The document defines eligible ‘climate mitigation activities’ as those that promote ‘efforts to reduce or limit greenhouse gas emissions or enhance greenhouse gas sequestration’. The range of activities eligible for the classification as climate mitigation finance include the deployment of renewable energy, lower-carbon and energy efficient generation, forestry and agricultural projects conducive of lower CO­₂ emissions, and the application of CCS technology for power generation and industrial processes. The inclusion of CCS is of crucial importance as this technology is an indispensable component of the solution to climate change, yet one in need of enhanced funding.

The document has been signed by top development banks in China, India, Brazil, South Africa, Japan and Mexico – which together control assets amounting to roughly €1,980 billion. Moreover, the list of guiding principles has been backed by the World Bank, International Development Finance Club and Agence Francaise de Developpement.

“Common methodologies across financial institutions are essential to build trust that climate finance is flowing” noted Rachel Kyte, World Bank Group Vice President and Special Envoy for Climate Change.

Development finance institutions have been tracking climate finance for only a few years, and their methods have varied, making global public finance numbers difficult to compare.  The agreement on common definitions and methodologies among these institutions is therefore a milestone for climate financing.

Disappointing is, however, the fact that the document does not explicitly rule out the eligibility of unabated coal. Under the section for lower-carbon and efficient energy generation, the document states eligible activities as: “Energy-efficiency improvement in existing thermal power plant, industrial energy-efficiency improvements though the installation of more efficient equipment, changes in processes, reduction of heat losses and/or increased waste heat recovery”  as well as “more efficient facility replacement of an older facility”.

The document’s ‘guidelines’ section gets closer to ruling out coal, but the language used remains too  vague and is insufficient to achieve this. The text states “Greenfield energy efficiency investments are included only in few cases when they enable preventing a long-term lock-in in high carbon infrastructure, and, for the case of brownfield energy efficiency investments, it is required that old technologies are replaced well before the end of their lifetime, and new technologies are substantially more efficient than the replaced technologies. Alternatively, it is required that new technologies or processes are substantially more efficient than those normally used in greenfield projects”.

Slow progress

So far, progress observed across national governments has been slow. They have been unable to agree on common definitions on allocating climate finance and have failed to mobilise sufficient funding as promised to developing countries ahead of COP 21.

A formal pledge meeting for the Green Climate Fund (GCF) was held in late November and at the UN COP 20 Climate Summit in Lima a total of €9 billion was brought in. This, however, constitutes only about 1% of the amount pledged. What is more, the 9^th meeting of the GCF Board in Songdo, Republic of Korea, last month, brought disappointment due to its failure to prohibit funding to coal power plants and the persistent ambiguity with regards to the lending criteria.

Even worse, the former UN climate chief Yvo de Boer has publicly made a statement defending the use of climate finance for unabated coal. Bellona regards this as unacceptable, and calls for CCS to be rendered a pre-requisite to any continued use of coal. The distinction between unabated coal and coal with CCS must be clearly communicated.

At the EU-level, the agreement by EU Member States to increase funding dedicated to CCS demonstration projects after 2020 under a new, extended NER300 programme, the so-called Innovation Fund, is of crucial importance in sending a signal to investors that public funds will be available for future projects. Nevertheless, in order to ensure it will be truly beneficial to CCS, the fund must be established as early as possible, to avoid a funding gap, and build on the lessons learnt from its predecessor, which was marked by a distorted awarding process based on inadequate criteria and lack of transparency. We are yet to see how the design of this envisaged fund develops – for more on this read Bellona’s response to the ETS Directive consultation here.