Paris Agreement Rulebook: Tracking Financial Flows
At the COP24 climate conference in Poland, negotiators met to agree on the detailed "rulebook" for implementing the Paris Agreement. The new rulebook made breakthroughs on how country emissions will be tracked, and the meeting has already started catalyzing increased ambition from countries on their individual emissions targets, just as the Paris Agreement was intended to do. Negotiators also finalized rules for climate finance, helping to clarify how countries provide, track and report current and future financial contributions for climate action. The key tasks for the next few years are to (1) ramp up climate finance through the Green Climate Fund and other channels, (2) shift resources out of high-carbon projects into low-carbon activities across the economy, and (3) to make sure countries are following the Paris rulebook and providing transparent information on what types of climate projects they are supporting.
Ramping Up Climate Finance
At COP24, there was a high-level dialogue of government representatives on climate finance. The session highlighted progress in and remaining barriers to translating climate finance needs into action and enhancing developing countries’ access to climate finance and it underscored the urgent need to scale up the mobilization of climate finance, including through greater engagement of the private sector, to increase finance for adaptation, and to align financial flows with the objectives of the Paris Agreement and the United Nations Sustainable Development Goals.
Developed countries mobilized about $56 billion in 2016 for climate finance. More will need to be done to reach the goal of $100 billion by 2020, as reiterated in the Paris Agreement.
A positive note on this front was that Germany and Norway both announced they would be doubling their next contribution to the Green Climate Fund, which was set up to help developing nations in taking mitigation and adaptation measures to deal with climate change. The US under the Obama Administration committed to providing $3 billion to the Green Climate Fund, with $1 billion provided so far. The Trump Administration has eliminated GCF contributions from its budget and does not plan to fulfill the rest of the commitment.
Aligning Financial Flows
The future of the planet doesn’t depend only on the finance provided by governments, it depends on aligning all financial activities with a low carbon pathway. That's why COP24 reiterated Article 2.1c of the Paris Agreement by calling on countries to consider "the aim to strengthen the global response to the threat of climate change... including by making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development." What this means in practice is that, aside from the climate finance counted by countries in the official totals, there is a need to shift all global financial flows to more low-emissions activities—and therefore away from the use of fossil fuels.
While the text is not explicit in mentioning fossil fuels, it is a clear signal that more needs to be done with private finance, not just the public finance provided by governments. It’s a call for everyone to reconsider financial flows directed into high-carbon activities. In fact, this COP featured several events on the sidelines of the official negotiations, where representatives from multilateral banks, utilities, academia and civil society all embraced the need to shift financing out of coal, oil and gas and into low-carbon alternatives.
For the world to align financial flows with a 1.5C pathway, emissions must fall rapidly. In order to hold the increase in global average temperature to 1.5 C above pre-industrial levels, the level of greenhouse gas emissions in 2030 should be 25–30 gigatons of carbon dioxide equivalent. That’s about half of the emissions level in 2015, which was at 51 gigatons.
Communicating on Climate Finance
One of the key issues is making sure there's transparency that countries are delivering on their financial commitments. Central to that is how countries will report on financial flows regularly.
Biennial reports - According to the requirements of the Paris Agreement, developed countries and others willing to do so will report on the public financial resources already provided to developing countries every two years, and will report every two years on estimates of future financing to be provided.
Reporting criteria - Countries agreed to terms for reporting, such as the types of financial instruments that can be counted. There are also requirements to include information on geographical location of projects, sectors covered, gender responsiveness, whether funds are for mitigation or adaptation or other activities, evaluation criteria, whether sources of finance are new and additional to existing finance, methodologies, mobilized private finance, and other factors. Climate finance will include the value of grants, loans, guarantees, equity and other financial tools. (There will need to be scrutiny going forward about what countries will count as climate finance—and whether too much of it is creative accounting of loans rather than grants.)
The $100 billion annual target remains - Developed countries agreed in Paris to mobilize $100 billion per year in climate finance from 2020 to 2025. At this COP, it was decided that the climate finance target for the post-2025 period will be discussed starting in 2020, with $100 billion set as the floor for the future climate finance target.
Financing needs – Developing countries will provide information on support needed for implementing their NDCs—allowing for economic development to happen on a lower-carbon pathway.
The Path Ahead on Climate Finance
It's clear from the findings of the IPCC Special Report on 1.5C that there is no time to waste. We must reduce emissions rapidly. And the best way to do that is to rapidly phase down use of fossil fuels. We need to support the most vulnerable communities through climate finance, push banks and other financial institutions to stop financing the fossil fuel projects destroying the climate, and hold countries accountable to the financial commitments they've made. The rulebook adopted in Katowice, Poland during COP24 will help us track progress. But we're running out of time, and need to align all financial investments with the Paris Agreement by getting out of the dirtiest, worst-polluting projects. There's no time to waste.