COP27 has reopened the Pandora’s Box on ‘fairness in climate finance’

WRITTEN BY DR DHANASREE JAYARAM AND MEGNA SURESH

6 March 2023

Although the 27th Conference of Parties (COP27), held in November 2023 in Sharm el-Sheikh, concluded with a significant breakthrough in discussions about loss and damage, it left several major questions unanswered. Not only does the massive lack of climate finance for climate mitigation and adaptation remain unaddressed, but the nitty-gritty of loss and damage fund operationalisation is also expected to pose new challenges.

As industrialised countries, which are responsible for a large proportion of historical greenhouse gas (GHG) emissions, have not delivered on their ‘fair share of climate finance’, can discussion on climate justice be meaningful? What is the legitimacy of a ‘fair share of climate finance’ in light of the gradual dilution of principles like the Common but Differentiated Responsibilities and Respective Capabilities (CBDRRC)? In addition, which countries should be paying their fair share of climate finance, taking into consideration the changed economic reality since 1992, when the United Nations Framework Convention on Climate Change (UNFCCC) was established?

What is a ‘fair share of climate finance’?

A recent study by the Overseas Development Institute (ODI) on what constitutes a ‘fair share of climate finance’ reveals that industrialised countries have failed to meet these standards. In fact, although in 2009 industrialised countries pledged to offer USD 100 billion a year to developing countries by 2020, they have fallen short of this target every single year. In order to assign responsibility for climate finance, the ODI study uses criteria such as gross national income, cumulative CO2 emissions, population size, per capita cumulative territorial emissions, and per capita gross national income. Based on these criteria, the study argues that (besides the existing pool of industrialised countries), Qatar, Singapore, and Israel should provide and mobilise climate finance based on their historical responsibility and ability to pay. Countries like China and India do not qualify as climate finance contributors.

According to the study, the worst performers in terms of paying their fair share of climate finance are the United States, Australia, Canada, Italy, and Spain. In 2020, the US provided only 5 per cent of its fair share of climate finance. Some countries, while seemingly fulfilling their pledge (like France and Japan), have failed to provide additional funding. They often bundle together climate and development finance, claiming that development finance is climate-sensitive or aligned with the Paris Agreement goals. Moreover, they have provided more loans than grants.

Pre-2020 commitments made under the Kyoto Protocol cannot be wished away. Industrialised countries must be made accountable for their obligations to reduce emissions and provide climate finance, which remain unfulfilled.

The funding for climate adaptation continues to be low, which compounds the vulnerabilities of many developing countries, as they continue to be affected by the lack of capacities and resources to cope with climate change-related impacts. These findings undoubtedly trigger a debate on how climate finance discussions would play out in the future. Questions about payment, definitions, sources, and quality of climate finance (such as loans or grants) will continue to delay effective climate action and climate justice.

Besides, how does one calculate a ‘fair share of climate finance’ based on historical responsibility? It may be easy to assign responsibility based on cumulative emissions from 1850 onwards (which would make countries such as China and India also culpable). However, in the absence of cumulative consumption-based emissions data from before 1990, it is difficult to determine the actual share of cumulative global emissions (beyond territorial emissions). Another key argument is that the overseas emissions of colonial powers need to be accounted for. Any discussion of historical responsibility — based on cumulative emissions or otherwise — cannot discount the colonial experience. Therefore, the ‘fair share of climate finance’ principle should take into account both historical experiences and current geoeconomic environments, in which some countries are both ‘culpable’ (in terms of GHG emissions) and ‘capable’ (in terms of paying more climate finance).

Key takeaways from COP27 on climate finance

One of the biggest debates in climate change negotiations revolves around what should constitute a fair share of climate finance. While the annual target of USD 100 billion will stay in place until 2025, other pledges were made by individual countries and/or groups of countries. For instance, the insurance-based ‘Global Shield’, launched by the G7 along with the V20 (The Vulnerable Twenty, the most vulnerable countries worldwide), is aimed at protecting vulnerable countries from climate risks by offering a range of instruments — “livelihood protection, social protection systems, livestock and crop insurance, property insurance, business interruption insurance, risk-sharing networks, and credit guarantees.” For instance, the initiative aims to provide pre-arranged finance to vulnerable countries before or just after disasters occur.

