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Climate Finance - Justice, Governance & Transparency

                                                                                                                                                      Soumya Dutta                                                                                     


Origin of Climate Finance

Ordinarily, the ‘subjects’ of climate & finance are from two different worlds.  The understanding that “anthropogenic”, or more specifically – certain types of economic & industrial pathway that some countries & societies have followed over particularly the last 100 years, is causing unpredictable and harmful changes to the global climate system, is the first connecting link.  The second major link is the unjust yet true tragedy that those countries & societies are suffering most from these harmful climatic aberrations, who have contributed almost nothing to the cause of the unfolding climate change crisis.   In that sense, it’s not right to call the present crisis “anthropogenic”, as the IPCC (Intergovernmental Panel on Climate Change) and almost all international players are naming it.   As this is a result of a certain kind of Political-Economy, and has nothing to do with the existence of the human species (the ‘anthropo’ part), a more appropriate description would be “Industrial-capitalism induced” crisis.  And this is in addition to the other major environmental, economical & social crises the same system is generating.

Out of these two primary linkages, through  a process of somewhat ‘coloured’ and unequal process of international negotiations, the concept of – and one time near universal consensus on – climate finance emerged and was codified in the Kyoto Protocol, and the subsequent Bali Roadmap.  The idea is that those who have contributed maximum to create this CLIMATE change crisis, will contribute FINANCIALLY  towards both the MITIGATION of the problem or crisis (depending upon who is describing it), and also to help the non-contributing victims of this crisis try & overcome – at least the worst impacts from these climatic aberrations, or their ADAPTATION.   The financing is also supposed to help the poorer nations & societies to transition to a less carbon intensive ‘development’ path, as it was recognised that these societies need to get increased access to both more energy & other material services, to reach a minimum dignified level of existence.   Thus, climate friendly technologies for these poorer societies are to be part of the climate finance agenda, along with the adaptation finance needs of the most impacted. 

Climate Finance – Where from, To whom, How much, Mechanisms 

The initial concept of generating climate finance was almost entirely from the 36 developed and richer countries in the Annex 1 list, who have historically contributed maximum to create the climate change crisis in the first place – by using overwhelmingly large shares of fossil carbon fuels, by consuming disproportionately large shares of most material productions and by accumulating, often at the expense of poorer societies, all kinds of wealth through these uses.  It was also agreed that the major part of the envisaged climate finance will come through PUBLIC FUNDING by the rich countries, where the unequal market conditions are not a determinant.  This was the near-universal consensus after Kyoto Protocol came into being and was being operationalised.  Though under pressure from some developed & rich countries, the concept of generating climate finance from marketable CO2 emissions was also introduced in the formal design / mechanisms.  These later became the primary ‘sources’, with public funding commitments wavering and not materializing in significant amounts.

It was also a near-consensus till the early part of the first decade of 21st century, that these financing will go to all the under-developed, under-consuming countries -- and those who are / likely to suffer the most from these erratic climatic changes -- to help them fight the impacts of climate change, to increase access & delivery of basic minimum needs through less carbon-intensive development pathways, and for the technologies & other means for this transition. There are many studies / research showing which countries & societies will suffer most from a range of climate catastrophes, and the following World Bank study / grouping is one of these.


The above table shows the 12 most vulnerable countries from a range of five (5) strong climate change impacts which are already evident &/or most likely to intensify soon.  The one striking feature of this is that all the most vulnerable countries are low or middle income, those who have not contributed to GHG-induced climate change to any significant degree.   None of the richer countries, which caused this problem, are in the high-vulnerability list!   Bangladesh is one of the most vulnerable in three of these categories, as is India.

It also has to be acknowledged that the number of people being & to be affected by a variety of climate risks have gone up sharply over the past 40 years or so, as shown by the figure below.  This is no of people per lakh of population, and the figure has more than doubled in the last 40 years !  This also shows, that in spite of the Kyoto Protocol and various claims of nations & multilateral bodies like the World Bank, and their “market-driven climate solutions”, the problem has only worsened over the last decades.  Obviously, these false-solutions  are not working.

