Financing: a key issue in the fight against climate change

France has made climate finance a priority since its COP21 presidency. In his speech of 23 September 2019 at the UN Secretary-General’s Climate Change Summit, the President of the French Republic stated that the “immediate priority is the Green Climate Fund”. The Green Climate Fund is one of the financial mechanisms of the United Nations Framework Convention on Climate Change. It contributes to financing the commitments made under the Paris Agreement.

The role of the Green Climate Fund is crucial in creating trust and mobilizing private investors. Climate financing in the longer term must also be strengthened and clarified in order to provide better visibility and provide momentum towards investing in a low-carbon economy.

The Green Climate Fund: US$ 10.3 billion raised

The decision to create the Green Climate Fund was made at the Copenhagen Conference of the Parties in 2009, and it is headquartered in Korea. The Fund is the main multilateral fund dedicated to financing the fight against climate change in developing countries and aims to act as a catalyst for mitigation and adaptation actions on a large scale in developing countries by bringing added value in three forms: increasing the volume of financing to fight climate change, deploying diversified financial tools, and better covering needs. It’s mandate is to facilitate private and public financial flows.

The fund works as a catalyst for actions to mitigate the effects of climate change and large-scale adaptation in developing countries by bringing added value in three forms:

  • Increasing financing for the fight against climate change
  • Rolling out financial instruments (grants, concessional loans, guarantees, acquisition of stakes, insurance, risk sharing, performance incentive mechanisms, budgetary assistance, etc.) through an extensive network of implementation bodies and intermediaries, including at the national level
  • Better coverage of needs that are currently insufficiently covered such as adaptation for the most vulnerable.

The Green Climate Fund finances the projects and programmes which have the most potential to transform economies to make them low-carbon and resilient, 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. The allocation rules do however set indicative objectives aiming for:

  • balance between mitigation and adaptation,
  • a minimum of 50% of adaptation resources for the most vulnerable countries, including the least developed countries, African States and Small Island Developing States,
  • significant allocation of resources to the private sector facility,
  • a fair and balanced geographical distribution to maximise the transformational impact and scale of projects.

With an initial commitments of $10.3 billion for the period 2015-2018, France is the 5th largest contributor to the fund (€774 million). The Green Climate Fund is governed by a Board representing donor and beneficiary countries equally and in which France has a seat, and an executive director, Yannick Glemarec, who took office in April 2019.

So far, 111 projects have been financed by the Green Climate Fund for a total of $5.4 billion covering nearly 100 countries.

France got behind the Green Climate Fund from the outset to enable it to gain the trust of the developing countries.

Recapitalization of the Green Climate Fund

The 21st meeting of the Fund Board was held in Bahrain in October 2018 and helped launched the Fund replenishment process in order to give it the necessary resources to develop its work over the 2020-2023 period.

The final meeting for contribution announcements will be held in Paris on 24 and 25 October 2019. France and the United Kingdom announced during the G7 Summit in Biarritz that they would be doubling their contribution. Germany and Norway announced their contribution during COP24.

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: October 2019