An update on Investment and
Financial Flows to Address Climate Change has just been published by the secretariat. The update has
moved forward the discussion on financing from broad investment and financial needs to options, tools and
mechanisms to enhance financing for mitigation, adaptation and technology cooperation for an effective
response to climate change. Significantly, Parties have tabled proposals which have the potential to generate
multiple billions of dollars per year of predictable and sustainable funding.
The 2007 report estimated that an additional 200–210 billion US dollars would be necessary globally in
2030 to reduce CO2 emissions 25 per cent below 2000 levels by 2030. The 2007 report also estimated that the
additional investment needed for adaptation in 2030 amounts to several tens of billions, possibly hundreds of
billions of US dollars.
The estimates of investment required for mitigation have increased significantly, whereas no new information
is available on adaptation needs. A significant share of this additional investment is estimated to be needed
in developing countries.
The update presents the tools and mechanisms for the three broad strategies identified in the 2007 report for
meeting the additional investment and financial flows needed to address climate change:
- Shift investments and financial flows to more climate-friendly alternatives
- Scale-up international private and public investments and financial flows
- Optimize the allocation of the funds available
To support developing countries in shifting, scaling-up and optimizing investment and financial flows, four
broad means can be considered and influenced by the Parties to the Convention:
- Public finance
- Private finance
- National policies
- The Convention itself
The need for scaled-up resources for adaptation has been widely acknowledged. While the current and pledged
levels of resources dedicated to adaptation are well below what is projected to be needed in the future,
proposed options have the potential to generate the resources needed within an adequate time frame.
Adaptation actions are grouped into three broad categories:
- Actions that climate-proof development activities by integrating climate risk into socio-economic
activities (i.e. “climate-proofing”)
- Actions that expand adaptive capacity to deal with future and not only current climate risks
- Actions that are aimed purely at adapting to impacts of climate change and would have otherwise not
Public funding - both domestic and international - is expected to play a larger role in financing adaptation
actions than in financing mitigation measures. This is because the benefits generated by adaptation actions
often have the characteristics of public goods; for example, the benefits of coastal protection will
typically be enjoyed by all the residents of the community at risk. Also, ensuring that private sector
investments help reduce vulnerability and exposure and contribute to effective adaptation can steer a large
source of funding towards appropriate outcomes.
Regardless of how resources are generated, designing an appropriate delivery mechanism with the right
institutional and operational arrangements is paramount. This includes facilitation of access and effective
disbursement through the possible provision of programmatic, or even budget support, rather than
project-based support in order to enhance action on adaptation.
While developed countries need to take the lead in addressing climate change, determining how best to support
mitigation efforts in developing countries to realize their mitigation potential is important for a
comprehensive response. Mitigating climate change will require technological and behavioural change on
multiple fronts. Any future agreement to enhance mitigation action needs to encompass a variety of funding
sources and delivery mechanisms that address greenhouse gas emissions from all sectors in all countries, and
that foster the development and transfer of mitigation technology. An assessment of maturity of
mitigation technology, in terms of technology development stage, is key to arrive at the optimal mix of
financial resources and mechanisms needed in order to realize the mitigation potential.
Private sector resources suitably guided by public sector finance, international and national, could
play an important role in mitigating climate change in developing countries. Depending on commitments taken,
the demand for emission reduction credits could be significantly higher in 2020, but still not be sufficient
to realize the full mitigation potential in developing countries. Furthermore, limitations of crediting
mechanisms to address all ranges of mitigation opportunities and to realize mitigation potential in countries
with difficult investment conditions, would require measures beyond an expansion of crediting
mechanisms. Such measures could include direct financial support for certain mitigation measures, such as
renewable energy generation in least developed countries, as well as financial support for national policies,
such as implementation of efficiency standards.
International public finance can play an important role in realizing the above, and also in leveraging
private finance. Public finance may also play a role in funding research, development and early deployment of
technologies that will open up new and potentially cheaper mitigation opportunities in the future.
Measurable, reportable and verifiable (MRV) support to MRV actions will be key to an international mechanism
to support mitigation actions.
Technology innovation will increase the potential for, and reduce the cost of mitigation over time, but
international financial support for technology transfer is needed. Presently, essentially all technology
transfer for mitigation technologies occurs as a result of the application of those technologies in
developing countries. International mechanisms and funding for capacity building and creation of enabling
environments is needed to accelerate the adoption of near commercial mitigation technologies in
Proposals to Scale Up Funding
At present, adaptation, mitigation and technology cooperation activities under the Convention are funded by
the Global Environment Facility (GEF) Trust Fund, the Special Climate Change Fund (SCCF), Least Developed
Countries Fund (LDCF) and the Adaptation Fund. The first three are managed by the GEF and rely on
voluntary contributions by developed countries. The Adaptation Fund is managed by its own Board and is
funded by a 2 percent levy on the CDM.
Parties have tabled many proposals to increase the financial resources available for adaptation, mitigation
and technology cooperation. Some proposals would be under the Convention, while others would be outside the
Convention. Some proposals would generate funds internationally, while for others the funds would flow
through government budgets. The proposed options could generate significant resources .
A key issue is efficient and effective delivery of financial resources and investment, which includes aspects
of allocation, access and modes of disbursement, as well as measuring, reporting on and verifying
the delivery of financial support.
Institutional arrangements to mobilize, manage and deliver the funds on the scale needed will be a challenge.
Parties have submitted many proposals for management of the funds. These range from a single umbrella body
that coordinates the activities of three (or more) specialist bodies to a number of specialist bodies all
reporting directly to the COP. The proposals also differ in terms of how rigidly the proposed allocation
of funds is specified.
Putting the climate change challenge into perspective
Responses to the current financial and economic crises can help address climate change. Government measures
to stimulate economic recovery could be used to shift investment and financial flows into more efficient
technologies and infrastructure.
The analysis in the update presents a diverse set of elements, including different private and public
funding sources and delivery mechanisms, as well as national policies, that constitute the required toolbox
to address climate change. Importantly, most of these elements have been proposed by Parties and thus can be
negotiated at COP14 in Poznań.
The update of Investment and Financial Flows to Address Climate Change will be available shortly on the
UNFCCC website: http.unfccc.int