Development

Balancing on The Fulcrum of Climate Finance

Tobias HESSENBERGER (2016), London School of Economics and Political Science, Msc Political Economy of Late Development

The needs of developing countries have only been addressed by the global initiative against climate change to the extent that the developing countries can successfully balance a national climate change strategy with their primary economic development goals. This infers the question of whether developing countries are included in the global initiative with a common but differentiated responsibility. Arguably, with the Paris agreement removing any legal obligations, the provision of climate finance is the only way of addressing developing country needs. As the title suggests, with global climate finance as the fulcrum, a developing country’s needs balance between economic development goals while addressing the costs of climate change.

The need of developing countries:

To clarify the argument of this paper, the concept of common but differentiated responsibilities (CBDR) must be discussed.

For the past decade, developing countries have become increasingly significant emitters. Countries such as China produced “58% of the increase in CO2 worldwide from 2000-2006” (Walsh et al. 2011). Figures like this demand the inclusion of developing countries into the discussion of any global initiative against climate change. However, to put developing countries at the forefront of reducing emissions in the absence of supportive resources would be paradoxical. It is undeniable that developing countries face alternative challenges to tackling climate change, beyond the ones faced by developed countries. Most notably, the challenges are split between mitigation and adaptation. Mitigation refers to “limiting the production of greenhouse gasses” and thus controlling anthropogenic climate change (Parry et al. 2008). Adaptation is the “adjustment in natural or human systems in response to actual or expected climatic stimuli” (Parry et al. 2008). Ultimately, the extent of these activities is defined by the trade-off between any climate change initiative and economic development goals.

Economic development demands an increase in output to service a growing urban population and market, increasing energy usage and carbon emissions (Eakin et al. 1995). When considering the normalized path to socio-economic development, inclusive of high emissions from industrialization, to restrict emissions would be to limit economic development. To avoid constraining development through emission limitations a growth of literature calls for industrial policy to include sustainability which is also apparent in the millennium development goals (Naude et al. 2010).

Eakin and Selden find earlier stages of economic development associated with an increasing marginal propensity to emit which then decreases along the inverted U-curve (Roberts and Grimes. 1997). With the majority of the population and output growth coming from nations at earlier stage of economic development (IMF. 2016), any constraint on emissions would worsen the position of poorer countries to develop. This is the “Gordian Knot to be untied” (Naude et al. 2010).

With this in mind, many developing countries also lack the resources to focus on economic development while joining a global climate change initiative. These lack of resources materialize as scarcities for funding, which in abundance could make existent green technology more affordable and accessible. Lower costs and higher availability would help developing countries to grow with what little carbon they can safely burn (Modi. 2016). Thus, the main need of developing countries is to be supported with mitigation and adaptation. Through establishing climate finance as the main channel of assistance to help developing countries with their mitigation and adaptation challenge, this papers analysis is warranted.

Considering developed countries are historically more responsible for the greenhouse-gas emissions of earlier years, for them to provide climate finance to improve the capability of developing countries would be fair, just, and equitable. From 1850 to 2007, the US accounts for 28.8% of total carbon dioxide emissions (World Resource Institute). This is the idea behind historical responsibility. From the past to present, from Kyoto to Paris, the US has refused to acknowledge this responsibility by the excuse that legally binding carbon caps would be unacceptable unless similar restrictions met India and China (Varghese. 2015). This led China and India to refuse to take on “any environmental commitments as part of the Kyoto agreements” (Walsh et al. 2011). However, since the establishment of a global carbon budget that would accommodate the needs of developing countries has failed, it is now a question of whether climate finance is sufficient for developing countries to overcome the challenges of mitigation and adaptation. If it does, then historical responsibility has been taken into account to establish the concept of CBDR.

To summarize, it is through the challenge of pursuing economic development in light of climate change policy that developing countries find the need for assistance. In the context of the COP21, the assistance is in the form of climate finance. The rest of the article will focus on whether current climate finance is sufficient.

Does Paris address this need?

With the COP21 not invoking legally binding caps, a restraint on developing countries has essentially been taken away. As previously explained, this is the restraint on economic development by allocating resources to a climate change initiative.

At first sight, the opening proposal of the Paris agreement reveals two points indicating its base on the significant woes from developing countries. It “recognizes the urgent need to enhance the provisions of finance, technology, and capacity-building support by developed country parties” (UN. 2016). It then hopes to resolve this by strongly urging “Developed Country Parties to scale up their level of financial support, with a concrete roadmap to achieve the goal of jointly providing USD 100 billion annually by 2020” (UN. 2016).

Climate finance for CBDR:

Taken from the previous section, we shall assess whether climate finance sufficiently recognizes and resolves the issue of CBDR.

