What could be equitable climate finance?

By Yann Robiou du Pont and Wesley Maraire 2024-05-24 12:28

Yann Robiou du Pont is a climate researcher with a focus on assessing the fairness and ambition of climate pledges. His work spans various areas, including national and subnational ambition, international climate finance, climate litigation, and climate justice.

This text is part of a series of articles following up on the theme discussed at the 2024 SDG Conference in Bergen, encompassing the forthcoming GRIP research project: The Coming Contestation: Green Transition Finance and Inequality in the Global South.

At the intersection of global efforts to combat climate change lies the intricate web of climate finance. A critical question within this field that has received little scientific contributions is how much climate finance should be included as part of a Paris-aligned (that is equitable) national emissions reduction objective. This blog post delineates a possible conceptual relationship between ambition, equity, and climate finance. This conceptual approach has been discussed for years, but to date, studies are lacking in applying it to the Paris Agreement goals, as the latest Intergovernmental Panel on Climate Change reports point out.

 

The United Nations established the Paris Agreement, a landmark legally binding treaty aiming to limit global warming to 1.5°C (UNFCCC, 2015). The agreement enshrines the equity principle of “common but differentiated responsibilities and respective capabilities” (CBDR-RC) (UNFCCC, 2015). This acknowledges that developed nations, with their greater historical contribution to greenhouse gas emissions and economic resources, bear a higher responsibility to address climate change. Developed countries have also agreed to “take the lead” under the Paris Agreement, but still fail to demonstrate sufficient ambition (Robiou du Pont and Meinshausen 2018).

 

Parties to the UNFCCC

 

Source: https://fairsharenow.org/.

 

The Limits of Ambition Without Equity

 

The UN’s Sustainable Development Goals (SDGs) lay out a comprehensive vision for a sustainable future but translating them into concrete action remains a challenge (Breuer, Janetschek, and Malerba, 2019). The SDG framework benefits a broad support but lacks the legal bindingness to make substantive progress where international support is needed to go beyond self-interest (Robiou du Pont and Meinshausen 2018). In contrast, the Paris Agreement is legally binding, leading to contentious negotiations and slow progress in determining the level of effort that each country should provide to reach the collective goal. Many countries’ Nationally Determined Contributions (NDCs) – their pledges to reduce emissions – fall short of the ambitious targets needed to achieve the 1.5°C goal (UNEP, 2023; Robiou du Pont and Meinshausen 2018). Furthermore, economic modelling often suggests that significant emissions reductions should occur in developing countries to follow a globally cost-optimal trajectory (IPCC AR6, wg3, fig 3.35).

Figure 3.35 in Cooley, S., D. Schoeman, L. Bopp, P. Boyd, S. Donner, D.Y. Ghebrehiwet, S.-I. Ito, W. Kiessling, P. Martinetto, E. Ojea, M.-F. Racault, B. Rost, and M. Skern-Mauritzen, 2022: Ocean and Coastal Ecosystems and their Services. In: Climate Change 2022: Impacts, Adaptation, and Vulnerability. Contribution of Working Group II to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change [H.-O. Pörtner, D.C. Roberts, M. Tignor, E.S. Poloczanska, K. Mintenbeck, A. Alegría, M. Craig, S. Langsdorf, S. Löschke, V. Möller, A. Okem, B. Rama (eds.)]. Cambridge University Press, Cambridge, UK and New York, NY, USA, pp. 379-550, doi:10.1017/9781009325844.005.
While this distribution of mitigation options across countries is cost-optimal, it does not imply that each country should fund the mitigation options ideally implemented within its borders, or who should pay for these. Instead, the distribution of mitigation efforts across countries should be informed by equity considerations, including the CBDR-RC principle of Art. 2 of the Paris Agreement.

 

Contributions to international mitigation efforts can inform finance pledges under the UN and possibly under Article 6 of the Paris Agreement, which has not been used much to date. The Rulebook adopted at COP26 sought to provide strong accounting rules to ensure the integrity of mitigation options and avoid countries buying their way out of climate action, thereby jeopardising collective efforts.

 

The methodology to calculate international climate finance based on fairness considerations can follow the suggestion of the IPCC AR6: “extending equity frameworks to quantify equitable international support, as the difference between equity-based national emissions scenarios and national domestic emissions scenarios” (IPCC AR6, wg3, fig 3.35).

We develop a methodology that employs historical emissions and Gross Domestic Product per capita to determine a “fair share” of the emissions reduction responsibility for each country.

 

Schematic figure showing historical emissions (black), an unfair mitigation trajectory, where all countries reduce at the same rate (grandfathering, in blue), examples of possible fair share emissions trajectories (yellow and purple lines) that can be met through a combination of emissions reductions and international support. Current emissions targets (NDCs, in black) can be improved through the provision of climate finance. Developed countries can fund emissions reductions (green patch) to align with their fair emissions allocations, which can fund emissions reductions in developing countries to go beyond their current target, when already within their fair allocation.