ClmtRiskPrabability_per one lakh

Also note the alarming percentage of world population being / likely to be affected by extreme climate events.   Even this conservative estimate is close to 4% of the global population now, or nearly 280 million people! A number close to the current total US population.  The number of people being affected to a lesser degree is much higher.

Somewhere down the line, starting midway in the last decade (2000-2009), several developed nations started raising the bogey of ‘emerging economies’ bearing part of the responsibility.  This was clearly & knowingly ignoring the fact that none of the emerging economies – including the wealthiest & the largest emitter, China – has historical emissions anywhere even comparable to the rich nations.  This was also a violation of the agreed Kyoto principle of “common but differentiated responsibilities”, based on respective capabilities, and the fact that the biggest of these emerging economies are still inhabited by a disproportionately large percentage of very poor people, who are at the front-line of climate impacts, as shown by the above figures. 

The rich nations have stalled any meaningful climate financing, taking cover under these new excuses – a clear case of continuing shifting of the goal-posts after the game began under agreed rules /norms.   There is also increasing talks and proposals in the last two years – starting from the UNFCCC -COP15 (15th Conference Of the Parties to the United Nations Framework Convention on Climate Change) at Copenhagen onwards, that a major part of any climate finance will have to come from “market    mechanisms”, and not public funding.  This clearly neglects the fact that capitalist ‘free’ markets (strangely, free from regulatory controls, but not from public financial support – as demonstrated during and after the start of the present economic downturn from late 2007)  operate primarily – not to take care of the needs of the poor, but to make maximum profit from those who can pay for the goods & services on offer, at levels & terms to maximise the corporate profits.

 The Cancun Agreement on Long-Term Cooperative Action (Decision 1/COP.16) in Dec.2010 to some extent consolidated the climate finance promises that were only vaguely given in the 2009 Dec. Copenhagen Accord – in terms of the Fast-Start & Green Climate Funds. There are various estimates, guesses, guestimates and calculations that have gone on to determine what is the range of climate finance needed for various critical elements of adaptation, transition etc.  Starting with the highly publicized 2003 Stern Review, to the latest (2010) World Bank estimate, the amount of minimum climate finance needed has by now, some basis other than random guesses.  If the figures circulated around  2004 were about US $200 billion per year for a comprehensive response to climate change crisis, it has come to a minimum of US $500 billion (US $1 billion roughly equals Indian Rs.5,400 Crores) per year in the latest World Bank report.    

In the  early stages of climate finance negotiations, the figure of about US $200 billion per year – to go to the poorer countries – was being seriously discussed. It was also proposed that in view of the problems of immediate generation of such large financial resources, a“fast-start” finance will be more “appropriate”.  Somewhere before the Copenhagen climate summit (COP15), this fast-track finance figure came down to the pathetic (remember, this finance is for the whole world of climate change impacted people!) US $30 billion for the three years of 2010-2012, or US $10 billion per year till 2012.   This was to be followed by an amount of US $100 billion per year from 2020!  The year 2012 is significant as the first commitment period (for actions agreed under the Kyoto Protocol, including reduction of polluting Green House Gas emission by the developed countries to the agreed level, and climate finance) under KP ends in 2012.   There is as yet no certainty, no clear direction as to what happens to the international climate treaty & and positioning of big-nation players after Dec.2012.  Neither has it been fully agreed what the second commitment period would be – with increased reduction commitments and vastly increased climate finance needs & hopefully increased financing commitments, though there are proposals that this be a short period of 2013-2017, as the climate system is running out of maneuvering space and is dangerously close to increased number of catastrophic events.


