The world is supposed to share the cost of fighting climate change. Here's how that works
Pledges from richer countries are key to helping developing countries achieve climate goals
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One of the key tenets of the 2015 Paris Agreement was that richer countries such as Canada would provide financial assistance to developing countries to help them achieve their climate goals. This financial help was supposed to reach a minimum of $100 billion US per year ($124 billion Cdn) by 2020 and continue to be paid each year going forward. But estimates suggest the 2020 goal has likely not been met.
The $100 billion US is a bulk commitment among 23 developed countries and the European Union.
The countries that would be receiving the money — developing countries in the global South — are closely watching these climate finance commitments heading into COP26, the major United Nations climate change conference in Glasgow that starts Sunday.
The Conference of Parties (COP), as it's known, meets every year and is the global decision-making body set up to implement the United Nations Framework Convention on Climate Change, adopted in the early 1990s, and subsequent climate agreements.
What is the money for?
The financing is to help developing countries bring about many of the same changes that Canada and other countries are planning in order to achieve their climate goals. This includes shifting electricity production away from coal and other fossil fuels to cleaner energy sources, such as hydroelectric, wind and solar.
The money would also go toward helping countries adapt to climate change, through infrastructure projects that defend communities against floods or sea level rise or retrofitting of buildings to be more energy efficient.
The funding commitment acknowledges that rich countries have developed over the last century in large part thanks to their ability to burn fossil fuels virtually unfettered — and thus becoming the primary contributors to the climate crisis. Developing countries will not have the same path to growth.
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"This finance is critical to actually enable developing countries to curb the growth of their emissions and to shift to the model of growth which is based on renewable technologies, on clean technologies, so that they don't repeat the pathway based on fossil fuel production that industrialized countries have gone through," said Alina Averchenkova, distinguished policy fellow at the Grantham Research Institute on Climate Change and the Environment in London.
Why is meeting the climate finance target important?
This financing pledge was one of the main planks of the Paris Agreement, which set out global goals for tackling climate change. Its aim, in part, was to acknowledge the divide between richer countries in the global North that had the economic resources for the energy transition required to cut emissions and countries in the global South that would struggle to grow their economies while moving away from fossil fuels.
The Paris Agreement also called on all countries in the world, rich and poor, to cut their carbon emissions, and this financing pledge was a way to get the co-operation of developing countries.
What is Canada's role in climate financing?
Canada is one of the global North countries that is supposed to provide climate financing. Canada has delivered $2.65 billion over five years since 2015. In 2021, it announced a doubling of that pledge to $5.3 billion over the next five years.
Thanks to those pledges, Canada is "seen as a partner that could be constructive in these critical negotiations," said Eddy Perez, international diplomacy manager with Climate Action Network Canada, a coalition of environmental, labour, faith and Indigenous organizations across the country involved in the climate movement.
The U.K., which is hosting COP26, tasked Canada's environment minister, Jonathan Wilkinson, along with his German counterpart, to come up with a plan to reach the $100 billion US goal and convince other rich countries to similarly increase their pledges.
On Oct. 25, Canada, Germany and the U.K. announced that they had negotiated a plan. While admitting that developed countries likely wouldn't meet the $100 billion US goal until 2023, three years later than the target year of 2020, they said countries were on track to keep increasing their financing.
Their plan estimates that $500 billion US would have been mobilized between 2021-2025. That would be an average of $100 billion US per year. There is no set formula for how much each country should contribute to the $100 billion, but the U.K., as part of its COP26 presidency, is keeping track of climate financing pledges.
How is the success of COP26 tied to climate financing?
"It's a very important symbol of trust in the climate negotiations," Averchenkova said of adhering to the $100-billion funding commitment.
"So the failure to meet this commitment really puts into question the whole dynamics of the negotiation between developed and developing countries."
Heading into COP26, developing countries have made it clear that their participation in the negotiations depends on the rich countries meeting the $100 billion US goal.
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India, a leading voice for countries in the global South at the negotiations, has repeatedly stressed the importance of the financing coming through. And its co-operation is vital — India is currently the third-largest greenhouse gas emitter in the world, after China and the U.S.
What has been pledged so far?
The OECD estimates that in 2019, $79.6 billion US was mobilized by developed countries for climate financing. Because of how complicated it is to measure exactly how much money each country made available, it's difficult to estimate how much was contributed in the target year 2020. But analysts say that the $100 billion US was probably not reached, especially as countries had to deal with the COVID-19 pandemic.
The financing pledges from countries can include both public funding and private investment that is mobilized toward environmental projects. The idea is that public funding can be directed toward programs such as market-friendly government policies in developing countries or climate-resilient infrastructure that can then spur more private investment in those countries.
Averchenkova says by using public money to fund policies such as a subsidy for renewable energy or auctions for renewable energy investments, private sector companies could come in and invest in those renewable energy projects and multiply the impact of that initial public investment.
In 2019, $14 billion US of the $79.6 billion US in climate financing was private investment, according to the OECD.
"So that is the way that we can also increase and actually surpass the $100 billion US commitment is to think, 'How can we actually create better conditions for private sector so that they come to developing countries and invest in low carbon and climate-resilient projects?'" Averchenkova said.
But Perez is more skeptical of private investment being a part of the climate financing goals.
"The fact is that climate finance shouldn't be about a business plan," he said
Perez points out that at the moment, the majority of Canada's climate financing is going toward mitigation rather than adaptation efforts, which will be very important for the developing countries most vulnerable to climate impacts.
The UN secretary general has called for 50 per cent of climate financing to go to adaptation.
Most of Canada's funding is also in the form of loans rather than grants, even though many developing countries are struggling with debt, especially during the COVID-19 pandemic.
"It tells a story of a country that is only looking for private sector activities, rather than making sure that the money actually reaches the poorest and most vulnerable who are facing the greatest impacts of the climate crisis," he said.
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