Developed countries are using vague wording of the Paris Agreement Article on finance flows to dilute their climate finance obligations and push steeper emission reductions on their developing counterparts, say experts
Finance was once again under the magnifying glass at COP27 held late last year. The focus, however, is beginning to shift to questions of who pays to sustain climate action in the long run. What would the mechanisms set up to ensure the flow of climate finance look like? How well would the new mechanisms and modalities reflect existing principles that form the foundation of collaborative climate action under the UN? Under pressure are principles that seek to define the responsibilities of parties toward resolving the climate crisis and protect developing countries’ right to develop.
The climate conference saw a new battlefront open up between developed and developing countries around Article 2.1(c) of the Paris Agreement. Developed countries used the Article to push for a renegotiation of the basic principles of equity and common but differentiated responsibilities (CBDR). They also used it to dilute their climate finance obligations and push unjust steeper emission reductions on developing countries.
This attempt by developed countries continues in 2023 as well in Vienna, where country delegates met between March 8-10 to discuss a new climate finance goal. The March meeting on the new goal—also known as the New Collective Quantified Goal (NCQG)—kickstarted this year’s climate negotiations post COP27. Developed countries like the US and the EU kept on with their ‘skewed’ push to talk about Article 2.1(c) with reference to the new goal, which, per developing countries, will essentially dilute developed countries’ obligation towards climate finance, as we further explain.
The new goal, which needs to be finalised by 2024, will replace the existing and still unfulfilled promise of developed countries providing ‘$100 billion every year by 2020’ to developing countries. This was a quantitative goal that was pulled out of thin air during 2009 climate negotiations. Unlike the previous goal, NCQG will be informed by the needs and priorities of developing countries.
The issue is that developed countries are placing the item of Article 2.1(c) in every agenda item related to finance, even though COP27 established a dedicated work programme for this, a delegate present at the Vienna meeting told CarbonCopy. They are doing this by using an interpretation of the NCQG language, which mentions Article 2.1(c) in the context of finance flow’s balance for mitigation and adaptation. Their points were noted in the discussion and will come up in the next meeting in Bonn, in June this year, as long as it is not a duplication of the parallel Article 2.1(c) negotiations, the delegate said.
The bone of contention
Article 2.1(c) of the agreement reads, “Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development”. Because of the vague wording that the Article uses, discussion on its operationalisation has become a contentious issue between developing and developed countries.
In the absence of a proper interpretation of what ‘finance flows’, ‘consistency’ and ‘pathway’ means in the text, developed countries, for the past few years, have been using their skewed interpretations in various parallel climate finance discussions, including at the GCF, to arbitrarily push ‘net-zero’ pathways on developing countries.
Further, experts and negotiators warn that developed countries are trying to use Article 2.1(c) to dilute and renegotiate their financial obligations as delineated in the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement. Instead, the burden of financing climate action is being shifted to private sources, along with pushing steeper mitigation targets on poorer nations, as CarbonCopy reports below.
Ultimately, in the final decision text of COP27, a launch of a “Sharm el-Sheikh dialogue” on the matter found space. The dialogue will report back at COP28 after a year of deliberations on the issue.
Article 2.1(c) and the New Collective Quantified Goal
Observers and party delegates privy to negotiations reveal that developed countries are weaponising Article 2.1(c) to broaden the donor country base beyond developed countries in climate finance discussions, including in the negotiation of the New Collective Quantified Goal (NCQG).
In the final decisions at COP26 in 2021, it was agreed that prior to 2025, the Conference of Parties serving as the meeting of the Parties to the Paris Agreement shall set an NCQG to replace the $100 billion per year goal, considering the needs and priorities of the developing countries.
In other words, these parties will come up with a new number for climate finance that has not been pulled out of thin air like the $100 billion and takes into account the actual needs of developing countries. The number is in trillions as per the UN’s own needs assessment. Developed countries that are obligated to provide this finance want to renege on this understanding of NCQG, using a skewed interpretation of Article 2.1(c).
While developing countries emphasise that Article 2.1(c) corresponds to the rich countries’ climate finance obligations towards developing nations, developed nations like the EU are pushing a different interpretation that stresses that NCQG is not developed countries’ responsibility alone.
According to interpretations submitted by developed nations, Article 2.1(c) refers to an overarching goal and everyone’s commitment and thus the NCQG must be viewed as “a collective goal” and “a global effort”, explained Andres Mogro of Ecuador and the spokesperson for G77 & China on finance. The language developed countries use with respect to NCQG “parties and other sources of financing” should do this without differentiation between developed and developing countries, he added.