Consider the fact that the rich economies together just threw  ‘life-lines’  to their biggest and richest banks, financial institutions and corporations - amounting to over US $3,000 billion of Public Funds in two years after the financial crisis hit them (the ‘competition based free-market economy’, so sacrosanct till now, just vanished in thin air, as the ‘free-market’ evangelists themselves got hit).   Also consider the actual climate catastrophe induced losses suffered by just a poor medium-sized nation – Pakistan – in just one large climate change disaster -- the recent devastating floods -- conservatively estimated at US $30 billion, just in one year!  How the estimate of US $200 billion/year in 2004 came down to US $10 billion in 2010 (the actual down-grading is more than 20 times, considering inflation), what will happen from 2013 to 2019, how much US $100 billion will be worth in 2004 value then, what happens to the World Bank estimate of a minimum of US $500 billion /year? None of these have any clear answers from those playing the geo-political-economical climate games.  It is immeasurably bigger than even all the Olympic Games put together!  This game not only involves vast amounts of money, it also involves huge losses of human lives and  livelihoods, fast increasing species extinction, potential threat to the very existence of the majority of the world’s poor.  Thus, it has far more adrenalin-pumping excitement for the big players than even the now-rare big-game hunting!

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The very concept of Clean Development Mechanism is flawed and full of fraudulent actions.  The only beneficiaries are the rich corporations in the developing countries.

Where will these climate funds come from?  The original consensus of a large part of this being public funds, have many supporters and many mechanisms have been suggested for that.  Selling or even auctioning of carbon dioxide emission permits within the developed countries is one such proposal (note that presently, the emission permits are distributed free to big-polluters, based on their present calculated emission figures).  Carbon tax on all products & services which have large carbon footprints is another proposal (for example, air travel is a highly carbon-intensive mode of travel, which causes a large pollution contribution by fewer richer people,  and a  carbon-emission tax on this can generate substantial and well justified climate funds, in addition to braking the fast growth of this high-emission activity).   A Tobin-tax, or tax on large financial transactions is another idea that is circulating for long.  All are feasible, but none of these even touches the original idea of a small part of the GDP of the rich nations being committed as climate finance – as their moral, ethical & legal commitments to those badly impacted by the consumption of these rich societies.  

The two major climate finance routes that the world’s governments have adopted are the funds transfer through the so-called Clean Development Mechanism (CDM) – which is an approved mechanism under the Kyoto Protocol, and the forest related Reduction of Emission through Deforestation and forest Degradation (REDD) and the addition to this with Enhancement of forest carbon, or the  REDD+ scheme, which are yet to be  formally adopted – though already operational in other ways.  The CDM allows entities in the rich developed countries not to reduce their actual GHG pollution, and instead buy Carbon Credits from poorer developing country’s activities which are supposed to be less GHG emitting than they otherwise would be, and “offset” their emissions with this saving of the developing country activity.

The very concept of CDM is flawed and full of fraudulent actions.  The only beneficiaries are the rich corporations in these developing countries, as they are the ones with the resources to go through the complicated international process, and most of the CDM projects – Chinese & Indian corporates being the largest beneficiaries – have only increased the sufferings of the poorer communities around these project sites, who are supposed to be lead to a “sustainable development path” by these CDM activities.  This is apart from the fact that CDMs have neither reduced the GHG emission of the buyer or seller countries, nor of the world as a whole.   And recently, the CDM Executive Board has rejected several Chinese proposals of Wind Energy Farms – a very clearly climate friendly pathway – on flimsy grounds of ‘additionality’, while admitting the very polluting coal fired power plants application for CDM money as they are using the so-called ‘super-critical steam’ technology.  The wind energy farms will have hardly any GHG pollution, while the super-critical steam coal power plants will add multiple millions of tons of CO2 each, every year.  These are the strange logics of today’s climate finance mechanisms.


The other major climate finance mechanism in operation today, REDD /REDD+ , is the concept that poorer developing countries with substantial forest cover are cutting down their rich forests for economic development, and need to be financially helped to preserve & even enhance their forests.  The dependence on forests for economic growth need to be diverted with investments on their basic survival needs being supplied from non-forest activities.  This has the logic that forests are some of the best carbon sinks, and soak up carbon dioxide at a far lower price per ton of CO2 than many other  emission reduction activities, and thus with the same climate financing – you can get more bang for the buck.  This also follows the ‘least-cost’ logic that increasing forests in the developed countries is costlier – though these countries often have far lower population densities and large tracts of land.

