Climate Change Finance and International Law

Alexander Zahar

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781134617562
• Edition: 1
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

Since 2010, a significant quantity of international climate change finance has begun to reach developing countries. However, the transfer of finance under the international climate change regime – the legal and ethical obligations that underpin it, the constraints on its use, its intended outcomes, and its successes, failures, and future potential – constitutes a poorly understood topic.

Climate Change Finance and International Law fills this gap in the legal scholarship. The book analyses the legal obligations of developed countries to financially support qualifying developing countries to pursue globally significant mitigation and adaptation outcomes, as well as the obligations of the latter under the international regime of financial support. Through case studies of climate finance mechanisms and a multitude of other sources, this book delivers a rich legal and empirical understanding of the implementation of states' climate finance obligations to date.

The book will be of interest to scholars and students of international law and policy, international relations, and the maturing field of climate change law.

1 Climate finance

Concepts and institutions

1.1 Introduction

The concept of climate finance is relatively new.¹ Because the FCCC brought the concept into existence, it is still useful to define it with reference to the FCCC itself and its objectives. At the same time, the terminology of climate finance draws heavily on that of international development finance² and deploys a handful of other technical terms whose meaning may not be immediately apparent. Many of the institutions that the FCCC relies on to deliver climate finance pre-existed the Convention and so did not have the delivery of climate finance as their primary purpose.

This chapter provides an introduction to the key concepts of climate finance. Not all of them have clear or uncontested definitions; few of them are recognizably legal concepts. Yet all of the concepts I discuss here are relevant to a legal analysis of climate finance because they constitute the components of legal obligations created through the FCCC and its elaborations. Towards the end of the chapter I review the ‘decentralized governance structure’³ that has characterized climate finance to date. The main financial institutions facilitating the movement of climate finance between states will be familiar to most readers of this book and are therefore only briefly discussed.

1.2 Basic concepts of climate finance

I define ‘climate finance’ as consisting of (1) the finance raised by states pursuant to their international obligations under the FCCC and its elaborations in decisions of the state parties (which finance I will refer to as ‘state finance’); and (2) finance raised through the deployment of state finance, and in particular the finance recruited to the purposes of the FCCC through the leveraging of non-state finance. I will refer to the latter as ‘state-leveraged finance’, which, being by definition non-state finance, may also be thought of as ‘private’ finance. Involvement of the FCCC state parties is essential to both concepts, with the consequence that finance that is independent of state involvement is not climate finance, under this two-part definition.

The notion of climate finance constituted of state finance and finance leveraged with state finance is neither so narrow that it fails to incorporate the main sources of climate finance, nor so broad that it makes it impossible to isolate and study the empirical aspects of the topic.⁴ If we are to maintain that international law creates state obligations on climate finance – as it surely does – it must be possible to distinguish climate finance, for which states are responsible, from other finance that is not their responsibility and occurs independently of them. Only then could we assess whether states are meeting their climate finance obligations. I will therefore at times also refer to climate finance (consisting of the two elements of state finance and state-leveraged finance) as ‘regime’ or ‘treaty’ finance, to emphasize the dependence of the concept of climate finance not only on state involvement in its production or generation, but also on the very existence of the FCCC and the international ‘climate change regime’ that has formed around it.

Thus regime or treaty finance is to be distinguished from other finance that in one way or another (and in particular through private initiative) responds to the problem of climate change without instigation by the climate change regime of the FCCC. The distinction is of course artificial, although no more artificial than other distinctions made for legal reasons. The main difficulty is with the element of state-leveraged finance and the role it plays in the compliance rhetoric of states. For while it is true that state finance can ‘unlock’ private finance and that some private finance would remain indefinitely ‘locked up’ without state finance, it is less clear that state-leveraged finance should always be counted as new climate finance, or that a state should be allowed to claim the whole amount of leveraged private finance as its own contribution to climate finance for FCCC purposes.

