not be in position at present to increase its climate action ambition. Since India is relying on domestic budgetary resources to undertake its mitigation and adaptation actions, the paper’s authors are of the view that “India will be better placed to consider a mid-term assessment of its actions and suitably recalibrate through re-examination and improvement when the global stocktake takes place in 2023”. For now, India “may only be in a position to elaborate or clarify its post 2020 climate actions already pledged in its NDC”. In doing so, the paper appears to suggest that India’s NDC is no longer a conditional one.

Introducing the discussion paper Secretary, Department of Economic Affairs makes it clear that India is neither disputing the need for exponentially higher levels of actions to counter climate change nor its commitment to do its share. At the same time, the challenge of climate change has to be addressed collectively, and that “the worldwide call for stepping up climate actions will have to be matched with adequate provision of climate finance to developing countries”.

The Ministry of Finance discussion paper focuses on climate-specific public fund flows from developed to developing countries as reported by countries in their biennial reports. This includes climate specific funds through bilateral, regional, and other channels and through UNFCCC funds and multilateral climate funds. It is not an assessment of total financial flows and does not include climate finance from multilateral development banks and private financial flows.

Drawing on the Report of the Standing Committee on Finance on the 2018 Biennial Assessment, the discussion paper highlights that total climate specific finance from developed to developing countries was to the tune of $38 billion in 2016. This, the paper’s authors note, is “less than 40 per cent of the $100 billion target of climate finance. However, this figure of $38 billion represents a 14 per cent increase over the climate-specific funds in 2015, which was assessed to be at $33 billion.

Referring to multiple assessments, the paper’s authors seek to draw attention to the urgent need to bridge the finance gap. “The international community will need to worry about the gross finance gap which exists for successful implementation of NDCs. Without sufficient finance, none of the other components of ambition which we hear in the discourse of climate change will fructify.”

“The Indian government’s discussion paper is spot-on with their conclusion that climate finance is not delivered on the scale required. Especially support for adaptation is totally inadequate, and there is still a big gap to meet the $100bn promise by developed countries,” says Jan Kowalzig, senior policy advisor, Oxfam.

Going beyond the scale, the discussion paper focuses on the contentious issue of accounting of climate finance. The UN climate convention and the Paris Agreement make it clear that developed countries need to provide climate finance to developing countries, however, what has remained unclear is what constitutes climate finance. “What constitutes these financial resources for climate finance, its key elements, are only very broadly defined, which provides discretion to developed countries regarding climate finance accounting. Each developed country could decide what it counts as climate finance and why it is climate finance and whether it can be considered as new and additional,” the paper points out.

Reiterating India’s position, the paper states that “public grants, unrequited equity and grant equivalent values of loans and actual disbursements of such finance crossing borders in a particular year” should count towards climate finance.

On India’s finance requirement, the paper re-states requirements elaborated in its NDC-- India would require $2.5 trillion to implement its climate change actions between 2015 and 2030. It refers to the 2017 report on South Asia by the International Finance Corporation which estimated climate investment opportunity of the order of $3.4 trillion in South Asia between 2018 and 2030, with India alone presenting investment opportunity of $3.1 trillion. The finance ministry discussion paper lists out the policy signals investment opportunities. In doing so, the paper obliquely touches upon an important aspect of the climate financial flow conundrum—how to ensure that financial flows private and public flow to the opportunities, and how to ensure it is directed to areas where the need for climate finance is the greatest.

Sources told ET that while India recognises that private funds are will comprise the bulk of the climate financial flows. However, public funds are key to improving financial flows. “The reality is that the implementation of NDCs of developing countries will apparently hit a roadblock in the face of an uncertain future in the provisioning of climate finance. Under these circumstances, effectively addressing three “S” s of climate finance- Scope, Scale and Speed is necessary for having a realistic hope of achieving the objectives of the Convention, including the temperature goal of the Paris Agreement.”

The UN SG’s Climate Action Summit has a dedicated session on finance. There is an expectation that several countries will announce their financial contributions in response to the call by UN Secretary General Antonio Guterres for greater ambition. “We'll see at the summit in New York which countries will double their earlier pledges to the Green Climate Fund and which ones will drag their feet,” said Kowalzig.

Ahead of the summit Sweden announced doubling its contribution to Green Climate Fund—pledging 8 billion SEK (approximately $852 million). For the initial capitalisation of the fund in 2014, Sweden’s contribution was at 4 billion SEK (approximately $550 million). Besides the contribution to the GCF, Sweden has pledged 520 million SEK (approximately $55 million) each to the Adaptation Fund and the Least Developed Country Fund.