If to a large extent it does, then we can conclude that the current global initiative to tackle climate change addresses the needs of the developing countries. Recent responses to addressing this question after Paris focused on a numerical approach to conclude on how sufficient the amount of finance was (Chivers et al. 2016). The fact that the costs of climate change are not easily calculated, due to the inability to allocate the costs from an environmental disaster to climate change stimuli, makes a judgment on the appropriate level of finance very hard (Burton. 2009). Thus, to expand on current literature, this paper evaluates the structure and mechanisms of climate finance from the Paris agreement.

There are two views on how climate finance should address the CBDR concept. One being from the developed countries, and one of the developing countries. Quite naturally, developing countries would like climate finance to be based on the concept. Alternatively, developed countries desire climate finance to reflect the concept. The significant difference being that an approach based on the concept would probably yield an agreement with more legal value (Nelson, 2016).

Despite the $100 billion per annum promised (UN. 2016), it is the lack of structure and consistent ambiguity in the mechanism for providing that finance which prohibits this paper from concluding that the global climate finance initiative is based on CBDR.

Evidence for this is found between the usage of the word “should” and “shall”. Under Article 9 (1) from the Paris agreement, developed countries “shall provide financial resources to assist developing country Parties with respect to both mitigation and adaptation” (UN. 2016). This provides a more legally binding view that developed country must provide climate finance to less developed nations to meet the target of $100 billion per annum. However, soon after, Article 9 (3) stipulates that climate finance “should” be “mobilized from a wide variety of sources, instruments, and channels, noting the significant role of public funds, through a variety of actions, including supporting country-driven strategies” (UN. 2016). This constructs a demand for climate finance but without any concrete structure in place to make sure it is sufficient in addressing the needs of developing countries. A quintessential example of this is Paragraph 52 which makes sure that Article 8 does not “provide a basis for liability nor compensation” (UN, 2016). This ensures no room for a loss and damage claim from an environmental disaster against other countries. Neglecting historical responsibility and the CBDR concept.

This lack of structure results in several serious issues of climate finance in practice. Firstly, the issue of climate finance coming from private versus public coffers. Notably, the use of “mobilized” versus “provided” in Article 9 (3). This paper argues that “provided” infers the use of public funds with its connotation to allocate resources from a budget. On the other hand, “mobilized” infers the use of private capital, to which a government only has to help establish the mechanism (Nelson, 2016). With the past use of carbon emissions trading and the use of national green energy markets, it’s foreseeable that a global initiative is looking to reinforcing the neo-classical market to solve the problem (Krugman, 2010). This puts pressure on developing countries to establish institutional frameworks to be an attractive climate finance investment (Nelson, 2016). Lastly, with the current market based poverty solutions it is hard to see how the reliance of climate change on scientific expertise will not invoke a top-down approach to projects. Such an approach runs the danger of only addressing the needs of developing countries defined by the projects creators, developing countries. There is also the danger of private capital flowing to where it is most profitable, such as India and China, while forgetting the needs of the poorest countries. Arguably, these points go against the initial success of Paris removing restraints in developing countries. Thus, such a private market mechanism of climate finance doesn’t adequately address the needs of developing countries. Only to the extent that the developing countries can successfully balance a national climate change initiative with their primary economic development goals.

Secondly, as climate finance mobilizes from a variety of sources, climate finance flows cause an issue. As it can come from multiple avenues, public and private, meeting the USD 100 billion per annum could result from re-categorizing existing aid flows as climate orientated. This addresses questions such as: for foreign finance to be climate finance, does the project need to be 100% climate orientated or just have an adverse positive climate impact? As development and adaptation become more connected (Ayers and Dodman. 2010), labeling a project as a climate change initiative becomes more challenging, especially when an estimated 80% of climate finance comes from official development assistance (Kharas, 2015). This creates an issue of whether climate finance is fitted to the discourse of normalized development or whether it has more specific goals relating to climate orientated outcomes. The result of climate finance being used in the normalized development discourse has the outcome of climate finance aiming for short-run returns as development tackles problems that are already apparent while climate adaption aims at addressing unknown problems. Therefore, climate finance would not target sustaining living conditions in the foreseeability of environmental disasters. Despite addressing this issue through demanding “a progression beyond previous efforts”, the use of “should” weakens this. Also, without a specified base year, how can a progression beyond previous efforts be evaluated?

With both these issues in mind, it is hard to conclude that climate finance sufficiently reflects the issue of CBDR.

Conclusions:

This article has underlined the fact that the global effort to tackle climate change has only addressed the needs of the developing countries to the extent that developing countries have the resources to implement a national climate change initiative alongside their economic development plan. As previously stated, whether developing countries have the resources depends on whether climate finance successfully incorporates CBDR. Due to the lack of structure and clarity regarding climate finance put fourth by the Paris agreement, it is hard to vote in favor. However, it’s plausible that if the needs are continually reinforced as a climate change emergency, developing countries will gain negotiating power to create a “pacemaker for policy processes” (Obergassel et al. 2016).

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