In practice, when considering the amounts of climate finance contributed, it is tempting to retreat to the notion of state finance as a measure of state performance. The estimation of state finance is hardly free of methodological difficulty, but the estimation difficulties are much greater for state-leveraged finance.⁵

Let us consider other definitions of climate finance in circulation. Buchner et al. define ‘climate-specific finance’ as ‘capital flows targeting low-carbon and climate-resilient development with direct or indirect greenhouse gas mitigation or adaptation objectives/outcomes’.⁶ The work in which this appears is a report of the Climate Policy Initiative. It is not a legal analysis. Nothing, therefore, prevents Buchner et al. from settling on a very broad definition. The report’s authors do not require a link between ‘climate-specific finance’, on the one hand, and the FCCC (or another state-level source of legal responsibility), on the other. A different definition is offered in another non-legal work, by Nakhooda et al.: ‘Climate finance refers to the financial resources mobilised to help developing countries mitigate and adapt to the impacts of climate change.’⁷ This narrows climate finance to that which is earmarked for mitigation and adaptation in developing countries. However, it does not indicate who is responsible for mobilizing the finance, so this definition, too, is formulated more broadly than my own.

The Intergovernmental Panel on Climate Change has noted that climate finance under the FCCC is not well defined.⁸ However, it has not offered its own definition, merely observing that, as a matter of fact, ‘The term “climate finance” is applied both to the financial resources devoted to addressing climate change globally and to financial flows to developing countries to assist them in addressing climate change.’⁹ This summary is too broad to serve as a definition in a legally oriented discussion.

The Paris Agreement contains an indirect definition of climate finance at article 9(7): climate finance means ‘support for developing country Parties provided and mobilized [by developed-country parties] through public interventions’. This becomes similar to my own definition, if we read into article 9(7) the words ‘pursuant to the Paris Agreement’.

I will now proceed to consider the main concepts relevant to the law on climate finance, in the sense of regime or treaty finance. I begin with four concepts that occur together in article 4.3 of the FCCC:

The developed country Parties and other developed Parties [namely the European Union] included in Annex II shall provide new and additional financial resources … including for the transfer of technology, needed by the developing country Parties to meet the agreed full incremental costs of implementing measures that are covered by [article 4.1]. The implementation of these commitments shall take into account the need for adequacy and predictability in the flow of funds and the importance of appropriate burden sharing among the developed country Parties.

Following a discussion on each of the four highlighted concepts, I will proceed to discuss several other relevant concepts which occur in the FCCC itself and in other texts of the international climate change regime.

1.2.1 ‘New and additional’ climate finance

The requirement that climate finance under the FCCC must be new and additional is far from straightforward. As both physical science and law, the study of climate change and the human response to it is partly about understanding the past and partly about foreseeing the future. Understanding the past is hard enough, of course. Even understanding a country’s recent anthropogenic emissions can be a challenge, and in fact in most cases such estimates are highly uncertain, if they are available at all. (At this writing, China announced that it may have underestimated its emissions from coal combustion by as much as 1Gt CO₂ per year, an error that is more than twice Australia’s annual output of CO₂ from all sectors.¹⁰) Foreseeing the future is even more difficult, because it necessitates a host of assumptions, many of which lose plausibility very quickly.

The concept of ‘new and additional’ straddles both past and future. ‘New’ in this context means new amounts of money, as opposed to funding taken from another development- or environmental-aid programme and renamed ‘climate finance’. ‘New’ therefore represents not only growth in a specific budget-line item but growth across the whole of the relevant budget – e.g. growth across the whole of official development assistance (ODA).¹¹ A contrasting example would be money taken out of a subsidy programme ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Abbreviations/glossary
• Introduction: argument summary and chapter overview
• 1 Climate finance: concepts and institutions
• 2 Climate finance in legal scholarship
• 3 Legal obligations of states relating to climate finance
• 4 State performance of obligations on climate finance
• 5 The philosophy of the control of nature
• Bibliography
• Index