Developed countries are pushing for an understanding that all finance flows that result from actions derived from Article 2.1(c) are contributions towards the NCQG, which makes no sense, Mogro said, adding that NCQG relates only to flows provided or mobilised from developed to developing countries. Article 2.1(c), on the other hand, will need to register a wider array of flows, like that which happens within countries, both developed and developing.
The attempt is to try and break the sub-clause away as a strategy to not see Article 2.1(c) with reference to Article 9 of the Paris agreement that talks about developed countries’ climate finance obligations towards developing countries.Anjal Prakash, research director, Bharti Institute of Public Policy, Indian School of Business
This strategy on Article 2.1(c) is apparent through the pick and choose attitude displayed by developed parties, experts said. “You cannot use a sub-clause of an article as a stand-alone agenda, if France (EU) was serious about the issue it should have proposed a discussion on the entire Article 2.1.” Anjal Prakash, research director, Bharti Institute of Public Policy, Indian School of Business, told CarbonCopy.
The attempt is to try and break the sub-clause away as a strategy to not see Article 2.1(c) with reference to Article 9 of the Paris agreement that talks about developed countries’ climate finance obligations towards developing countries, Prakash said.
History of Article 2.1(c)
The different stances on Article 2.1(c) between developed and developing parties, however, go way beyond NCQG.
Ever since the signing of the UNFCCC in 1992, there have been two basic pillars defined: action and support. Different articles, for example, Article 4.1 of the UNFCCC lists out all the actions parties need to undertake with regard to climate change, including mitigation and adaptation— the first pillar.
The second pillar is support, which refers to the resources that need to be made available for the implementation of the actions in the first pillar. Articles 4.3, 4.4, 4.5 and 4.7 of the UNFCCC talk about the obligations to make these resources available. These articles clearly state that developed countries shall provide new and additional financial resources to meet the agreed full costs incurred by developing countries in implementing the measures covered by Article 4.1.
These articles of the UNFCCC, which correspond to the second pillar of support, also specifically state that the extent to which developing countries will take on climate actions depends on the extent to which developed countries fulfil their commitments to providing resources.
These articles of UNFCCC and their connection is relevant because the Paris Agreement, too, has set out objectives in these same two pillars: action, and support, Mogro stated.
Articles 2.1(a) of the Paris Agreement, undergoing discussions for their operationalization, relates to the first pillar of actions: 2.1(a), related to holding the increase in the global average temperature to well below 2oC above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5oC above pre-industrial levels is directly related to a global agenda around the mitigation of climate change. Additional guidance to operationalise 2.1(a) is provided through Article 4 of the agreement which talks about mitigation and the mitigation component of Nationally Determined Contributions (NDCs).
“The fact that there is a global goal that can be measured against global action and a gap can be made evident is useful for the sake of transparency in global mitigation,” said Mogro.
Article 2.1(b) of the Agreement, on the other hand, talks of the second pillar which is support. It sets a ‘global goal on adaptation’ to which further guidance is provided by Article 7.
These two articles on adaptation, however, do not “have a measurable global goal against which global action on adaptation can be assess543ed and therefore no gap can be made evident,” Mogro said. This is a debt from the Paris Agreement to developing countries because, with no gap, there is no global urgency to support adaptation action. Negotiations on these issues are undergoing, he added.
Finally comes Article 2.1(c) which deals with making finance flows consistent with low-emission pathways and climate-resilient development.
There is an open debate between developing and developed countries, under the SCF, to define which ‘financial flows’ is this article talking about or what ‘consistent’ means here.
“This Article is purposefully vague,” Mogro said. Unlike other paragraphs under the Article, 2.1(c) is not directly related to any other part of the Paris Agreement, which provides guidance on what exactly this goal implies, he added.
It is clear that neither Article 2.1(a) nor Article 2.1(b) could have been implemented without the further guidance that has been developed since 2015 and continues to be developed. This is the same case for Article 2.1c, he explains.
As per developing countries’ stance, clarity on the implications and intent of Article 2.1(c) can be clarified if it is looked at in relation to Article 9 of the Paris Agreement. By financial goals, Article 9.1 of the agreement would clarify that these are related to the ‘financial resources that developed country parties shall provide to assist developing countries with respect to both mitigation and adaptation’, Mogro said.
