Policy News

Experts Raise 5 Key Priorities for Setting the Post-2025 Climate Finance Target

A new study by leading climate finance experts identifies the difficulties hampering climate finance to date. With the UN Climate Change Conference COP27 on the horizon and the process of setting a new global post-2025 climate finance target underway, the study offers insights and 5 key considerations for the next global climate finance target.

Deliberations around setting a new global climate finance target should focus on five elements, say leading climate finance experts in a Perspective published in Climate Policy today. Governments had committed to setting a ‘new collective quantified goal’ for climate finance prior to 2025 in the Paris Agreement. Deliberations about how to do that kicked off at the UN Climate Change Conference in Glasgow last year.

At the UN climate negotiations, developed countries pledge to mobilize $100 billion in climate finance per year from 2020 to 2025. After all, climate finance is a necessary enabler to ensure that countries can mitigate and adapt to climate impacts while not risking their economic development.

According to a recent OECD report, this target was not met in 2020, with climate finance provided by developed nations reaching only $83.3 billion. While opinions differ on how to even count climate finance, this Climate Policy Perspective urges policymakers also to look at the effectiveness of the current funding in meeting the needs of recipient countries.

Considerations for post-2025 climate finance

“Climate finance has been hampered with difficulties, and that’s why the new target needs to be about more than only a higher number,” says Pieter Pauw from Eindhoven University of Technology (TU/e), the Perspective’s lead author. “We identify what the difficulties have been and then pinpoint five elements that should be negotiated with priority in order to reach a meaningful post-2025 climate finance target.”

One element that negotiators should consider is the connection between the new target and Article 2.1(c) of the Paris Agreement. This article aims at greening all finance flows (not just climate finance).

The new target should include the explicit aim of splitting climate finance evenly between mitigation and adaptation. The majority of climate finance currently goes towards mitigation. In 2020 adaptation received only just over one-third of all climate finance. That is despite the fact that costs for adaptation in developing countries are estimated to be five to ten times greater than the amount of public finance that currently goes to adaptation, according to the UN Environment Program’s latest Adaptation Gap report.

“Negotiating the post-2025 climate finance target offers an opportunity to take onboard new insights into the needs of developing countries,” says co-author Richard Klein, Senior Research Fellow at Stockholm Environment Institute (SEI). “Last week’s Technical Expert Dialogue on this target focused specifically on the needs and priorities of developing countries. These needs and priorities are an essential starting point for the negotiations on the target.”

A third element to prioritize is that of financial instruments. “Public climate finance mainly takes the form of loans, with loans making up 71% and grants 26% of climate finance in 2020,” says co-author Zoha Shawoo, Research Associate at SEI’s US Center: “From a climate justice perspective, grants are more appropriate than loans because many of the countries that are in need of climate finance, particularly for adaptation, are highly indebted at the same time as they have done very little to cause climate change.” The authors, therefore, argue that negotiators should consider introducing a sub-target for grants.

The fourth element to consider is the mobilization of private finance, and how public finance can be used to de-risk or in other ways incentivize private climate finance, while the fifth element is concerned with defining climate finance and how it relates to development assistance in more robust ways than is currently done.

The fifth priority is new and additional finance. Finally, all parties agreed that climate finance should constitute new not relabeled funding. This requires a keen eye and may require stronger articulation of what climate finance is, with the development of an adjusted system of monitoring and accounting for climate-consistent finance flows.

Outlook

Two months before negotiations on the post-2025 climate finance target will start at the UN Climate Change Conference in Egypt, the authors offer ways of reaching agreement and a practical approach to determining and achieving the new quantitative climate finance target. They conclude with a call for an update of internationally agreed rules for climate finance tracking and accounting, and for greater transparency and trust.

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