Day 3- “Finance Day”

Wednesday 9 November of COP 27 in Sharm El-Sheikh, Egypt was designated as “finance day”. The day was aimed at making progress on financial action to secure the objectives of the Paris Agreement (2015) and the Glasgow Climate Pact (2021). As defined by the United Nations Framework Convention on Climate Change (UNFCCC), climate finance refers to local, national or transnational financing-drawn from public, private and alternative sources of financing – that seeks to support mitigation and adaptation actions that will address climate change. Article 2(1)(c) of the Paris Agreement enshrines a climate finance obligation in international environmental law by providing for “making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development”.

Over the course of previous COP negotiations, several commitments have been made on climate finance. Notably, at COP 15 in Copenhagen (2009) developed countries pledged to provide USD 100 billion per year by 2020 to developing countries to finance climate mitigation and adaptation. At COP 21, the deadline was extended to 2025. The failure to achieve the Copenhagen COP 15 target has been a source of frustration for developing countries, with many leaders of developing countries characterising the failure as “eroding trust” on climate finance and within COP negotiations. Finance is critical to combat climate change, particularly within developing countries. A November 2022 Report of the Independent High-Level Expert Group on Climate Finance highlights that “the world needs a breakthrough and a new roadmap on climate finance that can mobilise the $1 trillion per year in external finance that will be needed by 2030 for emerging markets and developing countries (EMDCs) other than China”.

Africa and climate finance

COP 27 has been deemed “the African COP” and is particularly focusing on African countries, in both the challenges the continent faces due to climate change and the role it can play in the energy transition.

Within financial deliberations, there is a heightened focus on delivering climate finance for the African continent. The African Development Bank (AfDB) estimates that African countries need to raise an annual average of $124 billion to adapt to climate change. Leading up to COP 27, African leaders voiced the need for increased climate finance for Africa.  Speaking at the September 2022 Africa Adaptation Summit held Rotterdam, Ghanian President Nana Afuko-Addo stated “if we want our continent to thrive, we have to adapt to change-to achieve this, adaptation financing needs to start flowing at scale“. Weakening currencies and debt challenges experienced by African countries exacerbate issues of climate finance for Africa.

As part of supporting countries to securing climate finance, a group of UN experts have published a list of USD 120 billion worth of projects that investors could support to help poorer countries cut emissions and adapt to the impact of climate change and reduce emissions. UN Climate Change High-Level Champion Mohmoud Mohiedlin said the published list “[shows] a meaningful pipeline of investible opportunities does exist across the economies that need finance most“. Two critical projects for the African continent included under the project list are a USD 3 billion water transfer project between Lesotho and Botswana, and USD 10 million project in Mauritius to upgrade the public water system.

The UK’s COP 27 financial commitments

COP 27 has seen the UK commit to providing £200 million to the AfDB’s Climate Action Window, a recently established mechanism to provide climate finance for climate adaptation to vulnerable low-income African countries. In addition, the UK government’s COP 27 press release states that the UK will provide Nigeria with £95 million investments to support climate resilient agriculture.

The UK government’s COP 27 press release outlines other finance commitments expected to be made by the UK Foreign Secretary James Cleverly at COP 27. These include “£100 million to assist to support developing economies to respond to climate-related disasters” – (this is an element related to Loss & Damage negotiation for future days of COP 27), and tripling funding for adaptation programmes from £500 million in 2019 to £1.5 billion in 2015.  Relevant to lending arrangements, the UK released efforts to facilitate the use of Climate Resilient Debt Clauses (CRDCs) in private sector lending. CRDCs allow borrowers to defer debt payments in the event of a natural disaster. The UK further urges all creditors, inclusive of private banks, other bilateral lending agencies and international financial institutions to adopt CRDCs in lending arrangements.

EU member countries increase climate finance commitments

Over the course of the first three days of COP 27, European Union (EU) member countries, namely Germany, Italy, the Netherlands and France, have outlined increased financial commitments for countries that have contributed the least to climate change, but that are disproportionately impacted by climate change. Italy has committed to providing €1.4 billion in funding over the next five years, including €840 million airmarked for the deployment of clean energy technologies, through a new Italian climate fund. Italy has also affirmed that it remains committed to the pledge made at COP 15, in Copenhagen, to realise the USD 100 billion dollar per year for climate action in developing countries. German Chancellor Olaf Scholz indicated that Germany planned to raise €6 billion a year by 2025 and to mobilise additional private funds in parallel. Similarly, the Prime Minister of the Netherlands, Mark Rutte indicated that the Netherlands would increase its contribution to the USD 100 billion per year pledge to 1.8 billion by 2015 to address “the lasting effects of climate change“. In addition, ahead of COP 27 the Netherlands committed to a contribution of €100 million to the Africa Adaptation Acceleration Program (AAAP). In discussing the functioning of the AAAP – developed by the AfDB and the Global Center on Adaptation to mobilise USD 25 billion for climate adaptation across Africa – the President of Senegal, Macky Sall, stated, “the AAAP is Africa’s response to climate crisis to leverage investments in adaptation and resilience not just to protect ourselves from the threat of climate change, but to drive a green economic growth agenda for prosperity.”

Such pledges by EU member countries follow French President Emmanuel Macron’s commitment made at last year’s COP 26 that France will provide €5 billion annually for climate finance from 2021 to 2025.

The USA’s global carbon credit trading plan attracts criticism

The USA’s Climate Envoy, John Kerry, unveiled a plan to raise climate finance for developing countries through the sale of carbon credits to companies to offset their carbon (CO2) emissions. Kerry said the plan should be “up and running” within a year and would assist in financing the green energy transition in developing countries. Nonetheless, the plan has been criticised as allowing corporations to pay for someone else to cut their CO2 emissions, rather than doing it themselves. The German official, Jochen Flasbarth, State Secretary in Federal Ministry for Economic Cooperation and Development commented on the USA’s carbon credit trading plan saying, “We do have some concerns that the commitments we gave as governments should not be replaced by private offsetting.” In addition, countries view the USA’s carbon credit trading plan as an attempt to avoid making direct financial contributions to developing countries for climate change mitigation and adaptation.

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