'An inflexion point': Paris Summit sketches out roadmap for ambitious climate finance reform

The Summit for a New Financial Pact in Paris officially closed this afternoon, with observers hailing the meeting as a "first step" towards reforming a financial system that remains "unfair and inadequate" in the face of escalating climate threats.

The two-day meeting, which was attended by over 40 world leaders, secured a series of new climate finance pledges and saw the launch of a number of initiatives that promise to boost investment in climate-related projects in developing and emerging economies. But campaigners argued the summit ultimately failed to deliver a major breakthrough and leaves climate vulnerable countries without access to the climate finance they need to bolster their climate resilience and accelerate their clean energy transitions.

Observers warned the modest progress would exacerbate fears that international climate negotiations are likely to remain deadlocked in the run up to the COP28 Climate Summit in Dubai this autumn, as poorer nations continue to call on indsutrialised economies to honour long-standing climate finance commitments.

Campaigners also voiced frustration that the Summit fell well short of the kind of debt relief deal poorer nations had been seeking.

Highlights from the Summit included a commitment from the World Bank to introduce debt pause clauses into new loans that would allow climate vulnerable countries to suspend debt repayments in the wake of climate-related disasters.

The UK government went further still, announcing that its UK Export Finance agency was in talks with a dozen countries in Africa and the Caribbean to introduce similar clauses on a bilateral basis into both new and existing loans.

Meanwhile, Senegal became the latest country to agree a Just Energy Transition Partnership (JETP) with a coalition of industrialised economies, which will see it provided with $2.75bn to help deliver on its target to source 40 per cent of its power from renewables by 2030.     

And separately Zambia agreed a landmark $6.3bn debt restructuring deal with China and the International Monetary Fund (IMF), after the African nation defaulted on its debt in the midst of the pandemic. The agreement allows for a reduction in interest rates of creditors, a three-year pause on full repayments, and a 20 year extension to the maturity of the loans. It also marks one of the first times China has agreed to debt restructuring on the wave of loans it has agreed with developing economies in recent years.

There was also some progress on negotiations to make Special Drawing Rights (SDRs) from the IMF more accessible to developing economy governments - a move that could help boost investment in climate-related projects.

The IMF issued $650bn in SDRs to help governments respond to the Covid-19 pandemic, but with larger economies taking advantage of the bulk of the available funds campaigners and developing countries have been calling for over 30 per cent of richer nations' SDRs to be recycled and made available to developing countries.  

This week France announced it would improve on its previous pledge and recycle 40 per cent of its SDRs, following similar moves from Belgium, Switzerland, the UK, and Japan. The US has also promised to provide $21bn through SDRs, although the move requires Congressional approval. If the US does approve the recycling of an increased share of its SDRs, a total of $100bn should be made available to developing economies.

The new commitments will fuel hopes that wider proposals for poorer nations to be granted more access to SDRs to help respond to escalating climate impacts are gaining traction.

Those hopes were given a further boost on the eve of the Summit when over a dozen world leaders, including leaders from the US, UK, EU, France, Germany, South Africa, Brazil, and the UAE, signed an open letter that broadly backed many of the reforms proposed by Barbados Prime Minister Mia Mottley in her Bridgetown Agenda, which includes plans to make SDRs more accessible to climate vulnerable nations.

Meanwhile, new World Bank chief Ajay Banga signalled his support for further reforms at the bank. "My view is the World Bank's vision has to evolve to say, yes, we will create a world free of poverty, but on a liveable planet, meaning we tackle climate, pandemics, fragility, food insecurity, things that reduce our ability to have quality of life, and to have hope and optimism," he said.

Finally, proposals for reforms and taxes that can drive investment in clean technologies and boost carbon markets received fresh backing at the Paris Summit.

Most notably, at least 18 countries, including major shipping operators Greece and South Korea, endorsed proposals for a new green levy on international shipping emissions. Analysts said a carbon levy on global shipping is now supported by two of the top three biggest shipowners in the form of Greece and Japan, two of the top three biggest shipbuilders in the shape of South Korea and Japan, and two of the three biggest Flag States: Liberia and Marshall Islands.

Avinash Persaud, advisor to the Barbados' PM Mia Mottley, said the meeting represented an "inflexion point" in the long-running talks to mobilise increasing levels of climate finance.

"A grown-up roadmap has emerged that we must adopt," he said. "[It is a roadmap] with four major locations: First, natural disaster clauses to make the system more shock absorbing - the US announced a pilot for export credits. Second, unblocking the flow of private savings to finance the green transformation in developing countries - there is momentum behind a new partial Foreign Exchange guarantee. Third, triple lending by the multilateral development banks to finance resilience partly with existing resources better used, and later with new capital. Fourthly, we need new global emission and financial taxes to fund loss and damage - there is growing support for emission taxes in shipping and aviation to decarbonise as well as support loss and damage."

His assessment was echoed by Rachel Kyte, Dean at the Fletcher School at Tufts University, who said the meeting "has shown that there is no shortage of creative ideas to make the financial system work better for people and the planet". But she added that implementing the reforms now "requires broader leadership than that on display in Paris".

Laurence Tubiana, CEO of the European Climate Foundation and one of the architects of the Paris Agreement, similarly argued that the New Financing Pact Summit represented "a first step to finally address the issue of our global financial system being unfair and inadequate".

"The Global South and African leaders have sounded the alarm bells: they have spoken with a strong and independent voice," she added. "Taboos have been broken. [But] the 'Spirit of Paris' needs to go beyond this meeting and Global North leaders need to act."

She said the next major test of the reform programme would come at the Nairobi Africa Climate Summit in September. "Some progress has been made on international taxation, debt suspension clauses, Multilateral Development Banks' reform and on delivering on Special Drawing Rights pledges," she said. "We urgently need these ideas to be turned into an action plan with concrete steps to find new sources of financing for development, climate action and nature. Political leadership and courage are essential in the next months. The Global North needs to take responsibility for delivery of this action plan. There's no time to lose."

However, Tracy Carty, climate politics expert at Greenpeace International, said the Summit had only made limited progress, in large part because governments in richer countries were failing to mobilise promised levels of climate finance and push through tax reforms that could accelerate the clean energy transition.

"The Summit ended with mild recognition of the need for new taxes to pay for climate action and identified a role for the G20 and COP28 to take them forward," she said. "Taxing big polluters should be top of the agenda for these global moments, but rich country governments don't have to wait to act - they already can and must introduce taxes on big polluters, above all the fossil fuel industry, to pay for loss and damage now.

"Silence on the fossil fuel industry paying for the mess they have caused was deafening at this Summit. Fossil fuel companies are racking up obscene profits, while millions in low-income countries pay the price as drought, floods, sea level rise and other climate catastrophes wreak havoc." 

Criticism of the role of the fossil fuel industry in the transition was amplified when French President Emmanuel Macron said the funding for Senegal's energy transition would not negate the country's planned investment in new gas fields, arguing that fossil gas remained an important "transition fuel".

Pierre Terras, head of climate and energy campaigns at Greenpeace France, slammed the comments, insisting "President Macron's promotion of fossil gas as an energy of transition during this Summit was totally irresponsible and resonates with his poor record of domestic climate in-action".

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