Oct. 20, 2020 — LONDON — Rich countries’ preference for offering climate finance via loans and carbon markets is seen getting in the way of an ambitious global climate deal next year.

When developed nations promised in 2009 to pay $100 billion of climate assistance a year by 2020 to developing countries, the emerging nations mostly expected to get the money in the form of grants, Tracy Carty, senior policy adviser, climate change, at charity Oxfam, said in an interview.

Instead, the true value of money provided by developed countries to help developing nations respond to the climate crisis may be just one fifth of the amount promised, once loan repayments, interest and other forms of over-reporting are stripped out, according to Oxfam estimates published today.

The lack of support by nations that are most responsible for climate change may block an ambitious deal when United Nations climate envoys meet in November 2021 to seek to finalise rules of the Paris climate agreement. That meeting, already delayed a year because of the coronavirus pandemic, is known as the 26th conference of the parties.

“Climate finance is a cornerstone of global co-operation on climate change — to avoid this getting in the way of an ambitious deal at COP26, developed countries must agree to put an end to unfair reporting practices and agree robust common accounting rules for climate finance,’’ Carty said.  “They also need to commit to providing far more climate finance as grants not loans, and to adaptation and vulnerable countries”.

Wealthy countries counter, saying that leveraging grants in the form of concessional loans makes the available money go a lot further — that is, more emissions can be cut once the funding is leveraged and made via concessional and non-concessional loans. And it’s the pace of emission reductions that matter, because greenhouse gases in the atmosphere can trap heat there for decades.

A recent example of a European Bank for Reconstruction and Development program approved by the Green Climate Fund demonstrates where climate finance is probably headed. The fund, built to help developing countries curb emissions and adapt to climate change, is managed by a panel of rich and poor-nation representatives.

Armenia, Jordan, Kazakhstan, Morocco, Serbia, Tunisia and Uzbekistan make up the program initially, which is designed to be repeated and expanded so more and more economies around the world begin including the cost of greenhouse gases in the business plans of private-sector companies, which produce most emissions damaging the climate.

The program, based on carbon pricing and emission credits, nearly didn’t make it off the ground. Developing countries are suspicious of carbon-market finance being offered by richer countries — after years of broken promises. The value of existing UN credits created by poor nations plunged to near zero because of weak demand, as the U.S., Japan and Russia pulled out of the system partly because the relevant 2012 and 2020 targets turned out to be weak.

Now, following its signoff, the “Accelerated Option” in the EBRD’s “High Impact Programme for the Corporate Sector” in the seven nations means an emitting company can accelerate its qualification for a discounted loan “any time beginning when the loan agreement is signed until the agreed operational start” of the emissions-cutting project by buying carbon credits, according to the 58-page funding proposal published last month.

See:
https://www.greenclimate.fund/sites/default/files/document/funding-proposal-fp140.pdf

The program will provide total financing of about $1 billion over 20 years, with $252.5 million concessional finance and a $5.5 million grant from the GCF. Alongside concessional financing, co-financiers will offer $757.5 million to corporates through loans.

The EBRD structure should help the climate shift by leveraging money earned by European nations from selling carbon allowances to their own factories and power stations. The 20-year program should cut about 20 million tons of carbon dioxide equivalent, so a cost of about $50 a ton (NOTE: the money isn’t just for emission cuts but also for green-industrial expansion, allowing emerging countries to leap frog richer countries), which is about where many economists estimate carbon prices should be right now.

“In my view carbon transactions are almost like the purest form of climate finance because it’s money going toward reductions,’’ said Jan-Willem van de Ven, head of climate finance and carbon markets at the EBRD, said last week at a GCF online event.

Oxfam’s report:

Oxfam’s Climate Finance Shadow Report 2020 estimates that donors reported $59.5 billion per year on average in 2017 and 2018 – the latest years for which figures are available. But the true value of support for climate action may be as little as $19-22.5 billion per year once loan repayments, interest and other forms of over-reporting are stripped out. Oxfam’s analysis is being released ahead of a report by the Organisation for Economic Co-operation and Development (OECD) on developed countries’ progress towards the goal of providing $100 billion in climate finance per year by 2020.

An astonishing 80 percent ($47 billion) of all reported public climate finance was not provided in the form of grants – but mostly as loans.  Around half of this ($24 billion) was non-concessional, offered on ungenerous terms requiring higher repayments from poor countries.  Oxfam calculated that the ‘grant equivalent’ – the true value of the loans once repayments and interest are deducted – was less than half of the amount reported.