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Fighting for the Soul of Climate Finance

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As UN climate talks kick off in Poland this week, arguments about money are likely to take center stage. That's nothing new, as the annual conference enters its nineteenth year. But this year's twist to a familiar tale -- concerns about a lack of money to assist developing countries in dealing with the climate crisis -- is a strategic shift by rich countries to a more fundamental, and troublesome, debate about what even counts as "climate finance."

The United Nations Framework Convention on Climate Change (UNFCCC) is actually quite clear on this point: climate finance refers to the transfer of public resources from rich countries to developing countries to support action on climate change -- both to reduce or avoid greenhouse gas emissions (mitigation) and to deal with the climate impacts that are already happening (adaptation).

Underpinning this is the idea -- affirmed by the UNFCCC -- that rich countries have a responsibility to lead on climate action because it is their historical emissions that have caused the climate crisis. Meanwhile, poor countries that have not caused climate change -- as so tragically illustrated by the Philippines in recent days -- are those most vulnerable to climate impacts. Climate finance, based on the "polluter pays" principle, is thus an obligation of rich countries. It is not aid or charity; it is a moral and legal responsibility.

Unfortunately, rich countries have been unwilling to provide the kind of public, grant-based climate finance that is required of them ethically and legally, despite many proposals laying out how they might generate funds for this purpose. Instead, they want to count climate-friendly private investments towards their climate finance obligation, effectively lowering the bar for the amount of public funds they would have to provide.

Climate finance, the proponents argue, should essentially be thought of as any financial flows towards climate-friendly action. Solving the problem of global climate change is impossible without huge shifts in private sector investments, since this sector represents trillions of dollars and the vast majority of economic activity around the world. So those arguing against measures to "leverage" (encourage) private sector climate finance are basically delusional, and are failing to acknowledge the sheer scale of the problem the world faces.

This is a bit of a straw man. No one is arguing against making private-sector activity more climate friendly. But that's what policy change and regulation is for. That's why people are arguing for policies like carbon taxes, large-scale shifts in subsidy regimes away from the fossil fuel industry, and so on. It's the role of national governments, not the UNFCCC or its Green Climate Fund, to effectively regulate markets, shifting incentives so that trillions of dollars of private investments will flow to sustainable, climate-friendly activities.

By substituting this broader debate about climate-friendly investment for the UNFCCC-specific one, rich country governments remove crucial concepts like historical responsibility, polluter pays, and geopolitical fairness (in the context of historically unjust North-South relations) from the conversation. What's more, they paint civil society and developing country governments that provide alternative views as obstructionists divorced from the supposed reality that massive flows of private-sector investment are the only politically feasible form of "climate finance."

But private finance does not match up well with the principle and practice of climate finance as defined in the UNFCCC context. Because private investment by definition seeks profits, the idea of "private climate finance" is a perversion of the polluter pays principle -- like allowing BP to earn a return on investment for cleaning up the Gulf after the Deepwater Horizon debacle. Furthermore, private investment is ill-suited to reach the poor and marginalized communities who most desperately need adaptation finance and access to clean energy. Reaching these communities is unlikely to be a profitable endeavor, especially in the short term.

Rather than simply being denialist about the private sector, critics of "private climate finance" are fighting to ensure that, in the context of historical injustice between North and South, the poorest and most marginalized are able to access their fair share of climate finance. Loan-based financing and private sector investments are not the answer for those most vulnerable to climate impacts. If we value human rights, with every life and livelihood counting as much as any other, then ensuring that the countries and communities unjustly affected by the worst of climate change can access adequate finance is an absolute, non-negotiable need.

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