US climate finance cuts would send a worrisome signal

President Trump has indicated that he will cut billions of dollars of funding for UN climate programs. Such a step could have a major impact on the synthesis of international climate research—a function performed by the Intergovernmental Panel on Climate Change (IPCC)—and could undermine science-based policy making. It wouldn’t have a large impact on total global climate finance flows, which are largely driven by private capital markets—but the implications for climate adaptation programs in developing countries could be serious. A reduction in US funding could also spur doubt in the bottom-up pledge-and-review approach to climate that underlies the Paris Agreement.

Historically, the United States has been one of the biggest funders of the IPCC, the international scientific authority on climate change. Reduced US funding for the panel would leave a large gap that could potentially limit the ambition of the IPCC’s next reports—though other countries might step in to fill the gap. Perhaps the most damaging consequence of reduced US funding for the panel would be the anti-science signal that Washington would send. Climate skeptics would applaud the shift away from peer-reviewed international scientific consensus.

If on the other hand the United States reduced the funding it devotes to sending delegates to the UN Framework Convention on Climate Change (UNFCCC), US absence from UN climate conferences would undermine international trust that Washington will follow through on its emissions pledges. When the United States signed on to the Paris Agreement, it provided an important signal about the goal of holding global warming to 2 degrees Celsius; US absence from UN climate conferences would dilute the power of that signal. If Washington reduces its funding for international climate projects, and either pulls out of the agreement or fails to meet its emissions pledges, the implications would be very damaging for the agreement, which hinges on bottom-up climate action.

Where global climate finance is concerned, the overall picture wouldn’t change much if the United States reduced or eliminated transfers to the Green Climate Fund—the financial mechanism of the UNFCCC—or to other international funds. The Green Climate Fund aims to be the main channel for the $100 billion in contributions that developed countries have pledged for climate change mitigation and adaptation in developing countries. If the United States backtracked on its $3 billion pledge—by far the largest national pledge to the fund—the focus for meeting the $100 billion goal would shift to private-sector contributions. But it has long been a US negotiating stance that the fund should also depend on private-sector contributions.

Beyond the arbitrary $100 billion goal, the reality is that the green investments necessary for meeting the 2-degree target will require trillions of dollars, not billions. These trillions are contingent on shifts in private capital markets—shifts that can be stimulated by government spending but are not wholly reliant on it. Private investment in green infrastructure can also be stimulated through government de-risking moves such as providing guarantees or establishing insurance schemes.  In the end, financing from all sources—public, private, and a myriad of combinations—will be necessary for the transition.

Private capital markets are starting to signal a growing awareness of climate risk. Institutional investors are making low-carbon investment pledges. Issuance of green bonds doubled in 2016 and is predicted to double again in 2017. This reflects growing appetite for investment products that consider climate risk. Approximately 40 percent of green bonds have supported climate action in developing countries via multilateral and bilateral development banks.

Still, a cut in US funding for the Green Climate Fund would be bad news for climate adaptation in developing countries, where the majority of adaptation funding comes from public sources. The United States previously pledged to double its overall adaptation financing—and if this pledge is unfulfilled, greater stress will be placed on other developed countries. Within the Green Climate Fund, the aim is a 50/50 split between funds for mitigation and adaptation financing. If the portion of US funding for adaptation shrinks, this implies that other countries would need to fill the adaptation gap. Developing countries already pressure the United States to make amends for the greenhouse gases now in the atmosphere for which it is responsible—reduced financial transfers from the United States would exacerbate this tension.

If the United States pulls funding from UN climate programs such as the IPCC and the Green Climate Fund, and pulls US negotiators from the UNFCCC process, Washington would send a backward signal regarding scientific progress and the credibility of domestic actions pledged under international agreements. But reduced US funding would be unlikely to slow the growing trend toward private green investment.