Comprehensive Notes on International Climate Finance and Justice

Defining the Scope of Climate Finance

There is no single, universally undisputed definition of climate finance, but it generally refers to the amount of money put into the global system to upgrade infrastructure and shift away from fossil fuels toward green renewable energies such as solar panels and windmills. From a technical perspective, climate finance aims at reducing emissions, known as climate mitigation, and enhancing sinks to improve resilience, known as climate adaptation.

International climate finance is specifically provided between countries, contrasting with domestic climate finance, which involves internal investments like green bonds. In the context of climate justice and human rights, the core question is centered on who should pay for these transitions and who should receive the funds. This is rooted in the principle of Common but Differentiated Responsibilities and Respective Capabilities ( $CBDR-RC$ ). This principle posits that states have a collective right to a healthy natural environment, but those who have historically harmed the environment the most bear a higher responsibility. Consequently, countries with the highest economic capacity should provide financial support to less developed nations to facilitate their transition and manage the impacts of climate change.

The Legal Framework of Climate Finance Obligations

The United Nations Framework Convention on Climate Change ( $UNFCCC$ ) distinguishes between developed and developing countries, establishing obligations for developed nations to provide climate finance. This is further solidified under human rights law, specifically Article $2.1$ of the International Covenant on Economic, Social, and Cultural Rights ( $ICESCR$ ). This article mandates that each state take steps, individually and through international assistance and cooperation—particularly economic and technical—to the maximum of its available resources to achieve the progressive realization of rights. States lacking sufficient resources for these rights must request international cooperation, while states in a position to help have an obligation to provide it.

The International Court of Justice ( $ICJ$ ) has clarified these obligations in its advisory opinions, stressing that developed countries must provide climate finance under climate treaties and the customary international law duty of international cooperation. While the treaties do not specify exact amounts for each country, the finance level must support the goals of the Paris Agreement, particularly the temperature goal of $1.5$ †C. Furthermore, this cooperation must be performed in good faith, taking into account the guidance provided by relevant public decisions.

The Problem of Loss and Damage

A significant gap in the original $1992$ $UNFCCC$ was the omission of "loss and damage," as it was not widely recognized at the time. While the Paris Agreement includes an article on loss and damage, it does not explicitly frame it in terms of financial obligations. From a climate justice perspective, there is a clear argument that rich countries with historical responsibility should make payments for damages, but this is not yet firmly established under the $UNFCCC$ framework.

However, the $ICJ$ has helped bridge this gap by stating that the duty to cooperate under the Paris Agreement includes finance for loss and damage. Advocates use provisions within the $UNFCCC$ that allow for "full consideration" of the specific concerns of developing countries regarding the adverse effects of climate change to argue that finance should extend to loss and damage. Currently, finance for loss and damage remains largely ignored, accounting for at best $1\%$ of all bilateral contributions.

Evolving National Circumstances and the Burden of Payment

The traditional distinction between developed and developing nations is being challenged by evolving national circumstances. Developed countries have begun questioning why they alone should bear the financial burden when nations like China have become the second biggest emitters and others have become wealthy fossil-fuel producers. Under Human Rights Law, Article $2.1$ of the $ICESCR$ suggests that all states in a position to do so should provide international assistance, which broadens the scope of responsibility beyond traditional "developed" classifications.

This is a heated topic in global negotiations. Developing countries argue that rich nations are using this as a way to escape their historical obligations. For instance, in the case of India, despite being a major polluter with $8$ of the world's $10$ most polluted cities, advocates argue that internal inequalities and ground injustices make it difficult to categorize them as a primary payer in the same way as historically industrialized nations.

Financial Gaps and the Shift Toward Loans

There is a massive discrepancy between what is needed and what has been pledged. Estimates suggest that between $5$ to $6$ trillion $USD$ is needed by $2030$ according to needs identified in National Determined Contributions ( $NDCs$ ). In contrast, developed countries pledged only $100$ billion annually at the $2009$ Copenhagen summit. This goal was not met until $2022$ , two years late, which caused significant distrust in climate negotiations. A new goal, the New Collective Quantified Goal ( $NCQG$ ), was negotiated at COP $29$ for $300$ billion annually by $2035$ , which is still widely considered insufficient.

