Who Is Going to Pay to Save the World?

PARIS — Changing the world is an expensive proposition. But for the representatives for the 195 countries gathered in Paris for the COP21 summit on climate change, the most daunting step might be figuring out how to split the bill. “The elephant in the room is still finance,” said Yvo de Boer, former head of the U.N. climate change body, at the start of the climate talks. And as the talks move into their final day or so, who will foot the bill for trying to stop a warming world is still one of the biggest lingering questions that will determine the success or failure of a global agreement.

The question, roughly put, boils down to how much the developed world will pay for poorer countries to adopt greener, less polluting, and more expensive energy solutions, and how much will be shouldered by developing powers such as India and China. At the summit, which aims to reach a long-term plan to curb carbon emissions and mitigate the damage done by a changing climate, even the basic definitions of “climate finance” and basic accounting practices for that money are still up for debate, as they have been since the idea was introduced at the first COP summit more than 20 years ago. While the big-picture ask of these talks is for countries to fundamentally change the way their economies grow and operate, moving away from fossil fuels, the financial question is the linchpin that dictates whether the decisions reached will stick.

“No matter how much half of the world does to clean up its act, if similar steps aren’t taken by the rest of the world, Earth has a problem,” U.S. Secretary of State John Kerry said on Wednesday in a speech announcing the United States would double its funding to developing countries, to $860 million per year. It might take more than money to break the gridlock, however. For months leading up to the meeting in Paris, developing countries — especially the world’s poorest and most vulnerable — have drawn a red line at having clarity on finance. They want to know how much countries will give before 2020 when the agreement goes into effect, whether that money will remain consistent, and what kinds of work that money will actually fund. Without clear answers to these questions, getting a meaningful deal in Paris will be impossible.

So, what is climate finance?

To understand why this has become such a contentious issue, it’s important to know how it works. The broader, widely accepted definition of what constitutes climate finance is money that goes towards funding “climate-benefit” projects around the world. A project that shores up the urban water supply in Fiji or develops early-warning systems for climate-related disasters like drought and floods in Malawi are fairly clear examples of climate-benefit projects. Where negotiators have run into trouble is deciding whether projects that fall into more of a gray zone should count as helping the environment, or at least as helping people deal with environmental changes. And as negotiations near their end, exactly how to define this is still up for debate.

Heading into the talks, developed countries had been pushing for a broader mitigation-centric definition because it would allow for projects that fall into gray areas. These include efforts such as carbon capture projects or setting up a carbon market in developing countries that do benefit the climate but are not focused on helping a country adapt more immediately to a climate that has already changed. They also don’t necessarily discourage carbon emissions.

Developing countries, on the other hand, have argued for a narrower definition, heavily focused on helping countries adapt to damage that has already occurred or is currently happening, for two main reasons. First, they want to make sure that public funds received from developed countries are allocated for projects to improve public goods, like emergency services and seed banks, explained Heather Coleman, climate change policy manager at Oxfam America. (Money for solar and wind projects would be further down the road.) Second, these nations agree that any climate finance needs to be grant-based, as opposed to in the form of loans, Coleman said, and that it be in addition to — rather than reallocated from — aid for development they were already set to receive.

“Drawing a line between climate finance and other types of aid is tricky,” said Brandon Wu of Action Aid, an international NGO working on global poverty issues. “Civil society members don’t want to see developed countries diverting money away from their development and aid budgets. Much of the financing on the table is not “new and additional,” he said, “it’s taken from what would have been in a development aid budget from somewhere else.” Developing countries are also worried about such aid used for projects that have very little to with helping the climate but are justified as such because of cost, politics, or catering to the fossil fuel industry.

Developing countries will often cite an example from last year to illustrate the difference in developed countries’ definition of climate finance: Japan infamously used money earmarked for climate-related projects under an earlier contribution to a U.N. climate funding mechanism to build three coal-fired plants in Indonesia. Japan’s argument was that their investment prevented Indonesia from taking a bid to build a dirtier coal plant.

