Importance of Natural Resources

What Is Climate Finance?

Climate change is not in the distant future, but happening now and it is already having severe consequences for societies and people’s livelihoods. Politicians, scientists, civil society organizations and advocacy groups such as the Heinrich Böll Stiftung, as well as communities around the world are grappling with these impacts and costs. Potential ways towards a sustainable and just future exist but shifting away from fossil fuels and strengthening the resilience of communities, ecosystems and economies is expensive. Some, but not enough financing for climate action has been pledged and collected to ensure that funds are available for the necessary changes. But where does the money come from? The money should come from the countries that are responsible for the damage and have the capacity to make it right. This is a matter of justice – climate justice. Industrialized economies such as the United States, England and Germany have profited from carbon-intensive economic development. But this development path is no longer an option for poor countries that need to skip a few steps and go directly to using clean, renewable energy. Meanwhile, small island nations and heavily indebted poor countries are hit the worst by the impacts of climate change. This is even more unfair considering that their contribution to the problem has been miniscule. In these countries, the worst affected people are the poor and marginalized – women, the disabled, the elderly and the indigenous peoples. Climate change aggravates existing problems such as inequality, discrimination and poverty. This is why climate finance should be targeted to help vulnerable population groups. Rich countries owe developing countries a historic climate debt. Based on the key principle of climate justice – that polluters must pay – it is their obligation to help pay for the costs of addressing climate change. So, how much money is needed? Careful estimates say hundreds of billions, if not trillions, and the longer we wait to tackle climate change, the more expensive it gets. In 2009 in Copenhagen, industrialized countries committed to contributing 100 billion dollars annually by 2020 to address the issue. Since then, many climate funds and finance initiatives have sprung up, but rich countries’ contributions have yet to reach their goals, and the long-term future of many climate funds is not secure. While rich countries are supposed to take the lead, most of the money today comes from the private sector. And governments increasingly give loans that need to be paid back. However, loans place a strain on poor recipients, and investors often have priorities that do not align with the needs of communities and countries. This is why public climate finance should be mostly in the form of grants, especially for helping communities adapt to the impacts of climate change. But what’s this money for in practice? Climate finance is used to fund projects in mitigation or adaptation, and more and more in cross-cutting activities that combine both. Funding for adaptation builds hurricane shelters or sea walls. It restores mangrove forests and wetlands; helps manage water systems to deal with severe droughts or floods; and provides farmers with better seed and forecasts to improve their yield despite unpredictable weather. When done well, these projects allow communities to bear the worst effects of climate change and adjust their livelihoods to an uncertain future. Mitigation projects reduce greenhouse gas emissions by shifting energy production towards sustainable sources. Examples of this include funding for clean public transport in cities; generating renewable energy from wind and solar power; or planting trees in deforested areas. These projects can address energy poverty in rural areas by distributing renewable energy to people who have never had electricity. They provide clean cooking solutions to the 2.7 billion people worldwide still using traditional biomass fuels like wood or dung; and they also provide entrepreneurs with the cheap loans needed to buy energy efficient equipment. However, not all mitigation projects are good projects. Large hydroelectric dams can displace people and destroy their livelihoods; while growing food crops for biofuel can increase food insecurity. Misguided climate mitigation can easily make things worse. The most successful projects put people first, and give communities and marginalized groups a strong voice in designing and selecting them. With so little money available for climate projects, only the ones that do no harm to people or the environment, and ones that benefit human rights and gender equality should be funded. But there is so much more to understanding climate finance. Check out our following videos on the gender dimensions of climate finance and on the Green Climate Fund – one of the largest public global climate funds.

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