Decoding Climate Finance as it is on Ground

03 Nov

Posted by: Aishwarya Bhatia

Category: Livelihoods and Natural Resources

Decoding Climate Finance as it is on Ground

Over the past few blogs in the climate series, we have understood how these discourses came to be as they are today. From climate agreements to climate finance, we’ve explored these concepts, their definitions, and their purpose. However, we haven’t yet assessed their conception on the ground. Ideas are important, but the execution is what really tests their mettle.

Having understood climate financing, let us now review the stats it actually translates into.

Through various funds set up by international bodies such as the Green Climate Fund (GSF), the Adaptation Fund (AF), the Least Developed Countries Fund (LDCF), etc., the developed nations committed to mobilizing USD 100 billion per year towards climate financing.

However, reports have suggested that:

developed countries have provided just USD 83.3 billion of their committed amount, of which only $21.5 billion could be considered real support,
just one-quarter of reported public climate finance is given as grants; the remainder is mostly loans, and
consistent and transparent data is not available to estimate the level of private finance mobilized towards the USD 100 billion-a-year goal.

Let’s explore each of these in detail.

Reports by OECD countries suggest that they have provided close to USD 83.3 billion in 2020 towards climate financing, but these funds are a mix of different accounting practices, which do not reflect the real value of support provided to developing countries. Statistics show that the real value of OECD countries’ spending is at most USD 24 billion.

The overestimated figure is a result of organizations reporting projects where the climate objective has been overstated or as loans cited at their face value. Concessional loans are given for the purpose of addressing climate change, especially because of their longer repayment terms and lower interest rates. However, by providing loans (mostly not even concessional) instead of direct grants, these funds have the potential to harm local communities, adding to their already heavy debts, especially at this time of rising interest rates.

Such form of support ends up harming climate-vulnerable, low-income countries, who are forced to take out loans for adaptation to protect themselves from a climate crisis they are not equally responsible for. If such trends continue, then rich countries’ past excess carbon emissions will continue to diminish the remaining carbon budget consistent with the 1.5-degree limit, which will create the need for developing nations to curb their emissions trajectories on the scale and speed now required.

These practices have become so pervasive that donor countries are repurposing up to one-third of official aid contributions as climate finance instead of putting forward new and additional money. Studies show that the net financial value of reported climate finance to developing countries may be less than half of what is reported by developed countries.

In fact, even though climate finance has been around for such a long time, there is not enough data about it. Due to differentiated reporting measures, there is no one way to verify the funds being released and in what form. Current disclosure practices from the OECD make it difficult to examine the investments made, their contributions to adaptation or mitigation, or who is actually benefitting from them.

These are the problems, and they have their solutions as well. For example, for greater transparency about released funds, it is crucial that data become accessible for further analysis. In fact, creating a metric with details for every project will encourage greater accountability, too. Removing non-concessional loans from the UNFCCC climate finance obligations will also help provide real support to countries in need.

In fact, at the moment, while meeting the USD 100 billion a year should be the goal for developed countries, we should begin considering a better-defined goal which is more reflective of actual need than the current amount. Establishing what counts towards climate finance will be the first step in the process of creating a more needs-based and adaptable monetary goal which responds to new evidence and emerging needs.