What are the emerging definitions of ‘climate finance additionality’? What are the technical and political implications of these different definitions? This policy brief explores these questions and looks at their requirements in terms of tracking, measuring, reporting and verifying finance. Additionality is an important issue; sufficient finance must be channelled towards climate change needs while simultaneously avoiding diversion from development needs. The way additionality is defined by donor governments needs focused attention and debate. Innovative approaches to raising the funds required outside development funding are needed.
The Copenhagen Accord calls for a collective commitment by developed countries to provide USD 100 billion a year of ‘new and additional’ resources by 2020 to address the needs of developing countries. This international public funding will be critical in helping developing countries adapt to climate change, mitigate disaster risk, and move onto low carbon development pathways. However, it remains unclear how ‘additionality’ is defined in the Copenhagen Accord. How such large sums of money are going to be raised is also unclear.
Clarity is fundamental to ensuring that financial commitments to poor countries are met. The European Commission has set a deadline of 2013 for agreeing a common definition of additionality. Four definitions are prominent in the current European Union debate:
- Climate finance classified as aid but additional to the 0.7 per cent Overseas Development Assistance (ODA) target. This definition is technically straightforward but politically challenging, given that many EU countries struggle to achieve the 0.7 per cent target.
- Increase on 2009 levels of ODA spent on climate actions. As above this is also easy to track and technically feasible, but risks inequity because those donors who have not given to ODA-related climate finance before 2009 will have a lower baseline than those who have.
- Climate finance as a specified limited percentage of ODA. This is more technically complex because aid diverted to climate finance changes the composition of funding if levels of ODA are not raised sufficiently. Debate continues as to what the limit on climate finance should be.
- Increase in climate finance not connected to ODA. This allays concerns about aid diversion, but technical complexities arise from ensuring both funding streams are coordinated. Agreeing and implementing a new separate funding mechanism will be politically difficult.
The tracking of ODA flows is critical to knowing how much funding is additional. However, there are problems with the agreed markers for tracking climate-related ODA flows, including a one-sided focus on mitigation and lack of comparability across countries.
The additionality debate is concerned with how funds are channelled to and used by recipients. It does not consider how funds are to be raised. Given current strains on public resources, however, earmarked funding is unlikely to be sufficient. Policy recommendations include:
- Creating new additional sources of climate funding. These might include revenue from the carbon market or from international travel-related levies.
- Improving the tracking of climate finance. The alternatives are strengthening and improving current monitoring or replacing these with a new system that clearly differentiates between climate and other aid financing. However, the move towards programmatic ODA delivery away from project-based aid will make it almost impossible to separate climate financing from development aid in the short term.
