The Paris Agreement: A Focus on the Financial Mechanism

by Amy Wilson

The United Nations Framework Convention on Climate Change (UNFCCC) encourages Parties to work together to develop economic instruments to achieve the objectives of the Convention in relation to climate change and sustainable economic growth [1]. The treaty states that developed country Parties shall provide financial resources to developing country Parties to assist in their implementation of the Convention [1].

How is this achieved?

Climate financial instruments, initiatives and grants have been created through the Finance Mechanism outlined in Article 11 of the UNFCCC treaty [1]. This mechanism aims to encourage developed country Parties to provide financial support and resources to developing country Parties. The mechanism was further enhanced in Article 9 of the Paris Agreement [2]. 

The Financial Mechanism is held accountable by the Conference of the Parties (COP) and its operation is entrusted to the Global Environment Facility (GEF) [3]. GEF provides grants and co-funding to environmental and climate-related projects around the world. For example, GEF manages special funds such as the Special Climate Change Fund (SCCF) and the Least Developed Countries Fund (LDCF) [4, 5].

At COP 16 (2010) the UNFCCC Parties agreed to establish the Standing Committee on Finance (SCF) to assist the COP in activities related to the Finance Mechanism [6]. This committee now aims to improve the delivery of climate change financing, the mobilisation of finance resources, and the measurement, reporting and verification of support given to developing country Parties. 

At COP 17 (2011) Parties decided to designate the Green Climate Fund (GCF) as an additional operating entity of the Financial Mechanism [7]. The GCF is the world’s largest climate fund which supports developing countries to raise their Nationally Determined Contributions (NDCs) ambitions towards low-emissions and climate-resilient pathways [8]. 

The Financial Mechanism, and the funds associated with the mechanism are reviewed every four years to assess their effectiveness and conformity to Article 11 of the Convention [1]. In addition to the Financial Mechanism developed country Parties may also provide developing country Parties financial resources through bilateral, regional or other multilateral channels (also outlined in Article 11) [1].  

How is the mechanism enhanced by the Paris Agreement?

The Paris Agreement also has an article on finance – Article 9 – with the Finance Mechanism of the Convention serving as the mechanism in the Paris Agreement too [2].

Article 9 stipulates that developed country Parties shall provide financial resources to assist developing country Parties in terms of both mitigation and adaptation [2]. Prior to the Paris Agreement, it was found financial support for adaptation was not as well resourced. Therefore, the inclusion of adaptation in the Paris Agreement Article means developing country Parties have to go beyond what has previously been developed and implemented. To date this includes the mobilisation of $100 billion a year in climate finance until 2025 [9]. The Agreement also goes further – and encourages other (developing country) Parties to voluntarily contribute to climate finance. 

The global stocktake identified in Article 14 of the Paris Agreement, also indicates countries efforts related to climate finance will be evaluated [2]. This encourages developed country Parties to provide transparent and consistent information on climate finance support to developing country Parties.

Finally, and most importantly, the Paris Agreement sends a signal that all (public and private) finance should be directed towards climate change; low-emission and climate-resilient developments, while allowing for continued economic growth in developing countries. [10]

See other ClimaTalk articles that consider some of the other financial initiatives: Green Bonds, Clean Development Mechanism and some incentives from the Kyoto Protocol.  Linked with the Finance Mechanism and Parties NDCs is Article 6 in the Paris Agreement. See our article for more information of carbon pricing through Article 6.

[1] United Nations Framework Convention on Climate Change. Available at https://unfccc.int/resource/docs/convkp/conveng.pdf, (accessed 01/05/21)
[2] Paris Agreement. Available at https://unfccc.int/files/meetings/paris_nov_2015/application/pdf/paris_agreement_english_.pdf , (accessed 01/05/21)
[3] Global Environmental Facility. Available at  http://www.thegef.org/topics/climate-change, (accessed 01/05/21)
[4] UNFCCC, Least Developed Countries Fund. Available at https://unfccc.int/process-and-meetings/bodies/constituted-bodies/least-developed-countries-expert-group-leg/ldc-portal/least-developed-countries-ldc-fund, (accessed 01/05/21)
[5] UNFCCC, The Special Climate Change Fund. Available at https://unfccc.int/topics/climate-finance/resources/reports-of-the-special-climate-change-fund, (accessed 01/05/21)
[6] UNFCCC, The Standing Committee on Finance. Available at https://unfccc.int/SCF, (accessed 01/05/21) 
[7] Green Climate Fund. Available at https://www.greenclimate.fund/about/policies, (accessed 01/05/21)
[8] Green Climate Fund. Available at https://www.greenclimate.fund/projects/commitment, (accessed 01/05/21)
[9]  Roadmap to US$100 Billion, (2016). Available at https://www.gov.uk/government/publications/climate-finance-roadmap-to-us100-billion,  (accessed 01/05/21)
[10] Rydge J (2020) Aligning finance with the Paris Agreement: An overview of concepts, approaches, progress and necessary action. London: Grantham Research Institute on Climate Change and the Environment and Centre for Climate Change Economics and Policy, London School of Economics and Political Science. Available at https://www.lse.ac.uk/granthaminstitute/wp-content/uploads/2020/12/Aligning-finance-with-the-Paris-Agreement-3.pdf (accessed 01/05/21)
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