The changing geopolitics of climate change finance

Abstract

Funding for climate change efforts in developing countries is firmly established in the Articles of the United Nations Framework Convention on Climate Change (UNFCCC). Since the early days of the climate change negotiations, finance has been a key focus of attention and, often, a principal source of tension between developed and developing countries. Understandably, these tensions have led to numerous efforts to reform the financial mechanism of the UNFCCC. The history of reforms of the Global Environment Facility – for some time the only operating entity of the financial mechanism – and the recent establishment of the Green Climate Fund are good examples of such efforts. It is asked here whether these efforts have been sufficient to keep pace with a rapidly changing, more complex and radically different world from that of 1992 when the UNFCCC was signed by most countries in Rio de Janeiro. On the 21st anniversary of the signing of the UNFCCC, the effects that global transformations have had on climate change finance are here explored, and some of the new challenges, as well as emerging opportunities, resulting from the new landscape of climate finance that has emerged as a result are described.

Policy relevance

The climate change negotiations are entering a critical period. The issue of finance is one of the key pillars on which the success of a new deal on a binding agreement depends. A better understanding of the increasing complexity of the climate finance landscape is essential. The world of climate finance and the geopolitics in which it operates have been significantly transformed since the signing of the UNFCCC. A better understanding of this transformation would help policy makers and negotiators find more effective and realistic ways to help unleash the immense amount of financial resources that could potentially be made available for the great challenge that many countries face to address climate change. The need for up-front and significantly scaled-up investments requires effective mechanisms that can leverage and encourage investments into areas where they are most needed to face the challenge of climate change. The role of the Green Climate Fund will be critical in this regard.

Keywords:

• climate finance
• financial mechanism
• Green Climate Fund
• UNFCCC

Acknowledgements

I would like to thank Aaron Reuben, Research Associate at the Yale Center for Environmental Law & Policy, New Haven, CT, USA, for his help with this manuscript.

Notes

UN General Assembly resolution A/RES/43/53 was adopted in the 70th Plenary Meeting on 6 December 1988.

New funds have been or are being created in, to name just a few, Brazil, Bangladesh, China, Ecuador, Guyana, Indonesia, Maldives, Thailand, Nigeria, India, Philippines, and Costa Rica.

The CPI (2012) report to the San Giorgio Group on several case studies shows that international development banks are playing a key role as intermediaries and facilitators for finance.

A distinction that qualifies the so-called ‘Fast Start Finance’ under the UNFCCC (Nafo, 2012, p. 10).

This distinction was taken by the Oxford Climate Policy in their review of long-term finance sources (Nafo, 2012, p. 7).

An Arria Formula meeting is one that allows members of the UN Security Council to invite other members of the Security Council to an informal meeting held outside the chambers and chaired by the inviting member.

The Development Assistance Committee acts as a forum to review and improve practices. Its members include the largest donor countries. The World Bank, the International Monetary Fund, and the UNDP act as observers.