The contribution of developed and developing countries to climate change, and their capacity to prevent and cope with its adverse effects, is extremely different. This being the case, agreement at global level was made whereas financial assistance from Parties with more resources to those less endowed and more vulnerable was the option to enable collective efforts to curb the impacts of climate change.
Developed country Parties (Annex II Parties) therefore shall provide financial resources to assist developing country Parties in implementing the convention. To facilitate this, the convention established a financial mechanism to provide funds to developing country parties which is famously known as Climate finance. In the same convention under its Article 11, the operation of the financial mechanism was entrusted to one or more existing international entities, and that mechanism is partly entrusted to the Global Environment Facility (GEF). At COP 17, parties decided to designate the Green Climate Fund (GCF) as an operating entity of the financial mechanism of the convention. The financial mechanism is accountable to the COP, which decides on its climate change policies, programme priorities and eligibility criteria for funding. The Kyoto Protocol also recognized, under its Article 11, the need for the financial mechanism to fund activities by developing country Parties.
In addition to providing guidance to the GEF, Parties have established four special funds: the Special Climate Change Fund (SCCF), the Least Developed Countries Fund (LDCF), both managed by the GEF, and the GCF under the Convention; and the Adaptation Fund (AF) under the Kyoto Protocol.
In responding to climate change, climate finance is basically targeting low-carbon or climate-resilient development. More specifically climate finance focuses on providing greater assurance of sustained and/or scaled-up finance, enabling increased mitigation ambition, ensuring appropriate/balanced allocation of finance for different purposes (e.g., adaptation, REDD+, loss and damage, technology, and capacity-building)
Technology transfer and financing is necessary support for climate change mitigation and adaptation in developing countries and it was agreed to increase financing by USD 100 billion a year in 2020 through public and private and multilateral and bilateral, including alternative source. Mobilization of USD100 billion a year is a very challenging target. Many types of financing and policy measures for encouraging the Climate Finance, including direct public finance, co-finance of public and private finance, risk mitigation by the public for private investment, incentives to low carbon investment including emission trading, tax incentives, removal of negative incentives (subsidies) and regulation for in-efficient investment are considered.
The climate finance landscape as a whole is highly fragmented with the more centralized systems at international level, in state governments in such a way that the private sector and civil society actors which plays significant roles in low emission and climate resilient development fails to secure a full engagement in climate related funds. In different countries in the global South, accessing international climate funds is done by high levels in the governments especially the ministries. Moreover, the selection and oversight of projects and programmes are led by government agencies and ministries which are also nodal department for receiving financial assistance from multilateral and bilateral funds.