Paris Climate Change Agreement: what do the financing obligations really mean?

After 2 weeks of intense political negotiations, the Paris Agreement on Climate Change (“Agreement”) was adopted on 12 December 2015. The political significance of the Paris Agreement should not be underestimated but nor should the challenge of getting the political will translated into meaningful results.

The ability to secure financing will be a key factor in ensuring that the measures on mitigation, adaptation and loss and damage are realised. This is vital in shaping and achieving the development of low carbon and climate resilient economies. Prior to the start of the negotiations, we provided comments on the then negotiating text. In this article we examine the text that was agreed in the Paris.

$100 billion per year

This figure is not expressed in the operative terms of text of the Paris Agreement. It is however contained within the preamble (paragraph 54) which states “in accordance with Article 9, paragraph 3, of the Agreement, developed countries intend to continue their existing collective mobilization goal through 2025 in the context of meaningful mitigation actions and transparency on implementation…. shall set a new collective quantified goal from a floor of USD 100 billion per year”.

What matters though is not just the number, which while helpful will import no consequences if the funding is not provided, but the actual obligations to provide financial aid which are set out in Article 9 of the Agreement, The developed countries are to provide financial resources to assist developing country Parties with respect to both mitigation and adaptation and are to “take the lead in mobilizing climate finance from a wide variety of sources, instruments and channels” in a manner that represents a progression beyond previous efforts. It will be very interesting to monitor how these funds are provided and to what purposes.

Need for a variety of sources

The Agreement retained the emphasis on needing a variety of financial sources and instruments: public and private, bilateral and multilateral, including alternative or additional sources of financing that best suit the recipients’ economic circumstances. The emphasis on technology transfer and capacity-building is particularly notable, as well as improving the domestic environment to attract low-emission, climate-resilient investment.

Emphasis on public grants

There can be no doubt that the Agreement anticipates a flow of finance to the developing countries and places emphasis on the significant role of public funds. The role of developmental funding institutions, sovereign funds and developmental procurement programmes in facilitating the flow of such funds cannot be underestimated. It is will then be a question of what types of investment and at what scale would such investors seek to promote.

But no specificity on types of investments

Unlike the draft text, the final Agreement does not include any express encouragement or discouragement of particular projects, infrastructure, technology or the like. The opportunities for investment are wide ranging and subject to meeting the overall aim of the Agreement investment in all sectors is possible. Clearly technology is a key area where investment may be focused but crucially for countries with high fossil fuel use, they are no specific restrictions on related relevant investment.

Transparency of finance efforts

The Agreement transparency obligations on the developed countries (on a biennial basis) including their projected levels of public financial resources to be provided to developing countries. It is here that the real political and peer-pressure is likely to be applied.

Comment

Many had queried if financing would be the aspect that would potentially derail agreement. Clearly it did not. The final wording may not be as strong as some would have liked but it sends a strong political message. A key implication of the Agreement is that funding must flow from the developed to the developing countries. No doubt business will be looking at this with very keen interest and will seek to take up the opportunities of working with and in the developing countries using the financing provided under the Agreement.

The development and deployment of technology of all sorts is imperative to the transformation to low carbon resilient economies and this requires funding – something that was, in the end, accepted by all in Paris.