Delivering on the Paris Agreement – Making Climate Finance Matter in Marrakech

By Christopher Neglia

In recent years, climate finance has emerged as one of the most prominent issues within the UNFCCC process to address dangerous climate change. Developing countries are calling for more funds from developed countries to implement their Nationally Determined Contributions. For their part, developed countries have pledged to provide US $100 billion per year by 2020 as part of their Paris Agreement commitments to support climate change mitigation and adaptation.

Global climate finance has increased by almost 15 per cent since 2011, from $650 billion to $741 billion in 2014. Private investment in renewable energy and energy efficiency represents the largest share of the total figure.

Yet climate finance flows are disbursed asymmetrically. Mitigation-focused finance represents more than 70 per cent of the public finance transferred to developing countries, while adaptation finance accounts for the other 30 per cent.

At the COP22 Climate Conference going on this week in Marrakech, policy makers are debating how to direct greater financial flows to support the global transition to low emission, climate resilient economies.

“Carbon pricing is the most effective policy instrument available to national governments since it provides across the board incentives for low emission technologies,” said Ian Parry, Fiscal Policy Expert at the IMF.

The proliferation of carbon pricing is occurring at a much faster rate than would have been thought just a few years ago. Fourteen countries already put a price on carbon in some form. China will implement its own carbon trading scheme next year.

Nevertheless, financial markets are still generally averse to the risks associated with investments in low carbon development. Regulations are sorely needed to change the rules that govern the $300 trillion financial system to move toward decarbonizing portfolios, and reallocating finance from high to low carbon areas.

Establishing a common carbon price floor arrangement between countries is one way that willing governments can send a clear signal to agnostic institutional investors that they should be factoring climate and environment externalities into their risk analyses.

In addition, shifting public subsidies from fossil fuels to renewable energies may lead to a tipping point where green investments finally become attractive to the private sector.

But how can revenues raised be used specifically to improve food security and climate resilience in agricultural systems? Here, IFAD has accumulated valuable experiences through the Adaptation for Smallholder Agiculture Programme (ASAP). “Climate finance gives our projects the fiscal room to invest in GIS mapping, research seed varieties that are more tolerant to climate extremes, and pursue policy engagement with government ministries,” said Margarita Astralaga, IFAD’s Environment and Climate Director.

Often, the challenge is in convincing governments to put public revenues into the food security and agriculture sectors. But research shows that agricultural growth continues to be more poverty-reducing than non-agricultural growth. For instance, in a study by Dorosh and Thurlow (2014) that looked at five Sub-Saharan African countries (Malawi, Mozambique, Tanzania, Uganda, Zambia), it was found that a dollar invested in the agricultural sector was about twice as effective at poverty reduction than investment in urban sectors. Clearly, more work remains to be done in terms of raising greater financial flows for adaptation, as well as directing it to where it matters most.