In the draft text right now, much of the finance language lies in brackets, meaning it’s still up for debate in the talks. Coleman says the developing country group, or G-77, are “choosing their battles” and may not fully define the parameters of climate finance.

Who pays for what?

Staring down the increasingly urgent need to cut emissions to prevent global temperature rise from crossing a 2 degree Celsius tipping point, developed parties like the United States and EU are being asked to accept what is referred to in the draft decision text as “historical responsibility” for carbon emissions — basically, accepting the blame for the world’s warming due to the polluting effects of mass industrialization. Money will need to flow from North to South to help poorer countries deal with the changing climate, a concept called “adaptation.” Carbon mitigation, or curtailing emissions, is largely regarded as an issue that needs to be taken care of by developed countries.

India and China may be the world’s biggest polluters in coming decades, but they argue the lion’s share of the damage was done by Europe and the United States. As such, they cite the “right to development” — that they should not have to forego relying on cheap fossil fuels just because other nations used these resources so recklessly. And yet they are being asked to accept responsibility for their current and expected emissions levels, which has led to a push for more South-to-South funding, too.

The debate centers on pledges that will pay into several funds, which will in turn dole out cash for projects. In 2009, developed countries committed to mobilizing $100 billion in climate finance per year by 2020. The money would come from a combination of public, private, and joint resources. When the talks began, the world still needed to raise some $38 billion on top of $62 billion already committed according to an estimate by the Organization of Economic Co-Operation and Development (OECD) back in October. With recent pledges in Paris, some $80 to $90 billion has been raised, according to several civil society observers at the talks.

When world leaders talk about the $100 billion mark, they are often referring to one particular source, the Green Climate Fund (GCF), which was founded by the U.N. in 2013. That’s not the only pot where money is being collected, however. In reality, there are 22 multilateral funds administered by various groups, at least six bilateral funds, and various new pledges that have been made by everyone from Bill Gates to U.S. President Barack Obama’s announcement on funding to help the Least Developed Countries (LDCs).

Each funding mechanism has its own priorities, but the most important ones to keep track of apart from the GCF are the Least Developed Country Fund and the Adaptation Fund. These two are going to have the greatest on-the-ground impact in the places that need the money the most, such as small island nations that are at risk of inundation due to increasing sea levels and countries like India that need help in both adapting to changing climate and mitigating carbon emissions.

There is a fight over which pots of money should count, too. Developed countries are on board with counting loans and private sources of aid, but most developing countries only want public, grant-based funding to be counted towards the $100 billion goal. Transparency is also an issue: developed countries want to see who is contributing and how much, in order to assure some relative parity in funding and allow governments to plan future budgets properly. This, in turn, builds faith among developing countries that their needs will be met without undue burden, like in the form of loans they may never be able to repay.

What happens after Paris?

Paris is, in many ways, just the beginning. But how will the world know if it was a success? As Executive Secretary of the U.N. climate change body Christiana Figueres has pointed out on numerous occasions, climate change action will ultimately take trillions of dollars. There is already a mobilization of money at that level according to Joe Thwaites, a research analyst at the World Resources Institute, just not in the usual way we think of funding climate change efforts: the trillions of dollars come in the form of the increasing number of public and private institutions that announce a divestment from fossil fuels.

Not all of these issues will get resolved in Paris, but some kind of agreement will surely be signed. Over 130 world leaders spoke at the chaotic first day of negotiations in order to put pressure on their delegations to reach a deal. As of now, the draft text is down to a svelte 27 pages, with some 50 brackets to be decided on. Negotiators are behind closed doors for the most part, often doing line-by-line reviews of the text — but so far, developing countries have not publicly expressed much willingness to compromise on finance matters.

In the final push here at Paris, countries will have to choose where they’re willing to give. The language on allocating money in a balanced way between mitigation and adaptation is still murky. These devilish details will determine the fate of every other portion of the agreement and, ultimately, save island nations from drowning, farmers from experiencing drought, and cities becoming unlivable. It’s hardly the time to pinch pennies.

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