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Mobilising climate finance: a few fundamentals to consider

Written by Smita Nakhooda, Alice Caravani


Coming up with the finance to support developing countries to mitigate climate change and adapt to its impacts is a central focus of the UNFCCC negotiations underway in Durban this week. Getting developed countries to pay up will be difficult at this time, considering they face severe financial and economic constraints – most recently exacerbated by the eurozone crisis. Climate Funds Update (CFU), a joint initiative of the Overseas Development Institute (ODI) and the Heinrich Böll Siftung (HBF), monitors dedicated climate funds directing finance to developing countries, from the point when donors pledge funding through to the actual disbursement of financing for projects in an effort to increase transparency. While they do not represent the whole funding picture – a significant part of climate-relevant development assistance is not included – they nevertheless highlight important trends. We released a series of Climate Finance Fundamentals briefing notes earlier this week analysing the increasingly complex global system through which climate finance is spent, and which countries and projects are getting the money. Below are ten important trends for policy-makers and observers to bear in mind.

  1. In 2011 the amount of finance approved for - and disbursed by - climate projects has dropped, compared with amounts approved and disbursed in 2010. Approved funding fell from $2.34 billion to $1.80 billion, and disbursed funding (from the fund to projects) from $502 million to $398 million.
  2. A growing volume of climate finance is now directed through bilateral development institutions, which are often less transparent about how they spend their money. Multilateral funds for the most part tend to offer a lot more detail as to their engagement policies and the projects they fund. Germany’s International Climate Initiative, however, has set a good precedent by adopting detailed reporting structures.
  3. Japan is a big player, having pledged $15 billion over three years through its Fast Start Finance (FSF) commitments, although there is little clarity as to where this money has been deposited. The Japanese funds are to be spent through a variety of channels, including multilateral funds, export credit support and bilateral development assistance.
  4. Though finance to help countries adapt to climate change has doubled over the past year from less than $500 m. in 2010 to nearly $1 bn in 2011, some of the countries most at risk from climate change receive very little finance. Least Developed Countries that are most vulnerable to the impacts of climate change receive a very small share of adaptation finance.

  5. Billions of dollars have been pledged to Reducing Emissions from Deforestation and Forest Degradation (REDD+) in developing countries, but only $250 m. has actually been received by projects between 2008 and 2011. The most REDD+ funding has been pledged to Brazil, although more REDD+ funding has been disbursed to Indonesia thus far. Norway is the big player on REDD+, but Germany and Australia are also significant actors.

  6. A piecemeal approach has generally been taken to climate finance in sub-Saharan Africa. South Africa is the only country in sub-Saharan Africa (SSA) to receive large volumes of finance for its projects and programmes, having received $478 million for 10 projects. The rest of SSA has received $230 million spread across 55 projects in the rest of SSA. Chad  and Uganda combined have received less than $0.5 million over the past 3 years.

  7. There can be a significant time lag between conceiving, capitalising and getting to work when new funds are set up through multilateral processes

  8. Deposits to climate funds lag behind the pledges made. In particular, the US has struggled to meet its climate finance pledges, having pledged $2.2 billion but only deposited less than $1 billion in funds.

  9. European Union members have a relatively good record of following through on pledged contributions... so far. Some countries, notably the UK, have committed to increasing their contributions to climate finance. It is crucial that these commitments are met, despite financial woes as a result of the eurozone crisis.

  10. The approval of funding tends to be much faster than its actual disbursement. But expediting disbursal is a shared responsibility: contributing countries need to pledge funds in a timely manner; fund administrators need to be expeditious and thorough about due diligence; and recipient countries must develop robust and credible proposals that will deliver real environmental and social benefits.