The December 2015 UN climate summit in Paris marked a historic step forward in international efforts to combat climate change, producing a new climate agreement that includes national commitments by 189 countries to reduce greenhouse gas emissions. While these commitments will need to be fulfilled and then ratcheted up in the years to come, they demonstrate the power of what UN secretary-general Ban Ki Moon described as an “all hands on deck” approach to the climate challenge, which it is hoped will continue up to and beyond the Paris Agreement signing ceremony on April 22 in New York.
The Paris Agreement recognises this new reality. While it reaffirms that “developed country Parties should continue to take the lead in mobilising climate finance,” it is also explicit that they act “as part of a global effort” (art. 9 paragraph 3). Moreover, “Other parties are encouraged to provide or continue to provide such support voluntarily” (art. 9 paragraph 2). To realise the full potential of this important dimension of the Paris Agreement, therefore, countries must redouble efforts to track and expand the role of SSCF so as to more effectively align it with ‘traditional’ climate finance that flows from developed to developing countries.
Fortunately, developing countries, and China in particular, which announced US$3.1 billion in bilateral climate finance on the eve of COP21, are already beginning to show leadership on this front. This year, China can use its presidency of the G20 and its leadership role in new international financial institutions, such as the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (‘BRICS Bank’), to make a decisive step forward by mainstreaming low carbon financing into the colossal new financial institutions taking shape in Asia. Indeed, this task is perhaps the largest priority for climate diplomacy in 2016.
While there are no official or systematic global efforts to track SSCF, in a recent article in the journal Global Policy entitled “Climate Finance in and between Developing Countries: An Opportunity to Build on”, we map the current landscape drawing on the best available public reports. The Climate Policy Initiative (CPI) estimates that SSCF reached US$10 billion in 2013.
That constituted as much as 30% of the total climate finance that flowed from developed to developing countries in the same period (US$34 billion). According to Climatescope 2015, investments in clean energy in 2014 in 55 developing countries (for which data were available) reached US$126 billion. More than half (US$79 billion) were South-South investments emanating from non-OECD countries.
Bilateral arrangements figure more prominently at present, with China leading the way. In September 2014, China announced at the UN Climate Summit in New York that it would establish a South-South Climate Fund. Encouragingly, China is linking its SSCF directly to the UNFCCC process, signing an Memorandum of Understanding with the UN regarding the goals and use of the fund. China’s willingness to link its own climate finance to the UN process shows how the traditional “firewall” in the UNFCCC between developed and developing countries need not impede a constructive evolution of the climate finance agenda.
But not all elements of China’s financial system are moving in the same direction. A study in Nature: Climate Change (“Developing country finance in a post-2020 global climate agreement”) found that three-quarters of all power plants in Asia that are financed, operated, or built by Chinese companies burn coal. Such support puts China at odds with most advanced economies’ export credit agencies and with the World Bank and other major development banks. It also gives an excuse to countries like Germany or Japan, which continue to finance the construction of coal plants in developing countries, to continue exporting high-carbon infrastructure. This “anti-climate finance” hinders the efforts of China and the global community to move forward effectively together post-Paris.
China’s presidency of the G20 this year provides an opportunity to bring coherence to this agenda. China and its G20 partners should work to ensure that all development banks and similar funds – old and new – begin meeting at regular intervals with the express purpose of coordinating climate finance strategies, and to seek ways to collectively and progressively eliminate the climate-destroying investments in their portfolios.
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