And with regards to the ‘consistency with a pathway’ specified in 2.1(c), applying Article 9.3 would make it clear that these resources need to take into account the needs and priorities of developing countries. Article 9.4 specifies that flows should have a balance between mitigation and adaptation, while Article 9.7 states that this provision should be transparent, information should be consistent and differentiate between resources provided and those mobilised, Mogro added.
Developed countries have a different view on the matter. As per Switzerland’s submission on the matter on behalf of The Environmental Integrity (EIG) negotiation bloc, which includes Georgia, Liechtenstein, Mexico, Monaco, and the Republic of Korea, and France’s submission on behalf of the EU, it is clear that they do not agree to look at Article 2.1(c) with relation to their climate finance obligations in Article 9 of the agreement. The submissions that were made to the SCF take an ‘all finance flow’ approach and not only the ones that are going to developing countries from the developed countries.
Article 2.1(c) is “a global goal” and will require “a global effort”, the EU said in its submission. Further, diluting the distinction between the developed and developing countries with ‘all should do’, the EU submission reads, “Achieving 2.1(c) will help countries to achieve their nationally determined contributions and other sustainable development goals.”
“The developed country Parties’ climate finance responsibilities under the Paris Agreement are one important component of this transformation. Therefore, Article 9 and Article 2.1(c) of the Paris Agreement are neither interchangeable nor mutually exclusive,” the EU submission said.
“The international climate finance [including the 100 $ billion goal] was certainly until the Paris Agreement the key policy reference point for climate finance. But it now constitutes only a small part of the “all finance flows” that Article 2.1(c) of the Paris Agreement asks to make consistent with a pathway towards low greenhouse gas emissions and climate-resilient development,” the EU statement said.
The EU submission also implies the future of climate finance goes beyond the obligation of the developed nations and makes the case for private sources. Similarly, Switzerland’s submission also takes the ‘all should do’ approach.
Where India stands
India, in its submission made on the matter, reiterated the developing countries’ position that Article 2.1 (c) is clearly linked to the achievement of the goals (a) and (b) of Article 2.1. It is important to note that all three goals set by Article 2.1 are to be pursued in the context of the enhanced implementation of the Convention and have to be undertaken in a manner that supports sustainable development and poverty eradication.
India further added that the discussion on Article 2.1(c) cannot exclude the context provided in Article 2.2, which lays down that the implementation of the Paris Agreement has to reflect the principles of equity and common but differentiated responsibilities and respective capabilities, in the light of different national circumstances. “Thus any discussion of the implementation of Article 2.1 (c) is incomplete and inappropriate without duly considering the other elements in Article 2,” the Indian submission stated.
The goals set in Article 2.1 itself derive legal force from both the articles of the Convention and the articles of the Paris Agreement, India said adding, “Since Article 2 is only aiming to enhance the implementation of the Convention, it is evident that the commitments under the Convention have to hold and are not being reneged or set aside in any manner.”
Also, the other provisions of the Paris Agreement such as Article 9 that relate to the flow of financial resources would affect the implementation of Article 2.1 and more specifically Article 2.1, which is specific to financial flows, India said, stating the relation of Article 2.1(c) with Article 9. There needs to be clarity as to how 2.1(c) relates to Article 9 for instance, what it means for the NCQG, and what definitions, concepts, scale, and finally guidelines are developed and agreed to make 2.1(c) operational, Mogro added.
A work plan and formal identification of issues to be agreed upon should be the first step before any discussion on Article 2.1(c) and how it can be made operational, Mogro said. He added that 2.1(c) can be interpreted too vaguely and can result in greenwashing of flows, desensitisation of the needs of developing countries, double counting of flows, misinterpretation of international climate finance flows, send negative messages around the consistency of the Paris Agreement, and finally, an impression that much more money is being mobilised toward climate action in developing countries than what is actually factual, which in turn will translate into less support being channelled.
COP27 established a separate channel to discuss Article 2.1(c)
In November last year, demands from the European Union and the Environmental Integrity Group (EIG) to discuss Article 2.1(c) as a separate agenda item at the COP27 were not accepted following opposition from developing countries in the G77 and China negotiating bloc. But this did not stop both negotiating blocs from pushing to establish a work programme on the implementation of Article 2.1(c). This is above and beyond a similar workstream that is currently underway at the UN’s Standing Committee on Finance (SCF).
Speaking against this attempt, South Africa, representing the Africa Group, said the narrative being built around Article 2.1(c) by developed countries is “restrictive” and is being used to block access to funds. Africa Group’s objection was echoed by Pakistan. Both interventions singled out the Green Climate Fund (GCF) for “limiting the availability of funds”.
