Discussion on new climate finance goal begins at COP26, rich nations take aim

Switzerland pushes large developing countries to chip in and ease financial burden, while US wants discussion to remain on sidelines moving forward

Amidst the agitation and distrust caused by the unfulfilled old promise of $100 billion climate finance to developing countries from the developed world, country negotiators started work on setting a new finance goal on the third day of COP26 in Glasgow. According to the demands of the developing world, the number could be as high as a trillion dollars.

But actually getting that kind of finance is most likely a long shot. On the first day of COP26 itself, rich nations tried to put the financial burden on large developing countries by asking them to chip in. The move was vociferously opposed by developing countries. During the first discussion on the new goal on Day 2, the US pushed for the deliberation to not become an ‘agenda item’ and to remain on the sidelines going forward.  

What is certain is that the number for the new finance goal isn’t going to be decided at this COP. That discussion might go on for the next two-three years before a new number comes to light. Developing countries want a decision by 2023, but developed ones are pushing for 2024. What negotiators are trying to do right now is finalise modalities and processes for such a discussion before COP26 ends on November 12. Negotiators, especially from developing countries, are also working to ensure the new goal includes all voices and does not come out of thin air like the $100 billion a year target. But the history of mistrust and miscalculations means these negotiators have their work cut out for them. 

The numbers game begins

 At COP24 in 2018, it was decided that parties will, in 2020, begin deliberations on setting a new collective quantified goal from a floor of $100 billion per year. COVID-19, however, pushed the date to 2021. 

Since 2019, however, the realities of the climate finance world have changed drastically. Developed countries not only failed to meet their promise of $100 billion by 2020, they also pushed the deadline to 2023. This has irked the developing world, especially because their rich counterparts have been pressuring them to be ambitious in their climate actions. This, despite the developed world having failed to meet its own finance commitments.

Countries like India and South Africa, which also represent larger negotiating blocs at the COP, say that the figure from the developed world should aspire to be around or above a trillion dollars to be able to match the climate actions and needs of the developing world. This, of course, would be hard for the rich economies to cough-up given their inability to meet the much smaller $100 billion.  

Africa’s demand is that the new goal should be $1.3 trillion per year by 2030. The logic behind the number stems from the data of finance provided and the leveraging ratios of the Global Environment Facility, one of the oldest financial mechanisms under the United Nations Framework Convention on Climate Change (UNFCCC).

The GEF’s co-financing ratio is 7:1 and investment mobilised ratio is 5:1, Zaheer Fakir, one of the lead coordinators for the African Group of Negotiators on climate change, told CarbonCopy. The Organisation for Economic Co-operation and Development [OECD, an organisation of rich nations] report states that the public finance provided by the developed world is $62.2 billion. Applying the ratio of 7:1 takes the number to $435.4 billion and the 5:1 ratio reaches $311 billion, making a total of nearly $750 billion. The African Group used the same approach, but took a base figure of $100 billion. Hence the demand is $1.3 trillion, Fakir added. 

While addressing COP26 on November 1, Indian Prime Minister Narendra Modi put forth a figure of $1 trillion. Although there was little clarity on the timeline in his demand. India’s old NDCs alone would have taken $2.5 trillion upto 2030, as per its own assessment. The PM, however, appeared to demand $1 trillion for all the developing countries, as per his speech.  

At a ministerial meeting of the Like Minded Developing Countries (LMDC) at COP26, India’s Union environment minister, Bhupender Yadav, who is heading the Indian delegation, repeated the PM’s number. Climate finance cannot continue at the levels decided in 2009 [$100 billion], he said. His argument found support from LMDC. But his statement also did not give clarity on the basis of the demand.  

The Least Developed Countries’ (LDC) negotiation bloc has demanded $500 billion between 2020 and 2024. Their demand simply comes from the unmet goal of $100 billion by 2020 and through 2025. “Half of it [$500 billion] [should be] for adaptation in the form of grants for the most vulnerable developing countries,” said Sleemul Huq, director of the International Centre for Climate Change and Development (ICCCAD) and chair of the Expert Advisory Group of the Climate Vulnerable Forum (CVF) at COP26.   

Similarly, Prime Minister Mia Mottley of Barbados demanded $500 billion per year for the next 20 years at COP26. She said this money should be in the form of an annual increase in special drawing rights (SDRs), which is put in a “Trust” to finance the transition [to a low carbon, climate ready future]. 

Needs versus wants: What are negotiators saying at COP26?

