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World is alive to the compulsion of combating climate change as unmitigated climate change risks pose irreversible costs. Complexity arises in the case of financing for addressing adaptation and mitigation of GHG emissions. Provision of finance is embedded in the convention and has also been mentioned in the Paris Agreement for addressing the adaptation and mitigation needs of developing countries. Tracking of climate finance is equally important. Lack of a clear definition of climate finance has led to controversies in recent estimates of climate finance.
The Climate Finance in 2013-14 and the US$100 Billion Goal report released (late 2015) by the OECD (Organisation for Economic Co-operation and Development) states that the mobilization of climate finance from developed to developing countries had reached US$62 billion in 2014. The report seems to include the full value of multilateral development bank (MDB) loans as well as official development assistance (ODA), some private finance, export credits, etc. as climate finance, leading to double counting. Also it includes the promises, pledges and multi-year commitments and not actual disbursements as climate finance. The decline in allocation of ODA to the least developed countries (LDC) in the past year, could perhaps be linked to higher allocation to ‘climate-related objectives’, implying that ODA is being diverted to ‘climate-related activities’.
The Paris Agreement mandates that transparent and consistent information on support provided and mobilized through public interventions for developing country Parties be provided by developed countries. However, it is silent on the definition of climate finance. While the question of what counts as climate finance would be decided at a later stage by the Standing
(i) sources of funding, terms of funding and purpose of funding in addition to resources being committed/disbursed/new.
(ii) while defining climate finance, it is also important to define what cannot be counted towards climate finance.
(iii) aid money meant for development purpose should not be counted as climate finance. With reference to funds provided for multiple purposes, only the share provided solely for climate change should be included under climate finance.
(iv) systems should be in place to check for double counting or treatment of ODA as climate finance.
There is an even greater gap in tracking adaptation finance and segregating it from development funds as a whole—as a result, very often the entire amount allocated to a project is erroneously treated as adaptation finance. Any climate finance tracking exercise needs to carefully account for these problems.
Depending on the participating countries, global climate funds can either be multilateral or bilateral depending on. The funds may further be classified according to their area of focus, namely mitigation, adaptation or REDD (reducing emissions from deforestation and forest degradation). Currently, the Green Climate Fund (GCF) is the largest, with pledges amounting to US$10.2 billion. The second largest is the Clean Technology Fund (CTF) with pledges amounting to US$5.3 billion. With the capitalization of the GCF and the sunset clause of the CTF, there is ambiguity about the role of the CTF in the climate finance architecture post-2020.