February 1, 2023
Adequate and accessible climate finance plays a critical role in global efforts for climate action, especially in building the resilience of developing countries, enterprises, and communities. In the past years, the biggest win in general in climate finance is the agreement that high emitters must provide resources for adaptation, loss, and damage and to safeguard the 1.5°C limit of the Paris Agreement.
In 2010 at COP16in Cancun, developed countries pledged to jointly mobilize USD 100 billion a year by 2020 to address the needs of developing countries. This goal was extended through 2025 in 2015 at COP21 in Paris, and it was also decided that a new collective goal from a floor of USD 100 billion per year shall be set before 2025.
The biggest setback would be the failure of developed countries to meet their commitments, as well as access challenges for developing countries. OECD figures clearly show that while climate finance mobilized by developed countries significantly increased since 2013, it still consistently fell short of the goal.
"If farmers are not economically protected, government interventions and programs will barely make an impact."
In 2021, the Climate Vulnerable Forum (CVF), a group of 58 climate-vulnerable nations, and the Vulnerable Twenty (V20) Group of the CVF called for a Balanced Annual $100 Billion Delivery Plan for 2020-2024 from the developed nations to concretely demonstrate how the USD 100 billion in annual climate finance will be met over the five-year period. This led to the publication of the Climate Finance Delivery Plan, led by the United Kingdom and Germany—another win we can consider in recent years.
In 2022, the most recent achievement for climate-vulnerable nations is the launch of the G7-V20 Global Shield against Climate Risks to make available pre-arranged and trigger-based financing to deal with accelerating climate risks with over EUR 250 million in new commitments.
Moreover, during COP27 in Sharm-El Sheikh last November, countries agreed to establish and operationalize a loss and damage fund. While the specifics of the fund were not yet decided, we remain hopeful and will continue efforts to ensure the delivery of resources to the most vulnerable.
In 2022, the CVF and V20 also called for an implementation plan on the doubling of adaptation, which will be completed in 2023 as agreed in COP28.
Agreement to reform the multilateral system to be fit-for-climate and accessible also represents a key achievement in 2022 and a key area to engage in 2023.
Climate Prosperity Plans (CPPs) are country-led strategic economic and development strategies through climate action towards macroeconomic stability, high GDP growth, and job opportunities, and ultimately contribute to Sustainable Development Goals (SDGs).
The CPP Program was launched under the Bangladesh Presidency and continues to be a key priority of the Ghana Presidency, especially at a time when new investment is required to build resilient economies and opportunities lie to maximize renewable energy wealth.
The continuous challenges of climate-vulnerable nations to mobilize necessary finance and investment for climate action (i) prevent mainstreaming of climate-smart approaches, (ii) result in maladaptation, (iii) lead to missed opportunities to have greater energy independence, and (iv) limit access to green investments and export opportunities. Hence, the CPPs seek to respond to this challenge by designing actionable investment and implementation pathways to move from climate vulnerability to climate prosperity.
To date, Bangladesh and Sri Lanka have already completed their CPPs while over 30 countries are in the pipeline.
In 2021, Bangladesh launched the first CPP as a template for other members. The Mujib Climate Prosperity Plan was named in honor of the Father of the Nation of Bangladesh, H.E. Sheikh Mujibur Rahman. In 2022, Sri Lanka launched the preliminary report of their Sri Lanka Climate Prosperity Plan at COP27. Ghana and The Maldives are also currently working on their CPPs and have shared elements during COP27.
The CPP is owned and led by the commissioning country. It has three key components to help countries mobilize resources to achieve climate prosperity: (i) scenarios and socio-economic outcomes; (ii) projects and programs; and (iii) legislation and regulations.
First, the CPP estimates how socioeconomic outcomes could be improved through scenarios and projections. The CPP macro-economic model examines three scenarios: Business as Usual, Nationally Determined Contributions (NDC), and CPP. For each scenario, the model demonstrates how key socio-economic indicators (GDP, employment, SDG progress, etc.) evolve over a timeframe to 2050. The CPP Objectives and targets serve as the basis of the CPP scenario.