The Needs Determination Report [also known as Needs report] adopted by UNFCCC’s Standing Committee on Finance (SCF) on October 14, 2021, and presented to COP26 on November 3, is the first-ever UN assessment that takes into account the needs of the developing countries. 

“It highlights that the financing needs for developing countries are immense and in excess of $5 trillion. When looking at this in relation to what we have as a mobilisation goal of $100 billion, it is apparent that it is woefully inadequate in keeping up with the ambition and progression that we are hearing in Glasgow,” said Fakir. 

The discussion on the new collective quantified goal began on the second day of COP26 through a contact group under the 3rd Conference of Parties to the Paris Agreement (CMA 3). During the discussion, South Africa, speaking for the African group, objected to some of the developed countries’ attempts to push the financial burden on developing countries. It cautioned developed countries to not use terms such as “those in a position to do so” while discussing the new finance goal. South Africa argued that such language does not exist in the Paris Agreement (PA) and parties should not spend time discussing that. Article 9.2 in the PA only says “other Parties are encouraged to provide or continue to provide such support voluntarily,” Third World Network (TWN) reported.

In its submission on expectations before the start of the climate talks, Switzerland, speaking on behalf of the Environment Integrity Group (EIG), had said that COP26 must launch a process to define a new collective finance target for the period after 2025, adding that “all countries that have the capacity to do so” must support those who need it and assure all financial flows are aligned with the objectives of the PA. 

The wording “all countries that have the capacity to do” here means developing countries should also contribute to the new goal. 

South Africa wanted the decision on the new goal to be in 2023 because it will have a bearing on countries as they prepare their second round of NDCs. The country also expressed that it wanted the deliberation to be an important item in the talks and said it was not convinced about the value of a workshop process. It also said that all meetings related to the collective goal should be open to observers and webcast. 

While supporting the African Group, India, for the LMDC, stressed on the definition of climate finance, saying that it is connected with the goal. 

Malawi, speaking for the LDCs, wanted the goal to be concluded by 2024 and called for a decision in Glasgow on a roadmap that gave them the deliverables for every year till Parties reached the point of deciding on the goal, according to the TWN update. The LDC group called for the goal to be based on the needs of developing countries. It also said that a working definition of finance was important to track what is being reported as climate finance. 

Apart from asking for the deliberations to be transparent and inclusive, the Alliance of Small Island States (AOSIS) bloc also stressed that as a principle the issue of progression needs to be reflected in the collective goal, as given in the Article 9.3 of the PA.

The AOSIS also proposed ministerial dialogues that took stock of the process at the end of each year, with the aim of completing deliberations in 2023, as per the TWN update. It expressed the need to track the progress of the new goal via the Enhanced Transparency Framework of the PA.

Speaking for Argentina, Brazil and Uruguay (ABU), Brazil cautioned against repeating the Copenhagen COP model of 2009, where negotiations on the $100 billion goal were neither transparent nor inclusive. It asked the process to take into account the new Needs report. Pakistan and China also emphasised the importance of the Needs report in setting the new goal.

The European Union (EU) proposed to reach the final decision by 2024 and to also include not just Parties, but external stakeholders [like multilateral banks] in the discussion. 

It also said the deliberations on the collective goal must include making finance flows ‘consistent with a pathway towards low greenhouse gas emissions and climate-resilient development and the needs of developing countries’ as per the Article 2.1(c) of the PA. Other developed countries like Switzerland and Japan also made similar arguments. 

This bit has caused problems for developing countries in the past, when they tried to access climate finance from entities like the Green Climate Fund (GCF). This is because developed countries have used the argument above to try and impose net-zero targets or conditions of moving away from coal financing on developing country banks in order for them to be able to access finance from the GCF. 

EU, Switzerland and Australia also emphasised that they want the deliberations to be set in a manner that ‘nothing is agreed until everything is agreed’. An observer privy to the negotiations told CarbonCopy that this means that the decision cannot be in parts. If there are 10 paragraphs in a decision, and 4 are agreed upon by all parties, while 6 are agreed upon by the majority, but not all, the decision would not be taken as final.

Contrary to what developing countries wanted, the US was not in favour of making deliberation on the new goal an agenda item. It did not expect any annual decision, nor an annual agenda item on the issue and said that deliberations could happen through workshops, roundtables and dialogues, according to the TWN update.

Following the discussions, the co-chairs asked Parties to submit further inputs by November 3, and that all the views expressed would be taken into consideration as well. The co-chairs are expected to present a compilation of inputs before the next deliberation on the matter later this week.

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