Date : 23/06/2023

Relevance: GS Paper3 : Environment- Climate financing

Main Points : COP 28, Climate Change, Responsibility and Obligation, Low Carban economy

Context-

The recently-concluded Bonn climate conference in Germany, expected to outline the political agenda for the crucial end-of-year Conference Of Parties-28 (COP28) in Dubai, was critical for reviewing and reforming the climate finance architecture.

The NCQG: Empowering Developing Nations

• The $100 Billion per Year Commitment: In 2009, developed countries pledged to provide $100 billion annually to developing nations by 2020. However, it became evident that addressing climate change requires significantly higher financial resources. As a result, the New Collective Quantified Goal (NCQG) was established in the 2015 Paris Climate Agreement. The NCQG aims to align with the evolving needs of developing nations, considering scientific evidence and addressing the growing demands for Loss and Damage funding.
• Anchoring Developing Nations' Needs and Priorities: The NCQG is regarded as the "most important climate goal" as it raises the commitment ceiling for developed countries, ensuring greater consideration of the needs and priorities of developing nations. It addresses the lack of clarity in defining and sourcing 'climate finance' present in the previous commitment.
• Responding to the Growing Demands for Loss and Damage Funding: Climate advocacy groups emphasize the increasing need for funding to address Loss and Damage caused by climate change. The NCQG aims to ensure adequate financial support for managing these adverse impacts, especially in vulnerable countries.

Rationale for an Updated Finance Goal

• Evaluating the Implementation of the $100 Billion Target: According to the Organisation for Economic Co-operation and Development, developed countries provided $83.3 billion in 2020 towards the $100 billion commitment. However, an analysis by Oxfam highlights potential misleading figures and reporting practices, raising concerns about the achievement of the target.
• Misleading Figures and Reporting Practices: Transparency issues and the lack of reliable reporting practices complicate the evaluation of progress in climate finance. Improving reporting accuracy and transparency is necessary to assess the actual funds allocated and disbursed.
• Lack of Clarity on the Definition and Source of 'Climate Finance': The absence of a universally agreed-upon definition and sources of 'climate finance' hampers tracking and assessing financial contributions by developed countries. A clear definition and transparent reporting are essential for accountability and effective resource allocation.
• Developed Countries' Responsibility and Obligations: Given that developed countries' economic growth often results in high carbon emissions, they bear a greater responsibility for climate change. This recognition calls for a fair distribution of climate financing burdens.

Challenges in Climate Financing

• Increased Quantitative Availability but Limited Accessibility: While funds for climate finance have increased quantitatively, many developing nations struggle to access these resources promptly. Enhancing accessibility and efficient distribution is crucial for effective climate action.
• Private Sources and Delayed Disbursement: A significant portion of climate finance comes from private sources, leading to delays in disbursement. Ensuring timely access to funds is vital for developing countries to implement climate initiatives effectively.
• Burden of Loans and Equity: The majority of climate finance is provided as loans and equity, potentially burdening developing nations with debt. This impedes their ability to address climate change and develop sustainable infrastructure.
• Delayed Access and High Interest Rates: Accessing climate finance often involves long waiting periods, exacerbating the debt burden for developing nations. High-interest rates on loans further hinder their sustainable development efforts.

Perspectives of Developed Countries

• NCQG as a Collective Goal for All Nations: Developed countries argue that the NCQG should be a collective goal, applicable to both developed and developing nations. This perspective promotes shared responsibility and encourages all countries to contribute to climate financing.
• Potential Implications on Developing Countries: Concerns exist that framing the NCQG as a collective goal could disproportionately burden developing nations. The financing required for mitigation, adaptation, and addressing loss and damage may exceed their financial capabilities.
• Mobilizing Private-Sector Investments and Loans: Developed countries emphasize the importance of mobilizing private-sector investments and loans for climate finance. They believe increased private sector involvement can contribute significantly to funding needs and accelerate the implementation of climate action plans.

The Crucial Year of 2023

• Deadline for Agreement on the NCQG: The year 2023 carries immense significance as countries face a deadline to agree upon the NCQG. This agreement will determine financial commitments and targets for climate financing, surpassing the previous $100 billion per year goal.
• Estimating Investments Required for a Low-Carbon Economy: Experts estimate that transitioning to a low-carbon economy necessitates annual investments of $4 trillion to $6 trillion. These significant financial requirements underscore the urgency of reaching consensus on the NCQG and mobilizing resources accordingly.
• Exploring Separate Targets for Mitigation, Adaptation, and Loss and Damage: To address diverse aspects of climate change effectively, some propose setting separate targets or sub-goals within the NCQG. This approach ensures a comprehensive focus on scaling up concessional financing, reducing debt creation, and facilitating an equitable transition.

Conclusion:

As nations work towards finalizing the NCQG, it becomes essential to prioritize inclusivity, transparency, and effective resource allocation. By addressing the challenges of accessibility, debt burdens, and ensuring the participation of all stakeholders, the NCQG can foster an equitable and people-led transition towards a sustainable future. The upcoming Global Stocktake at COP28 will play a pivotal role in shaping the roadmap for climate financing and enabling the transformation required to combat climate change effectively.

Source: The Hindu