What to Expect on Climate and Finance at COP26 – EQ Mag Pro

The success of COP26 may hinge on whether countries can agree on a host of thorny issues related to climate finance.

The most recent IPCC report confirmed the urgent need to accelerate climate action to keep global warming to 1.5 degrees C (2.7 degrees F) as specified in the Paris Agreement. To do that, developing countries and their climate priorities will require scaled up support. Governments, banks, investors and other financial actors will need to stop new investments in fossil fuels while redirecting money towards climate adaptation and mitigation.

Negotiators agreed in Paris, in 2015, to align financial flows with a pathway towards low greenhouse gas emissions and climate-resilient development, but they left numerous tricky elements for successors to hammer out.

These are on this year’s formal finance agenda, in addition to the “traditional” climate finance matters under the UN Climate Framework Convention on Climate Change (UNFCCC), such as the long-term quantified finance target. The agenda is further packed by the need to catch up after a year of COVID-related delays and the presence of challenging items that have defied agreement in the past.

Climate negotiations have a history of making progress through finance. As a survey of this year’s formal and informal finance agenda shows, this year’s COP must be no different.

The Finance Agenda in Glasgow

The supreme decision-making bodies of the UNFCCC, the Paris Agreement, and the Kyoto Protocol will meet in Glasgow. Negotiations on climate finance matters will take place across all three of them.

Chief among these is the annual $100 billion goal, born at the 2009 Copenhagen Accord, formalized in Cancun in 2010 and affirmed as part of the Paris pact. While only a fraction of the climate finance needed, the $100 billion goal recognizes that developing countries contribute less to climate change than industrialized nations and often lack the financial resources to make a climate transition on their own. Failure to make progress on this goal would undermine much-needed trust in the Paris Agreement.

Clarity on how much money is in the pot and how fast it will be added to are essential. But right now, it’s hard to say. The quantified climate finance goals under the UNFCCC were ambiguous by design and framed by the political dynamics of the multilateral climate negotiations. It’s not easy to assess where we stand today, nor to understand the individual contributions of developed countries to the goal.

The most recent estimates included in the fourth Biennial Assessment and overview of climate finance flows show that global climate finance flows reached an annual average of $775 billion in the period 2017-2018, an increase of 16% from the period 2015-2016. However, total public finance support from developed to developing countries only grew 2.7% in the same timeframe. Most developed countries have not yet mobilized climate finance in accordance with their fair share.

Regardless, progress on the fulfillment of the $100 billion commitment is paramount to success at COP26. The Delivery Plan led by Canada and Germany, as commissioned by the incoming COP26 President, confirmed that developed countries are yet to fulfill this commitment.

Further efforts are needed to deliver this much-needed support from 2020 to 2025, while recognizing any shortfalls in the finance to date; failure to do so would undermine progress in unpredictable ways. (Relatedly, an item to watch is developed countries’ ex ante climate finance submissions, which chart their planned contributions, in the aim to increase predictability and to help developing countries plan ahead.)

What comes after the $100 billion is the second-highest priority on the climate finance agenda. Parties have several options for launching a process to establish a new, collective, quantified goal for climate finance for the post-2025 period, from a floor of $100 billion per year, to be agreed by 2024. In doing so, countries can consider the first-ever Needs Determination report of developing countries, published by the Standing Committee on Finance in October 2021.

But It’s Not Just the Formal Finance Agenda

Although the formal finance agenda is chock full, finance is present elsewhere, both inside the formal negotiating halls and in the side events and coalitions that seek to shape the Glasgow outcome.

In the Adaptation Agenda, developing countries are strongly calling to increase adaptation finance in order to balance financial resources for adaptation and mitigation. They will also continue to push for finance for loss and damage due to climate change.

Countries that have signed and ratified the Paris Agreement — known by the shorthand term CMA — will consider outstanding finance questions regarding the design of the upcoming Global Stocktake, which intends to assess progress on meeting the Paris long-term goals. The Global Stocktake will likely be a key milestone for informing the post-2025 collective quantified finance goal.

The CMA will also aim to resolve outstanding issues regarding the “share of proceeds” from Article 6 in the Paris Agreement, building from experiences and lessons learned from the Kyoto Protocol’s Clean Development Mechanism (CDM). (Article 6 details how proceeds from international emissions trading could be used by developing countries to fund adaptation, similar to the CDM.) The CMA should also finalize the process for reporting on climate finance to enable better monitoring, verification and accounting.

Outside the formal negotiations, COP26 host the United Kingdom has put considerable energy into coalitions on finance-related issues. As part of the Race to Zero, in the private sector, the Glasgow Financial Alliance for Net Zero is promoting efforts to advance a whole-economy transition. Through the recently launched Call for Action, the Glasgow Financial Alliance has asked the G20 governments to commit to an orderly and just transition of the financial sector to a net zero emissions model.

COP26 President-Designate Alok Sharma has vocally supported a ban on coal finance or even all fossil fuel investments. Political signals in the right direction have emerged from the G7 Summit and the 76th UN General Assembly, in September, including the announcement by Xi Jinping on the Chinese decision to stop building new coal power projects abroad. Further outcomes are also expected at the G20 Rome Summit.

While outside the COP, these discussions could nonetheless contribute to the success or failure of COP26.

How to Move Ahead?

Glasgow is a critical crossroads for global collaboration and action on climate change. Its climate finance agenda will look both to the past and the future as countries make the transition into the post-2020 phase of Paris. Technical processes, scientific reports and expert inputs offer the UNFCCC an opportunity for introspection on whether its objectives and goals are sufficient to meet this historical moment.

Finance has the power to reframe what is possible: more urgent action on adaptation and mitigation. As in past negotiations, the atmosphere and tone are also important: recent extreme weather in Germany, China, Russia, the United States, Japan, Madagascar, Cameroon and around the world may spark more willingness to move on tough finance issues and thereby catalyze greater climate ambition.

Any Glasgow package will require robust climate finance elements and steadfast political signals of commitment to a full, effective implementation of the Paris Agreement. Accessibility, equity and a focus on the just transition are crucial. The package must prioritize accelerating support to developing countries, especially Small Island Developing States and Least Developed Countries. With these principles in mind, credible delivery of the $100 billion to 2025 in climate finance is imperative to pave the way not just to a new goal, but a successful COP26.

Source: wri