The United Nations Framework Convention on Climate Change (UNFCCC) defines ‘climate finance’ to include local, national or transnational financing for purposes of addressing the Timpacts of climate change and supporting climate-smart development. These funds may be drawn from the public sector, private sector or hybrids between the two. At the 15th Conference of Parties (COP) to the UNFCCC held in Copenhagen in 2009, a target for climate financing was agreed upon. Developed countries promised to mobilise long-term finance to the tune of US$ 100 billion by 2020, and provide US$ 30 billion between 2010 and 2012 by way of ‘fast-start’ finance. While the initial fast-start commitments have been met, largely through Development Assistance budgets of developed countries, there is little clarity on how the long-term requirements will be fulfilled. The Green Climate Fund (GCF), based out of South Korea, is among the only credible institutional arrangements outside of bilateral assistance channels and Multilateral Development Banks (MDBs) that is regarded at as an important source of long-term climate finance.

The GCF was set up at COP 16 as an operating entity under the Financial Mechanism of the UNFCCC. The other available institutional fund which is part of the UNFCCC’s Financial Mechanism, the Global Environment Facility (GEF), will only have around US$ 4.43 billion available during its sixth replenishment period between July 2014 and June 2018.

There are a variety of ways through which governments are looking to mobilise long-term climate finance, following the recommendations of a High Level Advisory Group formed by UN Secretary General Ban Ki-moon in 2010. These include administration of general taxes such as a carbon tax; administration of specific taxes, for instance on commodities that have an adverse impact on global climate change; and through ways of leveraging private sector finance, particularly through the capital markets and MDBs.

Private finance is being mobilised through direct investments. However, as per Article 4 of the UNFCCC, developed countries are bound to provide “new and additional financial resources to meet the agreed full costs incurred” by developing countries in order to finance their obligations under Article 12 of the Convention. It is therefore not clear whether private sector investment, in sectors such as infrastructure for instance, qualifies as ‘new’ or ‘additional’.

This issue brief aims to present the following:

(a) an assessment of the gaps and shortages in financing flows;

(b) available monies in the global system; and

(c) suggestions to mobilise resources towards mitigation and adaptation needs of developing countries.