How will a Paris Agreement treat climate finance? - Emerging views

I've just returned from the latest negotiating session in Bonn, where it was clear that climate finance discussions are advancing slowly leading up to an international climate agreement that we hope will be approved in Paris in December. On finance, the countries remain apart on some items, but new proposals have been officially submitted by countries that attempt to bridge differences in earlier negotiating texts.

Overall, there have been some signs of convergence as negotiators start to propose new language for the draft agreement that combines the views expressed by countries during this past session. Some of the key areas of discussion focused around how much financing is targeted, how frequently countries make finance commitments, how to track financial flows, and how to "shift the trillions."

How much financing?

One of the key issues in the international climate negotiations is the amount of resources mobilized to help developing countries build low-carbon and climate resilient economies. In Copenhagen, countries pledged to mobilize $100 billion per year by 2020 -- So there is strong interest in ensuring that this level is the floor for finance going forward. After all, we are likely to need more resources as the impacts of climate change become worse and as we make even deeper emission reduction commitments. Rarely can you do more with less. So the developing country negotiating block (the G77 and China) proposed that $100 billion per year should be the floor for climate finance after 2020. Other countries seem to recognize that we are going to need more resources over time, so the only question is how this concept of increased resource mobilization is captured in the final agreement.

How frequently will new financial commitments be made?

There is also interest in having defined time periods when countries would outline how much money they would be prepared to mobilize. Developing countries have proposed that climate finance should include regular (e.g., annual/biennial) quantitative targets for the post-2020 period when a Paris Agreement would take effect. These resources would be mobilized with "an equitable regional distribution of financial resources and a gender-sensitive approach" - which was supported by Mexico and several Latin American countries. Since there is an emerging consensus that countries would make additional emission reduction targets every 5 years, some countries were discussing linking the timing of finance commitments to this cycle for emission reduction commitments.

How to track progress?

An informal finance ministerial in Paris saw several donor countries coming forward with information on some common principles for what these countries are counting as climate finance. This is a major milestone, given that developed countries committed to mobilizing $100 billion in climate finance annually by 2020 - and it remains unclear how much progress has been made towards that goal. By the time we reach the World Bank and International Monetary Fund meetings in October, there is an expectation that we will have greater clarity on how countries are doing towards the $100 billion commitment.

Emerging in the negotiations is a call for establishing systems to better track progress and ensure more transparency around resource flows. The U.S. also called for parties to report biennially on the climate finance that has been provided or mobilized to date. More frequent and transparent reporting is an important way to help ensure the dollars are real and flowing towards impactful efforts on-the-ground.

How to "shift the trillions"

Mobilizing the $100 billion per year in public and private resources by 2020 is only one part of the story. We know that public resources, good policy, and the right investment conditions can unleash an even larger amount of money from the private sector. According to the New Climate Economy report, the global economy will require an estimated $89 trillion in infrastructure investments in cities, energy, and land-use over the next 15 years. Ensuring that this investment is guided away from climate destructive activities towards low carbon activities is critical to addressing this challenge. That is why business leaders and others are regularly talking about how to "shift the trillions".

Shifting the trillions requires ensuring that countries have the right policies in place to make it attractive for low-carbon investments to occur. This includes what is often referred to as having the right "enabling environment" (e.g., renewable energy policies and incentives) or "climate proofing" investments (e.g., making sure that investments aren't going to activities that aren't sustainable in a low-carbon world). And it also means making sure that countries don't invest in high-carbon activities (e.g., stop using public financing to subsidize coal and other fossil fuels).

Next Steps

The co-chairs of the negotiations will review the session notes from groups and formulate some new text to move the process forward. This new text will hopefully focus negotiators on the critical decisions that their Ministers must make and spur countries to do line-by-line editing of a draft agreement and decision on finance.

Country proposals on finance can be found here.

Additional information about Finance options for a 2015 climate agreement can be found here.