To truly lead on climate change, the EU must step up its game on climate finance
By Frederik De Roeck, postdoctoral researcher at the Department for Public Governance and Management, Ghent University
With COP25 ending in deadlock and disappointment, pressure is expected to grow in 2020 for countries to increase their climate ambition in order to align with the objectives of the Paris Agreement. The new European Commission, keen to reconfirm the EU’s leadership role on the international stage, has pledged to transform Europe into the first climate-neutral continent by 2050. As a first step on the road to climate neutrality, its so-called ‘Green Deal’ should generate renewed policy momentum in a range of EU policies. Among others, progress is anticipated in turning the 2050 net-zero objective into EU law, establishing a circular economy and kick starting a just transition that responds to concerns voiced by some Central and Eastern European member states.
However, apart from increasing mitigation ambitions, there is also a dire need for progress in the field of financial support for developing countries. At COP15 in Copenhagen, UNFCCC members pledged to boost international climate finance to an annual sum of 100 billion dollars by 2020. Moreover, the growing intensity of weather phenomena induced by climate change is also instigating discussions on the need for financially compensating the loss and damage caused by climate change. Notwithstanding the fact that these issues have been an important part of international discussions for many years, they are woefully overshadowed by policy action for mitigation within the EU in the discussions on the European Green Deal.
At first glance, the EU’s track record on international climate finance seems to be impressive. Together with its member states, the EU is the largest net provider of public climate finance in the world, amounting to a sum of 21.7 billion EUR in 2018 (ECOFIN 2019). According to the recent communication on the Green Deal, this amounts to 40% of the world’s public climate finance (European Commission 2019: 22). Moreover, the European Investment Bank and the European Bank for Reconstruction and Development are also increasingly aligning their financing with climate objectives. However, apart from these unquestionably positive evolutions, important issues remain.
First, the additionality of climate finance vis-à-vis Official Development Assistance (ODA) is still a legislative grey zone. In short, international climate finance should be ‘new and additional’, indicating that donor countries should not recycle their ODA as climate finance. Otherwise, there is a substantial risk of double counting, which could artificially inflate both ODA and climate finance numbers. However, despite the emergence of an entire international regime for generating and distributing ‘new and additional’ climate finance, there is still no real agreement on what this exactly entails. Also, within the EU, different member states have different conceptions of additionality and thus operate with different methodologies for counting climate finance. For example, the Rio Marker methodology, which is commonly used within the EU for measuring climate spending, is employed differently in different member states and generally leads to overstating the climate relevance of projects. As a result, net climate finance is estimated to be far lower than the numbers reported to the UNFCCC. In 2015-2016, net international public climate finance was estimated by Oxfam to amount to $16-$21 billion, instead of the $48 billion that was reported by donor countries.
Second, according to a 2018 report on the state of EU climate finance, it also fails to respond to the real needs of the developing world in numerous ways. For example, European climate finance is ill-balanced between mitigation and adaptation objectives: in 2016, adaptation finance added up to only 30% of total climate finance provided by EU institutions and member states. In addition, EU climate finance flows also tend to neglect Least Developed Countries: only one LDC (Bangladesh) was among the 10 largest recipients of EU climate finance between 2013 and 2016. The report also points out that institutions like the EIB tend to opt mostly for climate finance in the form of different types of loans, and that the grant equivalent of these loans reported to the UNFCCC tends to be inflated. Similar practices of overestimating grant equivalents of climate finance are also identified in EU member states like France and Spain.
Third, financial compensation towards the Global South for suffering loss and damage as a result of the impacts of climate change is still a very contentious issue, and has been largely pushed aside within international negotiations in recent years. Although the 2013 Warsaw International Mechanism (WIM) provides an institutional framework within UNFCCC for discussing the issue, there is still no international consensus on how to structurally finance loss and damage beyond humanitarian aid and insurance funding. Different options have been put forward in recent years, including an international financial transaction tax and a tax on airline tickets, but none of them ever materialized in a new financing scheme. The Mechanism was reviewed at COP25, but no progress was made on establishing a structural funding mechanism for dealing with the damage done by current climatic changes. Although the newly established Santiago Network on Addressing Loss & Damage aims at increasing technical assistance in countries hit by climate change, adequate financial compensation thus remains a distant dream. The EU position for COP25 also remained largely silent on the issue, and only stated that the EU “looks forward to a successful completion of the second review of the WIM”, without specifying what such a successful review should imply. This vague position on the matter is indicative for the EU’s ambivalence on the subject, supporting its inclusion in the Paris Agreement on the one hand, but remaining largely quiet on its substance on the other hand.
This persistent vagueness in EU climate finance is symptomatic of a larger stalemate on these issues within UNFCCC discussions. Even though the 2020 target on climate finance should almost be reached, only little progress has been made in recent years on enhancing transparency for climate finance or establishing a new international financing mechanism for loss and damage. COP25 was no exception in this regard, despite growing tensions between industrialized countries and the Global South on these matters and the fact that the WIM on loss and damage was up for review. This stalemate will inevitably lead to increasing tensions that could further paralyze the implementation of the Paris Agreement.
Although the Paris Agreement is based on every country taking its responsibility in order to mitigate further climate change and adapt to its effects, there is no denying that a large part of the historical responsibility lies within Europe. Hence, to remain credible as an international green leader, the EU must step up its game and recognize that its responsibilities on climate change do not stop at its borders. Notwithstanding the fact that the Green Deal does acknowledge the importance of (financial) assistance towards the Global South in order to deal with the consequences of climate change, it remains to be seen to what extent this will lead to more transparent and needs-based climate finance practices. If failing to live up to these challenges, the EU’s position in international climate negotiations will most likely be met with increasing resistance in the Global South, which is becoming increasingly vocal and impatient on matters related to international climate finance and loss and damage.
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