Climate Change

Climate finance: Donors give less than they claim; and not for mitigation to needy countries

Mitigation finance primarily went to middle-income countries such as Brazil, India, Mexico and Indonesia

By Rohini Krishnamurthy
Published: Tuesday 11 October 2022

Donor countries overstated their contributions to climate change mitigation by roughly 40 per cent, a new study estimated.

This finding points to challenges in achieving the promises made at the Paris Agreement to mitigate climate change, the study published in Nature Climate Change underscored.

In 2009, developed nations pledged to provide climate finance of $100 billion annually by 2020 to less wealthy countries to mitigate and adapt to climate change. But the donor countries are yet to achieve the target.

Climate finance refers to local, national or transnational financing — drawn from public, private and alternative sources of financing — that seeks to support mitigation and adaptation actions.

The contributions were $83.3 billion in 2020, up from $80.4 billion in 2019, according to Organisation for Economic Co-operation and Development estimates.  

Countries self-report their expenditure. There isn’t any mechanism in place to independently verify the flow of finance, Florian Elgi, from the Energy and Technology Policy Group, told Down to Earth.

“We wanted to look at whether the responsibilities were being honoured in the finance flows,” he added.

Elgi and his colleagues used a machine learning algorithm to scan 2.7 million official development assistance (ODA) projects between 2000 and 2019.

ODA is financial aid aiming to promote economic development and welfare in developing countries. Donors tag their ODA projects based on whether it targets biodiversity, climate change mitigation and adaptation or desertification.

Elgi and his team focused on bilateral finance between donor and recipient parties, as this represents the most significant chunk of the financial flow.

Funds can also be made available through regional and multilateral channels, according to the United Nations Framework Convention on Climate Change (UNFCCC).

In bilateral flow, donor countries have much control over the flow. “Developed nations will always be able to decide on what they spend their money on,” Elgi explained.

The algorithm is trained to decide whether it is climate finance or not.

For example, a donor spends $100 on a sanitation project in Angola and tags the fundamental objective as climate mitigation or adaptation, explained Elgi. And the algorithm not classifying the project under climate finance is an example of over-reporting, he added.

In some cases, contributors don’t tag a project like solar plants with climate benefits as climate finance. This is under-reporting, the researcher explained.

“The quality of the reporting is quite poor and there is much more over-reporting than under-reporting,” Elgi pointed out.

Donors prioritise mitigation

The algorithm identified the financial flows from 32 donor countries to 141 countries across continents, the study stated. 

The researchers identified 32,370 projects, representing $30.3 billion in bilateral climate finance after the Paris Agreement (2016– 2019). The $100 billion target came to the centre stage of the international climate discussions during this time, according to the study.

Germany, France, Norway, the United Kingdom, the United States and Japan were the top contributors. India, Morocco, Mexico, Vietnam and Indonesia were the top recipients, noted the study.

The United States, the United Kingdom, Canada, Sweden and Switzerland prioritise adaptation finance. The researchers calculated that about 82 per cent of the finance was categorised as grants.

But France, Germany and Japan invested more in mitigation. About 54 per cent of the funding was categorised as loans, they added.

Mitigation finance primarily went to middle-income countries such as Brazil, India, Mexico and Indonesia. Egypt and Morocco, with high potential for renewable energy, also attracted significant mitigation finance.

Countries most vulnerable to climate change received relatively more adaptation finance, the study noted.

“Public organisations should step up the game because private finance will work for the mitigation projects in middle-income countries, but probably not for low-income countries,” Elgi explained.

Elgi called for independent and transparent mechanisms to track climate finance.

Climate finance needs to be scaled up. “Estimated total climate finance flows remain well below the estimated need to invest in low-emission, climate-resilient development,” UNFCCC stated in its Biennial Assessment and Overview of Climate Finance Flows report.

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