How climate financing works, and why it's crucial to the COP26 summit

Our planet is changing. So is our journalism. This story is part of a CBC News initiative entitled Our Changing Planet to show and explain the effects of climate change and what is being done about it.

One of the key tenets of the 2015 Paris Agreement was that richer countries such as Canada would provide financial assistance to developing countries to help them achieve their climate goals. This financial help was supposed to reach a minimum of $100 billion US per year ($124 billion Cdn) by 2020 and continue to be paid each year going forward. But estimates suggest the 2020 goal has likely not been met. 

The $100 billion US is a bulk commitment among 23 developed countries and the European Union.

The countries that would be receiving the money — developing countries in the global South — are closely watching these climate finance commitments heading into COP26, the major United Nations climate change conference in Glasgow that starts Sunday.

The financing is to help developing countries bring about many of the same changes that Canada and other countries are planning in order to achieve their climate goals. This includes shifting electricity production away from coal and other fossil fuels and to cleaner energy sources, such as hydroelectric, wind and solar. 

The money would also go toward helping countries adapt to climate change, through infrastructure projects that defend communities from floods or sea level rise or retrofitting of buildings to be more energy efficient.

The funding commitment acknowledges that rich countries have developed over the last century in large part thanks to the ability to burn fossil fuels virtually unfettered — and thus becoming the primary contributors to the climate crisis. Developing countries will not have the same path to growth.

"This finance is critical to actually enable developing countries to curb the growth of their emissions and to shift to the model of growth which is based on renewable technologies, on clean technologies, so that they don't repeat the pathway based on fossil fuel production that industrialized countries have gone through," said Alina Averchenkova, distinguished policy fellow at the Grantham Research Institute on Climate Change and the Environment in London.

This financing pledge was one of the main planks of the Paris Agreement, in part to recognize the divide between richer countries in the global North that had the economic resources for the energy transition required to cut emissions and countries in the global South that would struggle to grow their economies while moving away from fossil fuels.

The Paris Agreement also called on all countries in the world, rich and poor, to cut their carbon emissions, and this financing pledge was a way to get the co-operation of developing countries.

Canada is one of the global North countries that is supposed to provide climate financing. Canada has delivered $2.65 billion over five years since 2015. In 2021, it announced a doubling of that pledge to $5.3 billion over the next five years.

Thanks to those pledges, Canada is "seen as a partner that could be constructive in these critical negotiations," said Eddy Perez, international diplomacy manager with Climate Action Network Canada, a coalition of environmental, labour, faith and Indigenous organizations across the country involved in the climate movement.

The U.K., which is hosting COP26, tasked Canada's environment minister, Jonathan Wilkinson, along with his German counterpart, to come up with a plan to reach the $100 billion US goal and convince other rich countries to similarly increase their pledges. 

On Oct. 25, Canada, Germany and the U.K. announced that they had negotiated a plan. While admitting that developed countries likely wouldn't meet the $100 billion US goal until 2023, three years later than the target year of 2020, they said countries were on track to keep increasing their financing.