While clear definitions would standardise tracking and assessments of finance flows, not all parties agree on even the need for this standardisation. Photo: John Englart/Flickr

COP27: No end in sight for the climate finance definition quandary

As the lack of definitional clarity looks set to continue, a clutch of developed countries look to dilute accountability for failed promises

The first round of negotiations on the Standing Committee on Finance (SCF) wrapped up in Sharm El Sheikh as COP27 rolled into its fifth day (November 10). Prominent on the agenda was the continuation of discussions on what constitutes climate finance. This is a particularly sticky subject that has for long plagued the assessment of finance flows from rich developed countries to poorer developing ones for climate action. The meeting, however, did little to resolve the lack of consensus that has plagued the matter for so long. The deadlock now assumes greater importance as countries are set to negotiate long-term climate finance goals beyond 2025.

The SCF was conceived in 2010 during COP16 in Cancun, Mexico, to facilitate the exchange of information on climate finance flows between members of the UNFCCC. This forum to settle all technical matters and modalities around how finance is reported and assessed is pivotal in establishing the rules of engagement between developing and developed countries when it comes to the delivery and access of finance. Twelve years on, however, it has failed to land on a clear and accepted demarcation of what constitutes climate finance and would count toward the fulfilment of commitments made by rich countries and historic emitters.

In the absence of such clear definitions, countries have their own varied interpretations of finance that should be included as climate finance. These interpretations were submitted and have been compiled under the Report of the SCF submitted to the UNFCCC at the end of October. As a result of divergent views on the subject, the SCF currently does not do its own assessments of financial flows, but depends wholly on second- and third-party evaluations and assessments for its reports.

While clear definitions would standardise tracking and assessments of finance flows, not all parties agree on even the need for this standardisation. According to observers at the informal consultations held at COP27 on Thursday, Australia and the UK expressed positions calling for an end to discussions on setting definitional conditions, and to continue with divergent and disparate interpretations. The stance provoked a reaction from several developing countries who expressed that such a situation would make it impossible to accurately track financial flows. Ethiopia, on behalf of the Least Developed Countries (LDCs), expressed that having one definition would significantly contribute toward minimising mistrust between parties, which has for long cast a shadow on finance discussions. According to those in the room, India also asserted that apart from a review of the terms of reference that inform these financial flows, the SCF must also do its own assessments or at the very least review the methodologies used in the assessments it considers.

An ongoing attempt to obscure accountability for climate finance failures?

The lack of consensus around how to demarcate finance flows has been building for months now during SCF convenings. On November 3, the SCF published its assessment report on the commitment made by developed countries in 2009 to provide $100 billion every year as climate finance to developing countries. The report came against the backdrop of a formal acknowledgement at COP26 last year of the failure to meet the $100 billion target where countries expressed “deep regret”. Glaring in its absence though is an executive summary of the report and associated recommendations. 

The decision to not prepare a summary was taken during an SCF meeting held in Australia between September 29-October 1, 2022. The reason? Representatives from the US and Australia sought to remove two references from the summary: the 2020 Oxfam report that showed how “the excessive use of loans and the provision of non-concessional finance in the name of climate assistance is an overlooked scandal”; a discussion paper by India’s finance ministry that highlighted “inflated numbers” and “greenwashing of climate finance”. More specifically, they objected to an aggregation of various assessments of the $100 billion goal, which included the Oxfam and Indian ministry report. Their argument was that you cannot aggregate reports that use different methodologies.

A screenshot from meetings of the finance committee, which shows the aggregation graph that the US and Australia objected to.

Divergent methodologies spotlight issues with undefined climate finance

Yet, without commonly agreed terms of reference on what constitutes climate finance, the question of establishing standard methodologies to assess the flows becomes infinitely more complicated. During the October meeting and in response to their objection, Richard Muyungi, a member of the SCF from Tanzania said, “it is important to understand that [the graph] gives us a sense of why the report on $100 billion is quite complicated. You can see from the graph that you have different entities, organisations reporting differently and therefore I don’t see any complication in terms of understanding this graph… It helps us understand the challenges of reporting and maybe, at a later stage, we can work together to find the best way to report on the $100 billion.” Similarly, Abdel Rahman, SCF member from Saudi Arabia, too, noted during the meeting that the aggregation shows that there’s a wide range of information on the progress of the $100 billion goal, which highlights precisely why tracking the goal is a difficult process. 

Essentially, those who pushed back against the US and Australia’s objection highlighted how the divergence between numbers from various sources like Oxfam, the Indian ministry and those produced by OECD countries spotlights the crux of the problem that there is no commonly agreed upon definition of climate finance. CarbonCopy has previously shown how ambiguity in what qualifies as climate finance has led to greenwashing like funding for expansion of schools being treated as finance for both climate mitigation and adaptation. Such ambiguity favours developed countries who can tag a host of funding instruments and channels, including high-cost debt as climate finance. At the meeting, Mohamed Nasr, SCF member from Egypt, pointed out how it is largely developing countries that favour having a common definition of climate finance, while developed countries seek broad, multiple definitions. 

The final SCF report, too, recognised “the fact that there is no multilaterally agreed definition of climate finance” and that the SCF will continue to work on it.

Nevertheless, despite numerous attempts made at including adequate disclaimers in the footnotes showing that the numbers are from different sources that use different methodologies, the two countries remained stiff in their opposition. And since this resulted in a lack of consensus on what to include (or rather exclude) from the summary, the entire summary, including recommendations, were omitted from the final draft of the report. 

While the full technical report still contains references to the two reports and the graph showing aggregation, the summary would have provided emphasis in a succinct and direct manner. Given that the full technical report is 122 pages long, the summary is read and circulated more widely, climate negotiators say. 

Consistent fair share naysayers

Questions seeking an explanation from the US and Australia were sent to the Office of Global Change, US Department of State and the Department of Climate Change, Energy, the Environment and Water under the Australia government. 

The Australian government said, “Australia supports the final Standing Committee on Finance report on Progress Toward the $100 billion goal, which includes multiple references of both the Oxfam report and the Indian Ministry of Finance Report. These reports, along with other sources of information provide a variety of viewpoints on progress toward the $100 billion goal and have been captured in the final report—which has been agreed by consensus.” 

However, in response to why they sought to remove references to the Oxfam and Indian ministry report in the summary specifically, they said, “With respect, the department believes it has answered your question and has nothing further to add.”

On the other hand, the US state department has not yet replied. This article will be updated if and when they do. Worth noting that in the past, too, the US has worked to erase accountability in SCF reports for failing to meet its climate finance obligations. The context for such moves lies in its stark track record of massively failing in meeting its commitments.

In 2020, the US only provided 5% of its fair share of climate finance, according to a June 2022 report by ODI, a London-based non-profit. The report attributes responsibility for the $100 billion goal to developed countries based on the size of their economies, their historical emissions and their population. Based on this methodology, the US is supposed to contribute $43.5 billion every year. Australia, on the other hand, has only provided 10% of its fair share. A similar fair-share driven analysis by CarbonBrief, too, points to the US as the biggest climate finance debtor with contributions amounting to 19% of its fairshare. Australia stands at close third worst, having contributed 38% of its fairshare after Canada at 37%. 

“The US economy is four times larger than that of Japan, five times larger than Germany, seven times larger than the UK and eight times larger than France—yet it provides less climate finance than any of them,” said Sarah Colenbrander, one of the authors of the report and director of ODI’s climate and sustainability programme. She added that Australia, alongside Canada, is another “major laggard.”