Hard cash talks much louder than soft human lives – if they are poor, and that’s why there is hardly any  considerations that a fairly large number of the world’s poorest people live in or around the forests, that they are largely dependent on forest resources for their livelihoods, that forests are also the habitats of a very large part of the world’s bio-diversity, and any attempt to look at forests through the lens of Forest Carbon-Stock, is most likely to seriously impact all these humans and other lives.  The considerations of various human rights of people who live inside or in the periphery of forests, the multiple importance of the diversity of plants & animals in a forest, rather than how much carbon can be stored in a certain amount of tree-covered area etc are thorny questions yet to be answered, and impacting this route of climate finance, though these have not deterred either the rich-country entities or even the poor-country governments from going full steam ahead with REDD / REDD +.   Money talks louder than humans in these games.

There are other ‘innovative’ proposals for climate finance, some of which have generated considerable international interest.  The Equadorian governments proposal of not drilling for and extracting its huge petroleum (a GHG emitting fossil fuel) reserve under the dense Amazonian forest of Yasuni region, if the rich nations pay Equador the climate finance in exchange of this non-extraction & burning of a polluting fuel -- has attracted several countries.  Some European countries, lead by Germany, has committed substantial climate funds for this “Yasuni Green Gold” proposal.   There are other ideas, but all are now being diluted in light of the dithering of the richer nations in face of their economic turmoil and their clear reluctance to honour the commitments.

Governance & Transparency Issues

The poor nations have waited and waited for any kind of Climate Finance, facing one devastation after another, and wondered about how the estimated (much much less is actually committed) climate finance figures kept shrinking, without being actually privy to the negotiating games.  This was brought to the fore, when in Dec.2009 at the COP15, a “selected” few nations (big emerging economies were part of that coterie lead by the US & Denmark) sat together behind closed doors – violating the UN negotiating principles of every country as equal consulting partner – and came out with the atrocious “Copenhagen Accord”, effectively throwing many accepted KP decisions to the garbage bin.   Several poor countries protested this secrecy & unilaterilsm, but many folded up to the pressures of coercion or little financial temptations.  Bolivia was the noted exception and stood up for all the marginalised societies.  In terms of compliance of KP,  the “Cancum Agreement” of the COP16 at Mexico in Dec.2010 only took this process of non-transparency and de-collectivisation of governance and delegitimisation of signed treaty -- further down the unethical might-is-right road.  Though Cancun also saw the creation of the “Green Climate Fund” now being discussed and  the Cancun LCA text also included a decision to establish a Standing Committee on finance to assist the COP on matters relating to financial mechanism, and to improve reporting by developed countries on their provision of finance to developing countries.  This was one right step towards accountable governance.

When even official “Parties” – the national governments – to the UNFCCC & KP are not always privy to decision making and goal-post shifting, one can easily imagine the status of the civil society which often is the only representative voice of the marginalised.  Apart from this, even the decisions that our own national governments are taking, or their commitments to international fora or secret chambers of powerful nations (like the G-20), are hardly ever open to scrutiny to our own Parliaments.    Within South-Asia, the Indian government has drastically changed its position on mitigation, on climate finance etc – without in any way taking its people, or even its own Parliament into confidence.  Bangladesh is one of the most vulnerable countries in the world, from several continuing and expected climate change impacts, and yet it failed to stand firm in Copenhagen & Cancun on the principles of climate justice.  Nepal has a large percentage of its people deeply dependent on forest resources, and yet it has initiated REDD+ projects in its territory, in return of some money from a few European countries.  It is no surprise that the large number of poor people in India or in Bangladesh or in Nepal, who are already suffering from clmate impacts, have no information or knowledge of their own government’s  stands or changes of positions, and that their lives & livelihoods are up for  garage-sales.

