Are we finally getting an inclusive instrument in place to finance climate action?
22 Sep 2016 by Alexandra Soezer, Climate Change Technical Advisor
It is estimated that US$16 trillion is required to meet the targets of the Paris Agreement, the so-called Nationally Determined Contributions (NDCs). This is money that will help to put countries on a low carbon path. Where this money will come from, however, has long been a source of debate. Yet, it seems that we may finally be putting in place the instruments we need to finance our low carbon future.
A single mechanism for investing in low carbon development is ineffective, as it does not reflect contextual realities or the priorities of varying stakholders, such as the private sector. What is needed are parallel and complementary mechanisms that support countries at different levels of development.
The Clean Development Mechanism (CDM) has boosted private investment in mitigation projects in developing countries. With more than 8,000 projects registered, the CDM has leveraged almost US$ 200 billion of investments in developing countries. This mechanism has, therefore, been a key driver in the effort to reduce emissions and tackle climate change in developing countries.
But not all regions and countries of the world were able to benefit equally from CDM. Few Least Developed Countries, notably those in sub-Saharan Africa, participated in the CDM, leaving dozens of more lacking access to this mechanism. Most sub-Saharan countries did not have a high emitting industry sector and thus only little potential to reduce greenhouse gas emissions. Many NGOs, in fact, criticized the CDM for focusing on the ‘low-hanging’ fruits – projects in high-emitting countries such as China and India – while overlooking Africa’s growing economies with suppressed demand in many sectors.
Nationally Appropriate Mitigation Actions (NAMAs) on the other hand, emphasize national appropriatness, ownership, and a transformation of an economy towards low-carbon growth by combining sustainable development and climate change mitigation. The concept of NAMAs, which was first introduced at the Bali Climate Change Conference in 2007, was welcomed by African countries and the preparation of NAMAs has quickly surged. For the first time, mitigation projects prepared by African countries exceeded the number of projects from Asia and the Pacific, and Central Asia. African countries expected that the broader focus on sustainable development and mitigation would allow them to implement low carbon development rather than isolated GHG emission reduction programmes.
But how many of those NAMAs developed received financial support? Unfortunately, only 2 pecent of the more than $8 billion in support requested by developing countries for NAMA preparation and implementation has been provided, and only a tiny number of NAMAs have been implemented so far. Unlike with the CDM, with clear incentives for the private sector to engage, the public sector driven NAMAs have lacked the critical engagement of the private sector that helps boost investment. The question thus arises, how can we best ensure implementation of mitigation actions at scale in sub-Saharan Africa.
The resurgence of international carbon markets and a new Sustainable Development Mechanism that "supports emission reductions and sustainable development" might provide countries with more flexibility to reach their climate targets. This new Sustainable Development Mechanism could channel private sector investment into low carbon technologies and help close the opportunity gap between current levels of private sector investment in renewable energy ($400 billion annually) and the $16 trillion needed to meet targets and put countries on a low-to-zero carbon path.
Looking ahead, the upcoming Climate Change Conferenece in Marrakesh later this year might well become yet another milestone achievement. The expectations are high that Marrakesh will move us forward towards a second edition of the Marrakesh Accords of 2001 and stimulate effective participation in the new Sustainable Development Mechanism under the Paris Agreement.
This is an exciting notion and one which could help provide holistic and much needed support to all countries to help meet their climate targets and ensure sustainable development. As a development and climate practitioner, I welcome such a shift. And our climate would certainly embrace it!