COP26: Climate Finance Issues

Discussions on climate finance at COP26 will include, among others, two key issues: (1) the continued delivery of US$100 billion and potential extension of the long-term finance (LTF) program from 2020–25; and (2) a new climate finance goal, which would start in 2025. Further context on these issues can be found here.

Pressure on developed countries to deliver on the US$100 billion goal is growing—doing so seems to be a clear pre-requisite for success at Glasgow. At the same time, to further build trust, COP26 could give ministers an important space to discuss key issues and provide high-level guidance on the shape and content of the post-2025 goal, constructively setting the scene for subsequent technical-level engagement. In that context, COP26 could add more value than simply initiating deliberations and setting out the process after Glasgow for agreeing on the post-2025 finance goal. Glasgow has the potential to set a positive context for the next phase of the UNFCCC process.

The US$100 Billion Goal and the LTF Program

In 2009, developed countries committed to raising US$100 billion in climate finance per year by 2020, the delivery of which is linked to mutual trust among Parties and in the UNFCCC process. But without an agreed definition of “climate finance” or agreed applicable transparency rules, not only are there gaps between what Parties say they have provided and what Parties say they have received, but reports vary on progress made.

At COP21 in Paris, Parties extended the US$100 billion goal beyond 2020 through 2025. This month’s G7 Summit in Cornwall, UK recognized the importance of delivering on the US$100 billion annual goal. However, while some developed countries have enhanced their contributions, further political will is critical for them to deliver on their collective promise in the coming months—and doing so will be key to success at COP26.

Incorporating lessons learned from past efforts may facilitate achieving the goal, such as: looking at previous fast-start finance; the efforts of multilateral development banks to align effectively with Paris goals; and private finance mobilization. Finger-pointing and blaming have not helped, and the fragility of a process that falters if a single major donor does not deliver on promises for a significant period has been highlighted.

The LTF program, which was established to help track and achieve the US$100 billion goal, was due to end in 2020. With COP26 postponed from 2020 to 2021, Parties will need to consider in Glasgow what additional process, if any, is needed to oversee the delivery of the US$100 billion per annum in the 2020-2025 period. Some Parties believe that no additional oversight processes are required because agreed processes set up under the Paris Agreement are sufficient. Other Parties emphasize that some continuation of the LTF program will be needed and must be agreed at COP26.

The Post-2025 Goal

Parties have a mandate to “initiate deliberations” on the post-2025 goal at COP26; however, that mandate still leaves many open questions. Parties in Glasgow could consider the following elements in deliberations on the best way forward.

Forum and Process: Where and how should deliberations be taken forward?

Given that deliberations on the collective goal will likely straddle several COPs, it will be essential to provide space for reflection and to develop an iterative process to maximize progress. Some formality in such a process would help to ensure predictability in addressing this issue. At the same time, redundancies or replication of other processes should be avoided. Continued informal bilateral- and group-level consultations to develop and understand positions is important to establish common ground and increase ambition.

A decision in Glasgow could outline a robust process to deliver a post-2025 finance goal. For instance, a dedicated Subsidiary Body for Implementation (SBI) agenda item that provides a forum to debate the new collective goal would give greater oversight by Parties than if managed by the Standing Committee on Finance (SCF), and would provide a formal negotiating space between COPs.

In any event, the post-Glasgow process should be timebound, inclusive, and transparent, and place the deliberations in the wider context of finance outside of the UNFCCC, such as building on the UK’s Climate and Development initiative. The process should also maximize the possibility for deliberations, including inter-sessional work, and be within a framework that has a top-down political steer with bottom-up technical elements.

To be effective, the process should take up lessons learned from past processes, including the US$100 billion goal,  and consider its relationship to the global stocktake.

Informing Deliberations: What sources should inform deliberations?

To build mutual understanding of the opportunities and challenges, credible sources ought to inform deliberations. Parties will likely include some sources from the Paris process, such as nationally determined contributions adaptation communications, and reports and technical input from the SCF. The inclusion of information external to the UNFCCC will also be important for context, such as on green recovery from COVID19, climate mainstreaming efforts, and the phase-out of fossil fuel subsidies.

Parties will want to consider sources that provide clarity on the delivery of climate finance broadly and perhaps rely on an operational definition of climate finance, such as that used by the SCF through its Biennial Assessments and overview of climate finance flows. Sources that demonstrate the contribution of the private sector finance and show how the provision, mobilization, and alignment of finance works together would also be useful. Other inputs could clarify the relationship between the post-2025 finance goal and the global stocktake.

Deliberations on sources should also ensure a balance between finance for mitigation and adaptation, to better address delivery of finance for adaptation and synergies with mitigation. Sources should also help ensure that the goal speaks to major priorities, like the needs of developing countries (including climate finance tailored to least developed countries and small island developing states in the context of their absorptive capacity) and mobilization of climate finance flows pursuant to Article 2(1)(c) of the Paris Agreement.

Political Guidance: How and when to engage at the political level?

At the political level, space should be given at COP26 for ministers to discuss lessons learned from the US$100 billion goal (including effectiveness and impact), climate finance needs (including in the context of a green recovery from COVID19), and to set out a framework for the way forward for deliberations on the post-2025 goal. Only with that political guidance in place will engagement at the technical-level be effective.

Effective use of the pre-COP should be made to set the scene for Ministerial-level discussions on this topic at COP26. The pre-Glasgow convening of heads of state and government offers another opportunity to give direction at the highest levels.

Structure and Content of the Post-2025 Goal

Glasgow could also provide a venue to start discussions on the contours of the post-2025 goal and learn lessons from the US$100 billion goal process.

Deliberations in that regard could include: the need for balance between adaptation and mitigation (including the need for specific instruments to raise adaptation finance); balance between public and private sources of finance; climate finance flows that are aligned with Paris goals; the collective nature of the goal; and the importance of equity.

Parties may also want to consider the quality of climate finance, not just the quantity, which could mean moving away from loans to avoid increasing the debt burden of developing countries.