Over the next decades, trillions of dollars will be
required to tackle climate change.
Leveraging it is a question that concerns politicians
and financial institutions alike. Largely, it has been a
conversation that the two have held separately.
The political discussion centres around a promise
made in 2009 at the UN's climate conference in Copenhagen,
when developed countries committed to provide $100bn a year from
2020 to help poor nations reduce their emissions and adapt to the
impacts of climate change, with a significant portion of this
flowing through a Green Climate Fund.
reaffirmed that pledge at the Financing For
Development conference in Addis Ababa this week, where the
UN largely focused on the issue of how to finance its
post-2015 sustainable development agenda - a set of
guidelines, to be finalised this September, on reducing poverty,
hunger and climate change, among other issues.
$100bn may sound like a lot of money. It is. But the
investment required to deal with climate change will likely cost
trillions, as infrastructure and energy across the world reshape
into a greener, more resilient form, compatible with a world where
temperatures rise no more than 2C. Enabling this will require a
rethink of how the financial system itself works.
Part 1: The $100bn-a-year promise
Unlike the vague trillions required for a low-carbon
overhaul of the global economy, the $100bn is a precise figure
embedded in a political agreement.
The text of the Copenhagen agreement states that this
could come from a variety of sources: public and private, bilateral
and multilateral, and alternatives. It also established a Green
Climate Fund (GCF). This has been designed to channel a significant
proportion of these funds, but by no means all of them.
Despite this, the GCF is often seen as synonymous with
the $100bn pledge.
Green Climate Fund
Many poor nations are in a situation where their
capacity to reduce their emissions is limited by a lack of funding.
The GCF was established to ensure that developing countries have
access to additional and predictable finance that will allow them
to scale up their own efforts to tackle global warming.
Under intense pressure from campaign groups and
developing countries, rich nations have already started to trickle
public funds into the GCF. So far this amounts to $10.2bn, with
much of this pledged at a
Berlin meeting in November 2014. Others, including
Australia, added to that sum at the UN conference in Lima.
To date, 58.5% of these pledges have been
signed off by the donor nations into actual contributions,
surpassing the 50% threshold required for the GCF to start
allocating resources through bodies that have been approved by the
As a new financial institution, the GCF remains a work
Since it was established, countries have been
debating issues such as what kind of projects it can fund
(a complication that is exacerbated by the lack of an official
definition of "climate finance"), who gets to disburse the money,
and how it intends to manage financial risk.
Some observers are concerned about the
lack of an explicit ban on fossil fuel projects for the
GCF, following the revelation that Japan had used its early climate
finance contributions to
fund a coal plant in Indonesia.
Another challenge is ensuring that developing
countries are ready to receive the funds. Héla Cheikhrouhou,
executive director of the Green Climate Fund, said in a
speech last month at the UN that, although $6bn had been
requested from the fund so far, only $500m of this was from funds
that "look promising".
Private versus public
The extent to which the GCF will be publicly funded
has become one of the most contentious issues in climate
It is widely accepted that a portion of the $100bn
will be from private sources, and the GCF has set up a
Private Sector Facility to enable this.