What developing countries feel about the ‘all finance flows’ approach
“By the term financial flows, some are understanding it as all financial flows. ALL FINANCIAL FLOWS! This is even hard to imagine,” said Mogro. “One would think that all financial flows include: climate finance, non-climate finance, international and national flows, private flows, subnational finance, micro credits, investments, external debt, official development assistance, COVID and other disaster aid, etc,” he said.
If one were to interpret that all financial flows are to be made consistent with low-carbon pathways, the objective would be impossible to accomplish or even pursue, Mogro said. Explaining the challenges in this approach he added, “This would not be because of lack of interest, or lack of pertinence, but it would be for the same reason that Article 2.1(a) has an accompanying Article 4, and NDCs have accompanying modalities, procedures and guidelines decision, formats, methodologies and indicators to report, periodicity, and finance to that end.”
“No guidance to an objective that can be interpreted in any way, no agreed definitions make it impossible to comply with,” he said.
On the matter of what ‘finance flows’ mean, India proposed dividing it into two categories: First, finance flows within and between developed countries; second, finance flows from developed to developing countries. Flows within and between developing countries may also be included in the second category.
Explaining the first category further, the Indian submission said that climate science is clear on the need to halt investment in fossil fuels as an integral part of climate change mitigation. “Since both the Convention and the Paris Agreement call on developed countries to take the lead in mitigation and emissions reduction, on the basis of equity, climate justice and CBDR&RC, halting investment in new fossil fuel infrastructure in the developed countries is the sine qua non of climate mitigation by developed countries.” The submission further said that the halting of investment in all fossil fuels must also include investment in oil and gas, and both public and private investment in oil and gas must be halted as private sources form a large share in developed nations.
India’s submission made reference to a fair share of the carbon budget and said that operationalisation of Article 2.1(c) by developed countries requires that it commence immediately, and cannot be indicated through setting target dates for halting investment by 2030 or thereafter. India also noted that in the wake of recent changes in the current global geopolitical situation, several developed countries have stepped up investment in all fossil fuel infrastructure which is “clearly not in keeping with the letter and spirit of Article 2.1(c).”
India emphasised that the peaking of developing countries’ emissions will happen later than the global peaking which must occur “as soon as possible”. India’s submission asserts that emissions reductions by developed countries must be adequate and ambitious enough to allow developing countries emissions to grow. On the finance flows to fossil fuel infrastructure, India said that Article 2.1(c) does not impose any conditionalities on developing countries for finance of and investment in fossil fuel infrastructure except in view of achieving their Nationally Determined Contributions.
The country also submitted that the reference to global net zero in Article 4.1 is also a global goal and does not refer to individual Parties. This indicates clearly that developed countries must reach net zero well before mid-century, ensuring that their cumulative emissions remain within their fair share of the global carbon budget of the temperature goals of the Paris Agreement.
The relation between net-zero and Article 2.1(c)
The developed countries’ interpretation of Article 2.1(c) has also in the past proved a hindrance for developing countries to access climate finance.
In October 2021, during a GCF board meeting, Sweden, as part of the EU, proposed that in order for Africa’s Development Bank of Southern Africa (DBSA) to be re-accredited to access finance from GCF it will have to announce a 2050 net-zero pledge and an intermediate 2030 target, within one year of the accreditation being approved.
This became an example of how developed countries were forcing their developing counterparts to dispose of fossil-fuel assets unilaterally using Article 2.1(c), an African negotiator told CarbonCopy.
Developing countries had vociferously pushed back against this demand at the GCF board meeting. Wael Aboul-Magd, Egyptian Ambassador and Special Representative of the COP27 President had told the board that the mid-century net zero goal was “a global aspiration, not a prescription to every country, and particularly not for developing countries”.
Saudi Arabia’s representative at the GCF board, Ayman Shasly, had called the condition “blackmail,” adding that the GCF was being “manipulated by [developed countries] pushing their own agenda onto the fund”.
DBSA, however, was later forced to announce a net-zero plan at COP26 in Glasgow and subsequently at the next GCF board meeting its re-accreditation was approved.
“I worry that we are applying a precedent,” Aboulmagd had said post the re-accreditation referring to the fact that it is not official GCF policy to make accreditation conditional on a net zero. “I hear the talk about net zero. That’s good. Let’s put it in the policies. But until then, we cannot create new conditions and impose them on entities on grounds that are not in the policies.