Second, the CPP suggests projects and programs drawn from existing national strategies and plans to deliver the outcomes. New projects will be suggested when and where gaps are identified to reach the defined objectives. Furthermore, the CPP identifies investment pathways and financing structures to deliver the project and achieve those outcomes. Specifically, it will include information about different options to unlock financing by optimizing the country’s fiscal strategy through taxation and carbon market finance.
Innovative V20 financing instruments will also be mainstreamed into CPP funding mobilization. These include the Accelerated Financing Mechanism (AFM) to reduce the cost of capital facing the CPP infrastructure projects, Sustainable Insurance Facility (SIF) that aims to make available climate-risk insurance for micro, small and medium enterprises (MSMEs), 100RE Resilient Futures Program to support the goal of 100% renewable energy production, and the Global Shield to substantially increase financial protection against climate risks.
Lastly, the CPP analyzes the country’s legislative and regulatory frameworks and proposes interventions to facilitate the implementation of projects and programs, realize the full potential of the CPP scenario, and ultimately support the achievement of the CPP objectives and targets.
Some contentious issues that we could expect in setting up this fund include determining who pays for the funds and how much, and designing the basis for access, reporting, and financing mechanisms.
In international climate negotiations, the term ‘loss and damage’ generally refers to the economic and non-economic climate impacts that cannot be or have not been avoided by adaptation efforts. This could include sea level rise and desertification. However, there is still no official definition of ‘loss and damage’ under the UNFCCC, especially its scope and limit. The loss and damage fund under the UNFCCC should define what climate risks and impacts can be and cannot be compensated for loss and damage.
Furthermore, while high emitters are expected to pay for the loss and damage fund, parties have yet to determine how much is due and what financing mechanisms are going to be used. This is critical considering the need to ensure urgent, efficient, and just delivery of the fund to the climate-vulnerable economies that have been experiencing a vicious cycle of loss and damage for decades.
The Global Shield against climate risks is a joint G7-V20 financial protection cooperation initiative to accelerate support for financial protection to help avert, minimize, and address losses and damages from climate change. Specifically, it aims to increase pre-arranged and trigger-based financing that can be quickly and reliably disbursed in times of climate disasters. It builds on country ownership, evidence-based and systematic gap analysis, solid in-country coordination, and improved inclusivity among relevant stakeholders.
Initial contributions include around EUR 250 million from developed countries, while starting recipients of the Global Shield packages called Pathfinder countries—including Bangladesh, Costa Rica, the Pacific, Ghana, Pakistan, the Philippines, and Senegal. The aim is to scale this going into 2023.
Climate impacts have consistently pushed the cost of capital to record highs and national debt to unsustainable levels, especially across climate-vulnerable economies. According to a recent V20-commissioned report, V20 economies have lost USD 525 billion over the last two decades. This means that climate-vulnerable economies would be 20 percent wealthier today if not for climate impacts. As the world approaches 1.5°C of global warming, losses and damages are only bound to escalate further with worsening climate impacts. The third edition of the Climate Vulnerability Monitor (CVM3) also found that further warming to 2°C would lead to more than a doubling in the negative consequences of climate change on incomes and 66 percent higher interest rates compared to 1.5°C.
Ultimately, the Global Shield against Climate Risk is an urgent response to the V20’s call to close the 98% financial protection gap in its member countries. It complements other V20 Financing Initiatives in Climate and Disaster Risk Finance and Insurance (CDRFI) such as the Sustainable Insurance Facility (SIF) for enterprises and supply chains, and the Global Risk Modelling Alliance (GRMA) for risk analytics and modeling.
We hope that the Global Shield, including SIF and GRMA, will complement the Loss and Damage fund in terms of preparing the necessary building blocks to ensure more systematic, coherent, and sustained social protection. This includes establishing mutual trust and understanding among stakeholders, redesigning, and ensuring the readiness of existing structures to deliver for impacted vulnerable countries, supporting countries to identify the risks, and facilitating financing flows.
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