Furthermore, the quality of finance is a major concern. Approximately $2/3$ of climate finance is provided as loans rather than grants. Multilateral Development Banks ( $MDBs$ ), such as the World Bank, provide $90\%$ of their climate finance in the form of loans. This often places a severe strain on recipient countries, leading to a "debt spiral." Instead of funding development or adaptation, these countries must use their revenue to repay interest. For example, Mozambique, after being hit by Cyclones Idai and Kenneth in $2019$ affecting $2$ million people and costing over $22$ million, had to take an International Monetary Fund ( $IMF$ ) loan of $118$ million. Their debt reached over $100\%$ of their $GDP$ , potentially forcing them to exploit fossil fuels just to generate enough revenue to repay those debts.

Geopolitical Trends Affecting Climate Finance

Current global instability is negatively impacting climate finance budgets. Wars and increased military spending have led several countries to reduce their aid budgets. Globally, $2.7$ trillion was spent on military goals in $2023$ . The United Kingdom, for instance, reduced its aid budget from $0.7\%$ of $GDP$ to $0.5\%$ , and recently down to $0.3\%$ , specifically to increase defense spending. High-income countries like Germany, the $US$ , the $UK$ , Japan, and France accounted for a $23\%$ reduction in aid budgets in $2024$ . Military activity itself is also a significant source of greenhouse gas emissions, creating a cyclical problem where money is diverted from climate solutions to climate-damaging activities.

Taxation as a Progressive Solution

Due to the shortage of public funds, there is an increasing call to use taxation to mobilize resources. Taxation serves multiple purposes beyond raising revenue (the " $5$ Rs" of tax: Revenue, Re-pricing, Redistribution, Representation, and Ratification).

Windfall Taxes: These are temporary taxes on the "excessive" profits of fossil fuel companies. For example, in the first quarter of $2024$ , Shell reported a profit of $6.92$ billion, a $24\%$ increase over the previous year, often driven by geopolitical crises rather than increased productivity.
Wealth Taxes: Advocates suggest taxing assets rather than just income, as wealth is often taxed at a much lower rate, allowing the extremely wealthy to avoid contributing their fair share.
Aviation and Private Jet Taxes: These target high-emission luxury travel to ensure those who pollute most pay for the transition.
Removing Subsidies: Redirecting the hundreds of billions currently spent on fossil fuel subsidies toward renewable energy could significantly close the funding gap.

Global tax abuse by corporations costs an estimated $311$ billion annually, and offshore tax abuse by wealthy individuals costs at least $69$ billion per year. Closing these loopholes is a primary objective of the UN Framework Convention on International Tax Cooperation, which seeks to ensure that governments have the resources needed to fund climate action and other public services.

Questions & Discussion

Participant 1: Discussed the role of personal responsibility and whether countries like China or rich Middle Eastern oil states should pay. The consensus was that while historical responsibility lies with the West, current economic capacity makes it fair for these nations to contribute.

Participant 2: Raised the point that specific connections could be traced; for example, if German projects directly affect Mexico's environment, Germany should have a heightened obligation to provide economic aid to fix those controls. They also warned that companies might use "paying for harm" as a license to continue polluting.

Participant 3: Shared that in India, the most polluted cities are suffering immensely. They noted that many villages have seen populations drop from $500$ families to fewer than $50$ due to a lack of water and agricultural viability, leading to mass migration to cities or other countries.

Participant 4: Suggested that the problem is not just China's production, but the global demand for their goods. Other countries buy Chinese electric cars and products, meaning the responsibility for China's emissions is shared internationally.

Participant 5: Emphasized the need for transparency and accountability. They argued that even when money is available, it must be tracked to ensure it reaches communities and is not lost to corruption. This includes placing pressure on private actors and ensuring that project selection benefits human rights and gender equality.

Instructor Response: Confirmed that current trends show defense and security spending is "crushing" climate and aid budgets. The instructor noted that military activity accounts for a huge amount of emissions and that transparency in the finance provided by Multilateral Development Banks ( $MDBs$ ) is often weak, with limited mechanisms for people to get justice if projects cause harm (e.g., displacement by large hydroelectric dams).