The other side of climate financeClimate agreements must require poorer countries to report on the impacts of climate finance.
Money can’t buy you love. It hasn’t bought reforms either. But it can buy you other things, like a trip to Sharm-El-Sheikh, the beautiful seaside resort in Egypt where the UN conference on climate change is currently taking place.
Countries from across the world are meeting at the 27th Conference of Parties to the UN Framework Convention on Climate Change (UNFCCC), popularly COP 27, to negotiate an international agreement for addressing climate change. A key part of those negotiations is focusing on the commitment of developed countries to provide developing nations with financial support for climate action.
At COP 15 in 2009, developed countries had committed to collectively mobilising $100 billion annually by 2020 for climate action in developing countries. The goal was reiterated and extended to 2025 at COP 21 in Paris in 2015.
Developed countries will not meet that goal. In September 2022, an analysis by the Organisation for Economic Co-operation and Development (OECD), an intergovernmental organisation of 38 developed countries, estimated that $83.3 billion had been mobilised in 2020.
Counting climate finance flows has always been a murky business. Take the case of the Electricity Grid Modernisation Project in Nepal, where the Asian Development Bank (ADB) provided Nepal a loan of $216 million in 2021. The project aims to support the Nepal Electricity Authority (NEA) to expand and modernise the electricity transmission and distribution system in selected areas, as well as enhance its financial and customer information systems.
The ADB estimates that $188 million of the $216 million counts as climate finance, in part because “the project will allow increased penetration of renewable energy generation into the grid, allowing greater displacement of fossil generated electricity”. The ADB’s estimates were derived using standardised frameworks it developed in 2013 and 2017 for all projects, not just for Nepal.
By that count, though, about half of every foreign dollar that Nepal has ever received for its power sector in the last 100 years, long before climate change even became a topic, can be considered as climate finance.
And, oh, just so you don't miss the point, Nepal will need to repay almost all of that $188 million of climate finance with interest. You can see why developing countries think they have themselves a highly unfair deal.
Poorer countries must bear the brunt of climate change when they do not have responsibility for historic emissions that are leading to climate change. The United Nations Conference on Trade and Development (UNCTAD) estimates that 46 least developed countries (LDC), Nepal included, accounted for only 1.1 percent of global CO2 emissions in 2019. Yet, 69 percent of worldwide deaths caused by climate change-related disasters over the last 50 years occurred in LDCs, leading observers to label this injustice as “climate apartheid”.
Whether COP 27 will deliver poorer countries from climate apartheid is unclear. But if the need to support poorer countries with climate finance is one side of the coin, the need to examine how governments in poorer countries spend it is other.
The other side of climate finance—its effectiveness—must draw from past experiences of development funding.
In Nepal, there are plenty of examples to learn from. Donor assistance in Nepal, both bilateral and multilateral organisations, isn’t translating fast enough into meaningful reforms. The country’s energy sector illustrates this clearly.
Since 2013, Nepal has received approximately $2.2 billion across 16 major projects in a mix of grants and loans from development partners, the ADB estimates. There has been notable progress over that duration. Load-shedding (rolling blackouts) has ended. Over 90 percent of the country is electrified. Generating capacity has almost doubled. Private participation is higher. Transmission capacity has been enhanced, and interconnection with India is enabling exports.
These physical gains notwithstanding, the underlying sector reforms have remained paralysed. In September, an amendment to the Electricity Act was withdrawn from Parliament even though it had already passed the National Assembly. The act was last revised in 1992. In the intervening 30 years, the world has undergone radical transformations in the technology, markets and systems in the power sector. Even the monarchy has fallen since then. But the underlying relic of Nepal’s power sector continues to remain unchanged.
In 2015, the World Bank sanctioned the Power Sector Reform and Sustainable Hydropower Development project for Nepal with a loan commitment of $20 million. An implementation status and result report submitted by the World Bank in June this year showed that Nepal had already met the programme’s goal of achieving five “key policy and sector reform actions".
Exactly what the five reforms were and why they mattered to the sector, the World Bank chose not to disclose. Anyway, Nepal has drawn down only half of that loan, and the facility ends this year, so it is unlikely any other meaningful reforms will be emerging from this effort.
In April 2017, Nepal established the Electricity Regulatory Commission under an act of Parliament, and, just to be clear, only because it was perquisite for the $500 million from the US Millennium Challenge Corporation (MCC). Today, far from launching “a new era in Nepal Hydropower and Electricity Sector Development,” as one expert theorised, the commission is stuck in an institutional squabble that has paralysed the sector.
Despite $2.2 billion in development assistance, over half of it potential climate finance, we have not been able to make a single dent in reforming the institutional framework that will be critical to shaping the climate response.
Climate change is exposing decades, and often centuries, of systemic neglect by those in power and authority. Climate finance is essential, but it will be meaningful only if it enables us to confront that accumulated history of neglect and make important structural, institutional, economic and social reforms across sectors.
Nepal’s donors must explore alternative gateways to reach the beneficiaries. They must return to empowering non-governmental agencies and civil society, engage directly with the private sector, and allow climate finance to flow broadly across rather than percolate down from the top. Climate finance must empower those in need to hold their own governments accountable. It must unshackle the systemic neglect that keeps the poor poor, and marginalises the marginalised. Money can’t buy love. We must demand it buy reforms.