This came at a time when the G-77 was unitedly fighting to establish the loss and damage fund at COP27. However, most developing countries and NGOs saw this move as a distraction from the loss and damage fund. Many developing countries and NGOs found that this mechanism would simply strengthen insurance companies in the Global North by subsidising them, while the most vulnerable communities would still find themselves unable to access necessary funding, perhaps even burdened by insurance premiums.

Political wrangling over climate finance

Arguably, the most contentious questions are in relation to who should contribute to climate finance and who is eligible to access multilateral climate finance. The status of countries such as Singapore, Qatar, Saudi Arabia, Israel, and even China as ‘developing countries’ within the climate regime is increasingly questioned, not just by industrialised countries, but also by countries in the Global South.

For instance, China’s growth as a global manufacturing powerhouse has increased its production-based emissions, which are estimated to be 14 per cent higher than its consumption-based emissions (based on data from 2019). At the same time, recent data also suggests that China’s cumulative per capita emissions have risen dramatically (reaching 10.1 tons in 2019), and that, consequently, China’s responsibility has grown exponentially in recent years. China has benefitted immensely from trade-based exported emissions, emerging as the world’s second-largest economy by nominal Gross Domestic Product (GDP). Through its geoeconomic and geostrategic initiatives like the Belt and Road Initiative (BRI), it is also now exporting its emissions to other developing and least-developed countries.

On the basis of the criteria established in the ODI study, Israel, Qatar, and Singapore clearly fall into the category of countries that need to start contributing to climate finance, while China may not be obliged to contribute. At the same time, one also needs to ask if countries like China and Saudi Arabia should still be eligible to access the new loss and damage fund, or other mechanisms like the Green Climate Fund. The loss and damage fund aims to assist the most vulnerable countries suffering the worst impacts of climate change. Within the UNFCCC, industrialised countries are obliged to provide technological and financial resources to developing countries.

However, China, Saudi Arabia, Qatar, Kuwait, Israel, Singapore, and many other countries continue to be categorised under Non-Annex I Parties (i.e., developing countries). The terminologies have not been modified and these countries continue to be recipients of UNFCCC-related financial mechanisms earmarked for developing countries (or at least countries eligible to receive funds). This presents a big challenge for building consensus on how to bridge the gigantic gap in climate finance. New data suggests that by 2030 developing countries (excluding China) will need USD 2 trillion annually for climate mitigation and adaptation.

China, for its part, contends that it is already voluntarily providing climate finance for mitigation and adaptation purposes to many vulnerable countries — for instance, it established the (approximately) USD 3.1 billion China South-South Climate Cooperation Fund in 2015. Another USD 1 billion has been added by China to the now renamed Global Development and South-South Cooperation Fund, which is expected to fund over 1,000 sustainable development and capacity-building programmes in the Global South, particularly in Africa. Other developing countries, like India, Saudi Arabia, Qatar, and Kuwait, seem to be contributing significant amounts of financing — even if these may not be directly climate-related but are more explicitly meant for achieving developmental objectives with climate co-benefits. China unambiguously argues that it is not obliged to provide financial contributions (officially) under the UNFCCC.

Bridging the climate finance gap needs to be a priority

Pre-2020 commitments made under the Kyoto Protocol cannot be wished away. Industrialised countries must be made accountable for their obligations to reduce emissions and provide climate finance, which remains unfulfilled. In climate finance-related discussions, pre-1990 political and economic conditions, including exploitative colonial legacies, cannot be erased either. At the same time, countries like China, which arguably no longer need external financial assistance for climate action, have a growing historical responsibility because of their drastically increasing emissions, and they have benefitted immensely from UNFCCC initiatives like the Clean Development Mechanism. Without diluting the ‘differentiation’ between industrialised and developing countries, and clearly placing the larger onus on the former to bridge the climate finance gap, an access and benefit-sharing formula (if not burden-sharing) needs to be designed that takes these new realities into consideration.

DISCLAIMER: All views expressed are those of the writer and do not necessarily represent that of the 9DASHLINE.com platform.

Author biographies

Dr Dhanasree Jayaram is a Research Fellow at Centre Marc Bloch, Berlin, and an Assistant Professor in the Department of Geopolitics and International Relations and Co-coordinator, Centre for Climate Studies, Manipal Academy of Higher Education (MAHE), Karnataka, India. Megna Suresh is an independent analyst working on environmental politics and security. Image credit: Flickr/UNclimatechange.