This paper maps out the issues related to climate finance under discussion in the various policy fora taking place in 2015, both within and outside the UNFCCC. Climate finance is a highly complex issue, both politically (fragmentation of the debates) and technically (what should be counted, which sources of financial flows, etc.). In this context, the UNFCCC can provide key guiding principles and a platform to ensure an overview on how climate finance should evolve. This key role should be reflected in the new agreement governing global climate action post-2020.
- CLIMATE FINANCE – SHIFTING THE BLOOD SUPPLY OF THE GLOBAL ECONOMY
Shifting the global economy onto a 2 degrees trajectory will require a massive shift in investment. The scale of this shift far outweighs the incremental investment that needs to be mobilized. Indeed, the real challenge is not so much quantitative—funding the extra investment—as qualitative, i.e. overcoming barriers to investment in new infrastructure, new sectors, and new business models. This requires comprehensive policy incentives such as carbon pricing, standards and regulation, and dedicated funding instruments such as policy banks or funds at the national or international levels.
- CLIMATE FINANCE – A COMBINATION OF TRANSFORMATION AND SOLIDARITY
The policy discussion on climate finance should have two objectives. Firstly, to overcome the barriers to the investment shift described above. Engineering the shift should become the core goal of climate finance policy. However, there is still a crucial role for solidarity, i.e. the provision of public resources to countries and activities that need these resources most. The challenge for the Paris agreement, and climate finance policy more broadly, is to combine the agendas of transformation and solidarity.
- CLIMATE FINANCE – A CRUCIAL PART OF THE PARIS AGREEMENT
National policy makers, financial regulators, multilateral and bilateral development banks are core to the global policy response on climate change. Within this broader policy effort, the UNFCCC can provide a crucial role of guidance and accountability. The Paris agreement should set out a global qualitative goal to shift investment in line with a two degrees trajectory. The major lever for this would be national policy. Alongside this, however, the Paris agreement should adopt a system for regular cycles and targets for the provision of climate finance to the poorest and most vulnerable countries, in particular for adaptation. Finally, there needs to be greater clarity over time on how much climate finance is being mobilized.