Climate finance: Not just a matter of semantics

In what seemed to be a turnabout of Australian foreign policy, Australia pledged to provide 200 million Australian dollars ($166 million) to the Green Climate Fund — a move that helped the international multilateral fund for climate change projects reach its $10 billion goal. While the announcement at U.N. Climate Change Conference in Lima, Peru, came as a welcome surprise, one question remains for many participants: How would donor countries define what projects and funding will be classified under climate finance? Liane Schalatek, associate director of the Heinrich Böll Foundation, told Devex that GCF was set up to be funded by “primarily public over private” sector money because “public money will and should go where private [sector money] won’t.” But she said countries like the United States may count climate-related projects funded through the Overseas Private Investment Corp. as public money. While OPIC is a government agency, actual funding will go to a private sector company. Export assistance provided by governments to private firms may also be considered climate finance depending on the company being helped, the associate director added. Schalatek and other civil society members attending COP20 in Lima said donors like Japan and the European Union are also known for doing this not only to boost their climate finance numbers but also to create the impression that they are making large donations to the GCF. Brandon Wu, senior policy analyst at Action Aid USA and GCF board member, agrees, saying “a lot of it is accounting.” ‘Robbing Peter to pay Paul’ Each country defines climate finance differently, but in general, developed nations have broader guidelines. Not surprisingly, civil society mirrors developing countries’ narrower definition of climate finance, partly to ensure only public funding — without the profit requirements of private sector money — will be counted. What is ideal for developing countries, Wu explained to Devex, is that the GCF does not see a project counting “toward climate finance twice because it falls under a couple of different categories.” The definition gets murkier when aid and development finance is included in the discussion. “Drawing a line between climate finance and other types of aid is tricky,” Wu said. “We don’t want to see developed countries diverting money away from their development and aid budgets … a lot of the finance we’re seeing now is not ‘new and additional’ [but] taken from what would have been in a development aid budget from somewhere else.” That’s exactly the case of Australia. Its AU$200 million pledge will be taken from its current aid budget, bringing into question which projects and programs will lose funding as a result. Clamor for an ‘exclusion list’ The other issue with not having one clear definition of climate finance is seemingly basic but equally political: using climate finance to fund fossil fuel projects. According to Schalatek, the problem lies in the fact that energy companies and countries cannot reduce emissions overnight, even if they wanted to do so. The process takes time and part of the reason why the Paris 2015 agreement will only go into effect in 2020. But, what happens in the interim? The question came up last week after COP20 participants realized that Japan used money earmarked for climate-related projects under an earlier contribution to another U.N. climate change funding mechanism had been used to build three coal-fired plants in Indonesia. Japan’s argument that its investment prevented Indonesia from taking a bid to build a dirtier coal plant may fall flat but illustrates the bigger issue at hand: an interim climate financing definition. As Schalatek and Alex Mazounie, international policy adviser of Climate Action Network France, told Devex, deciding whether or not to fund a fossil fuel project is not a matter of one extreme or the other. Approximately 250 civil society groups do not see it that way, however, calling on the GCF board to ban any projects related to fossil fuels from being counted as climate finance and be put on a so-called “exclusion list.” “Ideally, what [civil society] would like to see is a very specific [set of] rules … saying that climate finance cannot be for fossil fuels [and] has to abide by the set of environmental and social safeguards,” Wu explained. “If there are specific targets for countries, we should have rules for what countries can count toward those targets.” Other forms of dirty energy should be added to any possible “exclusion list” that the GCF board may approve, according to Wu. But Schalatek warned that even biofuels, dams and hydropower could be included in the list. Although those projects may not contribute to emissions as much as fossil fuels, they are “not necessarily in line with sustainable development.” No one expects the discussion on definitions, rules and exclusions to happen in Lima. But for COP20 participants, it is clear that the discussion needs to happen soon. Check out more practical business and development advice online, and subscribe to Money Matters to receive the latest contract award and shortlist announcements, and procurement and fundraising news.