The G-7 take on climate finance

By Devex Editor 11 June 2015

G-7 leaders before the start of a working session during the summit held from June 7 to 8 in Schloss Elmau, Germany. Photo by: Bundesregierung / Kugler

EDITOR’S NOTE: The call by Germany toward its Group of Seven peers to get serious on the $100 billion annual support to mitigate climate risks is a welcome move. But just raising new money is not the solution, argue Overseas Development Institute experts Charlene Watson and Smita Nakhooda.

As the second week of climate negotiations kick off in Bonn, German Chancellor Angela Merkel’s call for the G-7 to get serious on the $100 billion to support climate action in developing countries comes at a welcome time. While those in Bonn seem optimistic about these negotiating sessions, which form the midpoint toward the Paris climate deal in December, governments must ramp up commitments to long-term finance to inject real energy into the process.

The $100 billion refers to the commitments that industrialized countries made to mobilize each year under the United Nations Framework Convention on Climate Change. This is not all about development assistance; it also includes a mix of other public and private finance, although what exactly counts as climate finance remains contentious.

Instead of begrudgingly creeping toward meeting their commitments, countries should embrace climate finance as a good investment. It is increasingly clear that low-carbon economic development is compatible with more equitable growth and poverty eradication. Climate finance can also avoid locking developing countries into a future of dead-end, fossil fuel-dependent assets.

Mobilizing such resources may present a challenge for countries in the throes of austerity at home, but if we want continued global prosperity — not to mention an end to poverty — we have to find the money.

Deliberations on long-term finance at Bonn did not tackle the question of reaching the $100 billion — discussions were about scaling up and accessing adaptation finance — but they implicitly helped to make this point. Adaptation finance builds resilience to climate change, but it can also build resilience to other nonclimate-related shocks.

The Caribbean Catastrophe Risk Facility, for example, offers insurance solutions that go beyond climate risk and provides vulnerable countries with risk management tools that impact wider production, investment and consumption decisions. These solutions, as part of greater investments in resilience and disaster risk reduction, are attracting growing attention.

The G-7 communiqué commits to extend access to direct or indirect insurance cover against climate related hazards for up to 400 million people and support further development of early warning systems. It isn't yet clear how these goals might be achieved as part of wider efforts to strengthen resilience and manage disaster risk.

As the host of the G-7 Summit, Germany has sent an important signal on long term finance in the lead-up to the Paris negotiations. We now need to see a wider role for finance in implementing a new climate agreement. Estimates of how much money will be needed to get to a low-carbon, climate-resilient global economy are much, much higher — in the trillions.

The solution isn't just to raise new money, but to phase out high-carbon investments. The renewed commitment to phase out fossil fuels and reform export credits to support climate action are welcome steps to this end. The commitment to expanding support for vulnerable countries in managing climate-related disaster risk is another step forward.

In practice, the $100 billion figure is largely political, representing a commitment to solving a problem for which developed countries are mostly responsible. The communiqué affirms the $100 billion goal and the central role of the Green Climate Fund in this context. But finding a practical way to meet this goal by Paris will be crucial. The G-7 must now spell out how they will reach the $100 billion target to inject much-needed trust and faith in a vital but fragile process.

Edited for style and republished with permission from the Overseas Development Institute. Read the original article.

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