Deconstructing Climate Finance

Context: Developed countries are nowhere close to meeting their targets of providing $100 billion annually in climate finance to developing countries by 2025 as claimed in media reports.

Issues in climate financing led by developed countries

• Debt crisis in many low-income countries: OECD reported that climate finance provided by developed countries had reached $78.9 billion (loans + grants) in 2018, but grants make up only 20% of public climate financing.
  • Over reliance on loans: During 2013-18, share of grants decreased while share of loans is on rise.
  • Most of the loans were non-Concessional: From 2016 to 2018, 20% of bilateral loans, 76% of loans provided by multilateral development banks and 46% of loans provided by multilateral climate funds were non-concessional.
• Inflating climate finance figures by including funds for development projects such as health and education that only notionally target climate action.
  • According to Oxfam Report (2017-18), out of $59.5 billion of public climate finance, climate-specific net assistance ranged only between $19 and $22.5 billion per year.
  • Biennial Assessment of UNFCCC’s Standing Committee on Finance (2018): Developed countries provided only $26 billion per year as climate-specific finance between 2011-2016.
• Skewed towards mitigation than adaptation: Available adaptation finance is lower than the needs expressed in Nationally Determined Contributions submitted by developing countries.
  • According to Adaptation Gap Report of UNEP, annual costs of adaptation in developing countries could range from $140 to $300 billion annually by 2030 and rise to $500 billion by 2050.
• Over dependence on private sector investments: That means the bulk of the money was directed to “bankable” projects neglecting the priorities and needs of developing countries.
• Broken Commitments: U.S. promised $3 billion to the Green Climate Fund (GCF) under President Barack Obama, but delivering only $1 billion before it withdrew support to GCF.

Way Forward:

• Policy prioritisation: Shall maintain a balance between adaptation and mitigation.
• Redefine climate financing model: Developing countries should pressure developed countries that climate finance should be from public sources and provided as grants or as concessional loans.
• Renew trust in the multilateral process: Which will be the basis for addressing conflicting interests.