Climate Finance: Regulatory and Funding Strategies for Climate Change and Global Development

Chapter 16 Developing Country Concerns about Climate Finance Proposals: Priorities, Trust, and the Credible Donor Problem

Climate Finance 157 Chapter 16 Developing Country Concerns about Climate Finance Proposals Priorities, Trust, and the Credible Donor Problem Arunabha Ghosh Oxford-Princeton Global Leaders Fellow, Woodrow Wilson School, Princeton University Ngaire Woods Professor of International Political Economy; Director of the Global Economic Governance Programme, University of Oxford Key Points • The long history of mutual mistrust between North and South as donors and recipients of development aid is a challenge for climate finance negotiations. • A stable and secure pool of climate finance is essential. The developed countries must recognize that their promises of future climate financing need to be credible and locked in from volatility or backsliding. • Trusted institutions for decision-making and disbursement of finance are essential, and the Bretton Woods institutions may not be the answer. • Effective monitoring, verification, and compliance mechanisms are needed not only for emissions reductions, but also for commitments on financing and technology transfers. 158 arunabha ghosh and ngaire woods The North-South Negotiating Gap on Climate Finance and Institutions While there is much variation among different developing and developed countries, overall there is a real North-South gap in climate negotiations. Current proposals on climate financing do not do enough to overcome the lack of trust and mutual credibility between developing and developed countries. This essay analyses the priorities and concerns of developing countries and proposes three planks for a bridge across the gap. The lack of trust between developed and developing countries reflects not only a lack of appreciation of each other’s domestic political commitments and constraints, but also a history of bad faith in the making and implementation of global commitments on development, climate, and institutional reform. Developing countries view calls to stabilize and reduce their greenhouse gas (GHG) emissions as both illegitimate and a threat. They consider the demands illegitimate because rich countries are primarily responsible for the historical stock of emissions, the atmospheric concentration of which is causing global warming. The calls are a threat because curbing emissions could undermine the growth necessary to lift millions out of poverty . With 1.4 billion people living in extreme poverty, poverty reduction for developing countries is the priority. Any desired action against climate change has to be reconciled to that imperative. Absent sufficient financing, any commitment to curb GHG emissions would limit the ability of developing countries to increase their energy supply, a central part of their efforts to reduce poverty. About 1.6 billion people in developing countries live without electricity, and 2.5 billion lack access to modern energy sources. Even in fast-growing China and India, more than half of the population relies on traditional biomass for cooking . The easiest and fastest way to increase energy supply under current circumstances often involves the construction of plants with high GHG emissions. However, the provision of financing to improve the efficiency of existing and oncoming modern energy infrastructure will offer a potential win-win situation: many developing countries may be able to use financing from industrialized nations to reduce emissions while increasing economic growth rates. Accomplishing this goal will require substantial technology development, diffusion, and transfer, in addition to financing. Many developing countries also believe that industrialized nations have not paid sufficient attention to the challenges of adaptation. The impera- Developing Country Concerns about Climate Finance Proposals 159 tive for poor countries to adapt (rather than mitigate) strengthens every day as efforts to mitigate by rich countries falter. Yet adaptation is often treated as a side issue, and current spending on adaptation (about USD 1 billion) is a fraction of the estimated requirements. From a developing country perspective, the demands and priorities of rich countries assume that only their own internal politics matters—and that large developing countries, instead of reducing emissions, are simply stalling. Developed countries seem to insist on setting demanding conditions on recipients of climate financing, and anyhow to be reluctant to provide financing without both setting eventual caps for developing countries and lowering competitive costs for their own economies. Developing countries take the view that since rich countries have repeatedly failed to meet their past commitments on development assistance, any new climate financing proposals will lack credibility unless there is adequate accountability of developed countries to keep not only their emissions commitments , but also their financing commitments to developing countries. Donors have reduced funding or altered conditions even in cases where recipients met specified conditions. Where provided, funding was volatile and unpredictable, thus...