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What Salad and Ice Cream Tell Us about Climate Finance

Imagine you’re on a diet—but to measure progress, you decide to count only the number of salads you’re eating while ignoring the number of ice creams. That, in a nutshell, is what has happened in global discussions on climate finance, according to a new discussion paper from Rocky Mountain Institute and partners.

Climate finance—broadly defined as public or private finance for activities that reduce greenhouse gas emissions and/or increase resilience to climate change—has been a central theme of global climate negotiations. In fact, the Paris Agreement puts finance front and center, directing countries to “make finance flows consistent with a pathway towards low greenhouse gas and climate-resilient development.” In layman’s terms, the Paris Agreement commits countries to ramp up finance for climate-friendly activities, while also scaling back finance for activities that stand in the way of climate objectives.

Most of the attention has focused on the first task. In the years leading up to the Paris Agreement, and in response to global commitments including the $100 billion target and the establishment of the Green Climate Fund, several institutions began to track climate finance flows, resulting in the famous climate finance spaghetti diagram (and apparently whetting our appetite for food analogies). These reports have tackled the climate-friendly side of the finance equation, but what about investments and subsidies to activities such as coal-fired powered plants? Shouldn’t we also be reporting on “anti-climate” or “climate negative” finance?

This question served as the basis for a recent paper coauthored by Rocky Mountain Institute, World Resources Institute, and Climate Analytics on “net climate finance”— the concept of measuring overall progress on low-carbon financial flows not only in terms of “clean” finance, supporting mitigation and adaptation, but also “dirty” flows, enabling high-carbon, maladaptive investments. The paper, presented at a convening of climate finance experts in Bonn in May 2017, shows that while climate finance may be growing, net climate finance continues to be heavily skewed toward dirty investments.

Take clean- vs. fossil-energy finance. The International Energy Agency (IEA) estimated $1.1 trillion in fossil fuel investment in 2013, with $875 billion flowing to oil and gas, $150 billion to fossil fuel generation, and $75 billion to coal. However, the IEA estimates only $250 billion in renewable energy and $130 billion in energy efficiency—about a third of the fossil investment. This ratio becomes even more dramatic when looking only at public finance; the IEA estimates $513 billion in fossil fuel subsides in 2013, compared with just $129 billion for renewables.

Of course, the IEA looks at just one sector and demonstrates just one approach to reporting finance flows. Other sources offer some alternatives, for example, the International Monetary Fund, which examines both consumer and producer subsidies for fossil energy. The Climate Policy Initiative moves beyond the energy sector, examining climate finance flows to forestry and adaptation while also reporting public vs. private and domestic vs. international flows. The Overseas Development Institute and Oil Change International look specifically at North-South public support for fossil fuel production and exploration.

However, despite myriad sources of data, few reports make the link between clean and dirty flows. As a result, the policy conversations and advocacy efforts around climate finance and fossil energy finance have remained strangely disconnected. For example, global climate negotiations have been laser-focused on scaling up green finance while largely ignoring the continued public funding of fossil energy. If we are truly committed to implementing the Paris Agreement, we need to consider clean and dirty flows side by side, with the ultimate aim of phasing down public subsidies for fossil fuels even as we develop creative financing solutions for clean energy.

Click here to download the report.

Image courtesy of iStock.