Waking up: the vital long-term finance goal of the Paris Agreement

Next year’s Global Stocktake offers an incentive to unpack and advance the Paris Agreement’s long-term goal on climate finance, captured in Article 2.1c. Failure to explore the goal, including how to track and report it, will impact two better-known ambitions: limiting temperature rise to well below 2°C and increasing ability to adapt.

Illari Aragon's picture
Insight by 
Illari Aragon
Senior researcher in IIED's Climate Change research group
02 August 2022
UN climate change conference (COP27)
A series of pages related to IIED's activities at the 2022 UNFCCC climate change summit in Sharm el-Sheikh
A chimney expelling smoke.

A coal-fired power plant in Germany (Photo: Patrick via FlickrCC BY 2.0)

To date, developed countries’ obligation to fund climate action by developing countries – captured in Article 9 of the Paris Agreement – enjoyed high-level consideration. But, vital as this funding is, it doesn’t provide the full picture of global ambition needed on climate finance.

Article 2.1c sets a critical long-term climate finance goal for Parties to the agreement, namely "making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development".

The last of three interlinked long-term goals, Article 2.1c sits alongside two more recognised and advanced objectives: 2.1a, on limiting global temperature rise, and 2.1b, on increasing ability to adapt.

But as a new IIED briefing explains, overlooking the transformative potential of the far-reaching final goal is unwise.

A vital piece of the Paris puzzle

Article 2.1c not only recognises that we must increase climate finance to achieve the temperature and adaptation goals, but gives us the means to do so: re-orienting finance (both public and private) that is locking countries into high-emission, low-resilience futures. 

When financing the global transformation of the energy sector alone will require US$4.4 trillion annually over the period 2021-2025, it is clear that decarbonising the global economy to mitigate the effects of climate change will require no less than that the entire financial system ‘aligning’ their practices, investments and portfolios with the long-term climate goals of the Paris Agreement.  

Scaling up and scaling down

Current financial flows offer an unbalanced picture. In 2017-18, climate finance reached as much as $775 billion on average per year (PDF); but investments in fossil fuels amounted to $977 billion in the same period, and subsidies amounted to $472 billion in 2018 alone.

Article 2.1c signals an uncomfortable truth: to address climate change, we must increase climate funding and gradually eliminate financing for fossil fuels. COP26 highlighted fossil fuel finance, calling for inefficient subsidies to be phased out.

No template for progress

Article 2.1c of the Paris Agreement is relevant to all countries, but options and progress for implementing it will vary by context. As some countries have emphasised (PDF), it is unrealistic to expect developing countries to transition their economies and embark on a low carbon pathway at the same pace as developed countries; many still rely on fossil fuels for energy and as an export to support public spending.

Developing countries will require significant funds to take effective action. Among other measures, this will involve:

  • Diversifying national economies to create sustainable alternatives and jobs for those in sectors and locations that depend on carbon-intensive industries, and
  • Enhancing their ability to attract ‘green’ private finance and create the right policy and regulatory frameworks to incentivise investment in sustainable sectors. 

Developed countries must drive implementation of Article 2.1c, in terms of domestic and international financial flows and by providing support to developing countries to progress on this goal.

The definition problem

Without the necessary consideration, uncertainties around how to interpret, implement and assess the third long-term goal remain high.

Article 2.1.c refers neither to the traditional terms related to climate finance nor to its providers and recipients; instead, it uses new terms, such as ‘flows’, ‘consistent’ and ‘pathway’, without further defining them. While the phrase ‘Paris alignment’ is commonly used, there is no uniform understanding of what it means. These knowledge gaps challenge operationalisation and assessment.

Real progress requires public and private sector actors to explore which activities could be relevant, asking, for example, what exactly constitutes a ‘climate-aligned’ investment? Does consistency mean alignment with a 2°C target, or 1.5°C?

Interpretations of this goal and ways to advance it will differ by actor: governments, multilateral development banks, multilateral climate funds, investors and other private sector entities channelling finance flows.

Global Stocktake: a deadline for clarity?

Greater clarity can’t wait. In 2023, the first Global Stocktake (GST) will assess how far implementation of all three long-term goals has advanced, drawing on the Standing Committee on Finance (SCF), the IPCC and other reports. However, it is unclear how progress on Article 2.1c will be assessed or what additional data or sources will be considered.

In June, a roundtable meeting at the GST’s first technical dialogue discussed progress on climate finance, and specifically Article 2.1c; this confirmed the ongoing uncertainties around interpretation and implementation.

Parties have another chance to engage more deeply with these issues later this year and in June 2023, at the third and fourth technical dialogues. In the meantime, country delegates keen to assist the GST could propose a new work programme under the UNFCCC dedicated to discussing Article 2.1c in greater detail and engage private sector actors and other stakeholders.

Such a work programme could seek to articulate common definitions; crystallise the relevant methodologies and standards to track progress; and more generally provide the guidance needed for the international community to realise the transformative potential of this pivotal long-term goal.