Whatever climate finance is actually committed and operationalised, it is facing and will continue to face the big question  of credibility as the World Bank has been made the trustee of the fast-track finance for the first three years till 2012, and the WB has no admirable record of looking after the poor societies, rather the opposite.  There is the newly constituted “Green Climate Fund” with a governing  board split numerically equally between developed & developing countries, but who and how this fund will be governed, is yet being negotiated.  In the meantime, big businesses are already establishing their stranglehold over many of the processes – by floating many pressure groups on governments & by floating BINGOs (Business and Industry NGO) to influence the little bit of open-space that occasionallcomes up for civil society organizations and people’s movements,  during the negotiations.

The challenges are not only about which country or country grouping, which institutions will be ultimately governing the climate finance and through what mechanisms, but the bigger challenge is how to bring in the voices of the poor, of those communities already paying the price of reckless fiddling with nature’s climate system.  How do we ensure that the world’s Carbon-Keepers -- those who practice a low carbon life-style, and protect forests or grow our foods through low-impact agriculture – are given the benefit of these climate finance ?  And these cannot be achieved by just giving a little space for voicing their concerns (in any case, not many true representatives of these communities are able to reach the high tables of the negotiators & parties to the negotiations).  For true democratic governance and transparent operation of climate finance, these communities have to be brought to the centre of the climate finance decision making. The climate finance – however little and whatever little – will finally flow to the developing country governments, but how or whether they will reach the true climate impacted communities in real need based & transparent manner, is not clear.

These are the many questions in the vexed issue of climate finance.  How to resolve them in a just and equitable way?  That is the 500 billion dollar question.


Some key principles in Climate Finance


Climate finance must be adequate and equitable compensation. Climate justice, supported by principle of common but differentiated responsibilities, holds the North as mainly responsible for climate change. Correcting this injustice entails large-scale compensatory funding from the global North to finance climate action, especially adaptation which the global South needs most urgently.


Climate finance must be adequate and predictable; additional to existing Official Development Assistance (ODA) commitments; public in nature; and delivered as instruments that do not create repayment obligations. Climate funds should come primarily from contributions of developed countries assessed according to responsibility and capacity to pay.


Climate finance must be democratically governed. International climate funds should ideally have mandate from the UNFCCC and come under the full authority of the COP. Developing countries should be proportionally represented. Nationally, climate finance institutions should be publicly mandated institutions with full multi-stakeholder structures. At both international and national levels, ample space must be provided for participation and intervention in governance by civil society and other non-government stakeholders, especially those representing communities and sectors most affected by climate change.

Climate finance must be human rights-based.  Climate finance must be framed as a relationship between rights-holders (developing country recipients) and duty-bearers (developed country providers).

Climate finance should lead to the protection, fulfillment, or redress of the rights that are compromised by climate change (e.g. right to life, food, shelter, work, self-determination) and not lead to their further violation. Apart from general human rights as described in the UN Universal Declaration of Human Rights, climate finance must also thoroughly consider the specific subsets of rights especially of those sectors most affected by climate change, such as women, farmers and indigenous peoples.

Climate finance funding decisions and processes of delivery must also be consistent with human rights principles. These include the rights to information, participation in decision-making, and access to justice through redress mechanisms.

Climate finance must be country-led and democratically owned. Climate finance should not be driven by donor priorities, but the nationally-determined needs of developing countries and their diverse peoples, as articulated in climate change plans or strategies or integrated in development strategies.

Climate action is integral to overall development. Even the best-financed programs cannot succeed in halting climate change and shielding people from its impacts if the underlying conditions to environmental destruction and poor people’s vulnerability – unequal and unsustainable patterns of development – are left unaddressed.  Climate adaptation and mitigation strategies and funding must be framed and integrated with national development strategies towards ecological sustainability, food sovereignty, decent work, gender equality, social equity and people’s empowerment. Policy coherence around these goals across the various areas of international cooperation, such as aid, trade, investment and finance are also necessary. 


download (1).jpgThe Author Mr Soumya Dutta is currently  Convenor  at Energy & climate change group at Beyond Copenhagen collective and also works with Bharat Jan Vigyan Jatha, member of advisory board of this journal and SADED in honorary Capacity.

This paper was originally written as a brief background note for a SASF workshop in Dhaka, Nov.2011


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