<b>Vandana Gombar:</b> Climate finance on the upswing

A report from the Organisation for Economic Cooperation and Development pegs the climate finance mobilised by the richer nations at $62 billion in 2014, up from $52 billion the preceding year

Germany's KfW topped, yet again, the list of development banks financing clean energy and energy efficiency in 2014, accounting for a third of the total funding provided. Bloomberg New Energy Finance looked at 35 institutions, including the World Bank Group, China Development Bank and Japan Bank for International Cooperation, that provided almost $84 billion of financing between them last year.

Another report, from the Organisation for Economic Cooperation and Development (OECD) earlier this month, pegged the climate finance (public and private) mobilised by the richer nations at $62 billion in 2014, up from $52 billion the preceding year. "The key conclusion is that there is significant progress towards the $100 billion goal," the report said. The promise to ramp up funding from developed countries to the developing ones to $100 billion annually was made in 2009.

There is, however, an interesting question that has come up: If aid money is loaned at market rates, is it still aid?

What the developing countries are demanding is fairly obvious. "Developing countries, particularly those trying to address climate adaptation issues, are seeking to have as much as possible of the $100 billion on a fully concessional basis, that is, grants," Josue Tanaka, managing director for energy efficiency and climate change at the European Bank for Reconstruction and Development, told Bloomberg News. The issue will certainly be discussed at the UN climate conference in Paris later this year.

It will be tricky separating commercial finance and concessional finance since there are lenders such as the African Development Bank that provide both, and also offer grants. The Ivory Coast headquartered bank has announced its plans to triple climate financing to $5 billion annually by 2020.

This financing provided by the African Development Bank would fall under 'South-South' flows, which would not be counted in the $100 billion goal. Clean energy support extended by two new banks, the New Development Bank BRICS (formerly referred to as BRICS Development Bank) and the Asian Infrastructure Investment bank, will also mostly fall in the South-South category, except that the latter has some OECD partners.

There is also the issue of providing funding that is "new and additional". It is not clear if the decision of UK Prime Minister David Cameron to channel almost $9 billion of assistance from the foreign aid budget to its International Climate Fund over the next five years, through March 2021, would qualify as being additional.

Interestingly, the coal industry is seeking funding from the Green Climate Fund - proposed to channel a part of the promised $100-billion financing to developing countries - for cleaner coal plants, which promise lower emissions per unit of coal burned. The OECD report on climate finance specifically excluded financing provided for cleaner coal plants, though Japan and Australia averred that such investments deserve to be included. It looks like very busy days ahead for climate accountants.

Meanwhile, the new head of the Intergovernmental Panel on Climate Change, South Korean economist Hoesung Lee, gave a stark warning: "We are running out of time to take action." Emissions must peak no later than 2030, he said.