Climate Finance Deal Flaws: A Looming Failure?

Countries committed to the Paris Agreement in 2015 to limit global temperature rise, but fulfilling financial pledges to help developing nations transition to renewable energy remains a significant challenge, with concerns raised about the effectiveness of current funding mechanisms.

$100 Billion Pledge and Ongoing Shortfalls

All 195 signatories to the Paris Agreement have set their own plans to meet the shared goal of keeping global temperature rise below 2 degrees Celsius above preindustrial levels. Wealthy nations, acknowledging their greater responsibility for climate change, committed to raising at least US$100 billion a year by 2025 to assist developing nations in shifting to renewable energy and adapting to climate change.

However, for countries like Indonesia, achieving these targets requires substantial financial mobilization, and current funding levels may be insufficient. The Organisation for Economic Co-operation and Development reported the $100 billion target was met for the first time in 2022, but many countries in the Global South argue the funds are inadequate.

Calls for Increased Funding and the JETP Example

Since the Paris summit, nations in the Global South have consistently called for increased funding to meet more ambitious climate targets. At a summit in Baku, Azerbaijan, developed countries agreed to “help channel” at least $300 billion a year to developing countries by 2035, though the Global South pushed for more. A subsequent call at COP30 in Belem, Brazil, requested mobilizing at least $1.3 trillion a year by 2035 for climate action.

A case study of the US$20 billion Just Energy Transition Partnership (JETP) with Indonesia reveals potential shortcomings in the delivery of promised funds. Indonesia, the world’s fourth most populous country and a major coal exporter, pledged to source 29 percent of its energy from renewables by 2030, or 41 percent with international support.

JETPs are designed to accelerate the shift to clean energy in coal-reliant emerging economies, blending public and private funding sources. However, research indicates that Indonesia’s JETP has delivered limited results so far.

Governance and Control Concerns

One issue is governance, with the JETP secretariat requiring approval from developed-country partners for its policy and investment plans, despite being chaired by an Indonesian official. Funding for the JETP team was also lacking. The working groups were funded by organizations like the OECD’s International Energy Agency, the World Bank, and the Asian Development Bank, whose largest shareholders are the US and Japan.

Companies from donor countries also played a significant role in discussions about JETP funding. Early proposals included the closure of the Cirebon-1 coal power plant, in which Japan’s Marubeni Corp holds a 32.5 percent stake, but plans to retire the plant have been shelved.

Limited Impact and Shifting Priorities

By mid-2024, 19 programs totaling US$144.6 million had been launched or were in discussion under the JETP. However, reports indicate that none of the pledged funds had translated into new clean energy projects or the retirement of coal-fired power plants. Initial funding was reportedly used for feasibility studies and technical assistance.

Some programs credited to JETP assistance were already part of other schemes, meaning the funding wasn’t additional. Indonesian policymakers have expressed concerns that climate finance is driven more by the self-interest of G7 countries than by a commitment to justice, viewing the JETP as “an instrument of control” to counter China’s influence.

As developed economies face fiscal pressures and reconsider aid budgets, climate finance appears increasingly uncertain, potentially jeopardizing support for historical emissions and those disadvantaged by the renewable transition.