Climate finance: aid, compensation or neither?

1. Climate finance: aid, compensation or neither? Presentation at workshop on ‘Designing just institutions for global climate governance’ (ANU, 1 July 2011) Jonathan Pickering (jonathan.pickering@anu.edu.au)

2. Outline • Characterising the responsibility: aid, compensation or neither? • Institutional implications of the characterisation: are any conditions on the use of finance permissible?

3. Climate finance as aid? ‘Many countries will fulfil part of their financing commitments from aid budgets. This makes sense in the light of the synergies between climate change adaptation and broader development objectives’ ‘Climate finance is not aid finance, but the aid experience does offer critical lessons’

4. Climate finance as compensation? • Heinrich Böll Foundation (Schalatek 2011): ‘Once politically accepted as compensatory finance and a legal obligation under the UNFCCC and not as aid, it is self-evident that a large share of [climate] finance will have to be provided by parties from public funds – and in the form of non-repayable transfer payments directly to recipient countries – to be used at their discretion, not as loans with imposed conditionalities.’ (emphasis added)

5. Climate finance: an alternative characterisation • Climate finance is not based primarily on a responsibility to assist (like aid) but a substantially contribution-based responsibility • But climate finance should only be considered compensation where it addresses residual damage • Finance for adaptation and mitigation aims to prevent harm rather than remedy it, and should not be treated as compensation as such

6. A spectrum of responsibilities Responsibilities: Assistance-based Contribution-based Aid Mitigation finance Adaptation finance Compensation for residual damage Compen-sation (legal) Institutional models: Supported NAMAs Adaptation Fund Disaster risk insurance facility International law remedies for transboundary env’tal harm Paris Declaration (mutual accountability, country ownership)

7. Institutional implications • Institutional models should be differentiated according to basis of responsibility • Start with presumption of recipient country ownership of climate finance (direct access) • Involve beneficiaries in early stages of decision-making • Conditions on use of funds only permissible to the extent that they maximise benefit to ultimate beneficiaries • Limitations on making finance conditional on participation in a global agreement • MRV should apply to all climate finance • Loans for adaptation or compensation not warranted