Financing: a key issue in the fight against climate change

France made climate financing a priority for the entire duration of its presidency of COP21, and the Green Climate Fund is one of the instruments of the climate agreement’s financial mechanism. As such, it helps to finance the commitments made under the Paris Agreement. The GCF has raised US$ 10.2 billion to date. France is the fifth largest contributor, having pledged USD 1 billion.

The GCF has a crucial role to play in establishing confidence and mobilising private investors. Beyond that, longer-term climate financing must also be strengthened and clarified in order to increase visibility and shift investment towards the low-carbon economy.

The Green Climate Fund: US$ 10.2 billion raised

The Green Climate Fund’s US$ 10.2 billion capital endowment is the culmination of a long process initiated at the Copenhagen and Cancun sessions of the COP. The Fund is intended to act as a catalyst for large-scale initiatives in developing countries to mitigate and adapt to the effects of climate change through three types of value added:

  • increased funding for the fight against climate change;
  • the roll-out of financial tools (grants, soft loans, guarantees, equity interests, insurance, risk-sharing, performance incentives, budget support, etc.) via an extensive network of implementing entities and intermediaries, including at national level;
  • better coverage of needs not sufficiently addressed at present, such as adaptation measures for the most vulnerable.

The GCF finances projects and programmes that have maximum potential for transformation into low-carbon and resilient economies, in line with countries’ needs.

The initial investment criteria are:

  • the expected impact,
  • the paradigm-shift potential,
  • the sustainable development potential,
  • the beneficiary’s needs,
  • national ownership,
  • effectiveness and efficiency.

There is no predetermined allocation per country. However, the allocation rules include indicative targets intended to ensure (i) a fair balance between mitigation and adaptation, (ii) a minimum allocation of 50% of adaptation resources for the most vulnerable countries, including the least advanced countries, African countries and small island developing states, (iii) a significant allocation of resources to the private-sector facility, and (iv) an equitable and geographically balanced distribution that maximises the transformational impact and scale of projects.

To date, the GCF has disbursed US$ 2.6 billion to fund 54 projects and programmes.

France pledged to support the GCF at a very early stage and has worked hard to ensure that the first round of fund-raising sends a strong signal and builds confidence among developing countries.

Climate finance: France’s commitment

In order to limit the global temperature increase to 2°C by the end of the century, France believes it is essential to take a comprehensive and integrated approach to development and combating climate change, reflected in particular in a greening of national development assistance policies. As well as encouraging the framing and implementation of new, low-carbon development strategies that foster resilience1 to climate change, this approach also implies better donor coordination.

The decision adopting the Paris Agreement reasserted the developed countries’ goal of mobilising US$ 100 billion per year from 2020 through 2025 for climate initiatives in favour of developing countries. The agreement states that a balance should be sought between mitigation and adaptation financing and that a new collective quantified goal will be set before 2025.

In this context, France has pledged to increase its climate financing in developing countries from €3 billion in 2015 to €5 billion in 2020, including an increase in adaptation financing to €1 billion per year, compared with an average of €400 million over the period 2010- 2015. This will be linked with the €4-billion increase in the annual amount of loans granted by the French Development Agency (AFD) and an almost €400-million increase in grants in 2020 versus 2015.

The AFD Group, an implementing agency of the Ministry of Europe and Foreign Affairs, disbursed €3.6 billion in financing with climate-related co-benefits in 2016. This was 22% more than in 2015 and brought the total amount of such financing disbursed by the AFD Group since 2005 to over €24 billion. In line with AFD’s climate strategy, 52% of its disbursements (excluding Proparco) in 2016 had a climate-related co-benefit.

AFD Group financing for mitigation of the effects of climate change increased by 66% to €2.8 billion in 2016, driven by a large number of sustainable urban transport and renewable energy projects. Disbursements for adaptation were relatively stable, rising by 5% to €606 million, representing 17% of all climate-related activity.

AFD will devote at least €3 billion over the period 2016-2020 to the development of renewable energies in Africa, this target forming part of the commitment to €5 billion per year in 2020. It will contribute to the roll-out of the Africa Renewable Energy Initiative (AREI), which aims to give Africa 10GW of renewable energies by 2020 and 300GW by 2030.

France promotes innovative climate financing

For a number of years now, France has been promoting innovative financing for development within the Leading Group and various international bodies, as financing mechanisms supplementing traditional sources of development assistance. These mechanisms have already proved their worth in health and education and, combined with other sources, could help to reach the objective of US$ 100 billion per year from 2020 for combating climate change. France is focusing in particular on the financial transaction tax (FTT) and market instruments in international air and sea transport.

  • A financial transaction tax would raise substantial resources. The French FTT, adopted on 29 February 2012, should provide a model with a view to universalisation of the mechanism. Some of the revenue from the tax will be used for the Green Climate Fund. At European level, discussions on implementing an EU financial transaction tax (EU FTT), intended to contribute in part to the EU budget, have made some progress.
  • France supports carbon pricing (carbon tax or quota system) in international air and sea transport in order to effectively achieve global reductions in the fast-growing emissions from these sectors and generate significant revenue for climate finance. At the most recent Assembly of the International Civil Aviation Organisation, it was agreed that a market-based global system would be negotiated in 2016, for entry into force in 2020.

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Updated: 05.12.17