 

This data serves multiple purposes:

  • Setting Ambitious Targets: By highlighting the insufficiency of current pledges, we encourage countries to adopt more ambitious domestic emissions reduction targets that align with their historical responsibility and financial capability.
  • Supporting Negotiations: Developing nations leverage this data to inform negotiations on financial support during international climate negotiations.
  • Legal Challenges: Courts are increasingly using such data in lawsuits against governments for failing to take sufficient climate action, including through international support (Schleussner et al 2019).

 

The Power of Finance: A Multifaceted Approach

 

A crucial aspect of climate action lies in financing the transition to a low-carbon economy. Climate finance serves as the engine that can bridge the gap between ambition and action, providing sufficient transparency and independent scrutiny. Clear, and transparent accounting rules are essential to ensure that emissions reductions funded by one country are not claimed by another (Michaelowa Allen, and Sha, 2018). Furthermore, making clean energy solutions financially accessible in developing countries through concessional loans, grants, or innovative risk-sharing is critical for mitigating climate change mechanisms (Buchner et al., 2021).

 

Support Beyond Financial Transfers: Developed Nations Must Lead by Example

 

Financial transfers are just one piece of the puzzle. Developed nations have committed to take the lead in combating climate change, including in mobilising finance, and supporting technology transfers. This includes taking more aggressive domestic action to reduce emissions and investing in clean technologies even when collective momentum is insufficient. This will not only contribute directly to emissions reduction but also encourage and enable developing countries to follow suit before mitigation efforts are asked of them.

 

The Road Ahead: Collaboration and Shared Responsibility

 

Going beyond the quantification of possible fairness-based financial flows as suggested here, new research could address pending issues:

  • What type of finance can be counted towards meeting the responsibility of a country (concessional, loans, aid, use of Article 6 etc)?
  • To what extent should the calculation of financial flows be based on equity considerations and direct investment needs?
  • How to interpret the need for a balance between adaptation and mitigation finance from the Paris Agreement?
  • How can we mobilise the vast sums of public and private capital needed to achieve a sustainable future?

The calculations we propose do not constitute a mandatory requirement for achieving the Paris Agreement. However, they offer insights into international finance levels that reflect fairness considerations. These insights can inform the development of a new collective quantified goal on climate finance (UNFCC), which is crucial for accelerating climate action. Negotiators from the Global South and North, along with non-governmental organisations, have expressed interest in this type of analysis. While achieving absolute fairness may be challenging to quantify and not strictly necessary for meeting the Paris Agreement, progress toward equitable effort-sharing among countries remains essential for advancing climate mitigation. Scientific input can guide us in this endeavour.

 

Bibliography

  • Breuer, A., Janetschek, H., & Malerba, D. (2019). Translating Sustainable Development Goal (SDG) Interdependencies into Policy Advice. Sustainability, 11(7), 2092. https://doi.org/10.3390/su11072092.
  • Buchner, B., et al. (2021). Global Landscape of Climate Finance 2021. Climate Policy Initiative.
  • Griggs, D., Stafford-Smith, M., Gaffney, O., et al. (2013). Sustainable development goals for people and planet. Nature, 495, 305-307. https://doi.org/10.1038/495305a.
  • Kreibiehl, S., Jung, T. Y., Battiston, S., Carvajal, P. E., Clapp, C., Dasgupta, D., Dube, N., Jachnik, R., Morita, K., Samargandi, N., Williams, M., & [Intergovernmental Panel on Climate Change] (IPCC). (2022). Investment and finance. In Climate Change 2022: Mitigation of Climate Change. Contribution of Working Group III to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change (pp. 727-808). Cambridge University Press.
  • Michaelowa, A., Allen, M., & Sha, F. (2018). Policy instruments for limiting global temperature rise to 1.5°C – can humanity rise to the challenge? Climate Policy, 18(3), 275-286. https://doi.org/10.1080/14693062.2018.1426977.
  • Robiou du Pont, Y., Meinshausen, M. Warming assessment of the bottom-up Paris Agreement emissions pledges. Nat Commun 9, 4810 (2018). https://doi.org/10.1038/s41467-018-07223-9.
  • Rogelj, J., den Elzen, M., Höhne, N., et al. (2016). Paris Agreement climate proposals need a boost to keep warming well below 2 °C. Nature, 534, 631-639. https://doi.org/10.1038/nature18307.
  • Schleussner, C.-F., Menke, I., Theokritoff, E., van Maanen, N., & Lanson, A. (2019, updated 2020). Expert Report: Climate Science and Impacts. Retrieved from Youth4ClimateJustice.org: Case Documents.
  • United Nations Environment Programme (UNEP). (2023). Emissions Gap Report 2021. Report title: https://www.unep.org/resources/annual-report-2023.
  • United Nations Framework Convention on Climate Change (UNFCCC). (2015). Paris Agreement. https://unfccc.int/process-and-meetings/the-paris-agreement.