Governance

Global climate finance increasing, but scale & pace not enough: New report 

Increase in overall average climate finance flows to the one trillion threshold represents only 1% of the global GDP

 
By Sehr Raheja
Published: Tuesday 07 November 2023
Photo: iStock__

Climate finance flows have doubled compared to previous years but have been unevenly distributed across geographies and sources, showed the latest analysis by the Climate Policy Initiative.

Climate finance is one of the key agenda items up for discussion at the much-awaited 28th Conference of Parties (COP28) to the United Nations Framework Convention on Climate Change to be held in Dubai later this month.

Climate Policy Initiative’s (CPI) new report Global Landscape of Climate Finance 2023 brings together the latest data and analysis in this regard. 

Average annual flow of climate finance in 2021 and 2022 was $1.3 trillion, twice the $653 billion of 2019 and 2020, according to the report. 

The report breaks down the flow of climate finance by its application, geographical distribution and sources, using data from 2021 and 2022. The flows tracked in the report “represent targeted climate mitigation and adaptation-specific project-level allocation of capital”. 

CPI has been tracking global climate finance flows between all countries and entities for a decade now, making these updates important for the global climate conversation. The Organisation for Economic Cooperation and Development (OECD) on the other hand, specifically tracks the flows from developed to developing countries. The latter measures progress on the promise of delivering $100 billion per year from 2020 from developed to developing countries, which was announced in 2009 at COP15. OECD's projections show that this goal may be met in 2023.

Just 1% of global GDP

The increase in annual average climate finance over the years was driven primarily by the escalation in mitigation finance, which has increased by $439 billion from 2019 and 2020. In addition to this, the report noted particularly improved coverage of finance data from three sectors — agriculture, forestry and other land use (AFOLU); buildings and infrastructure; and waste. 

About 28 per cent — $173 billion — of the increase over the last year is attributed to this improved data collection. This indicates a positive trend for the availability of high-quality climate finance data that is publicly available. 

However, the increase in overall average climate finance flows to the one trillion threshold represents only 1 per cent of the global gross domestic product, reflecting the need to rapidly scale climate ambition across countries. The need for this is further highlighted by the report’s projections that average estimated annual needs will increase to $9 trillion by 2030. 

Global climate finance 2011-2022, biennial averages

Source: Global Landscape of Climate Finance 2023, CPI

Uneven stimulus

The climate finance that flowed in in 2021 and 2022 was unevenly distributed across sectors and geographies. Here’s a snapshot:

Mitigation finance 

  • Renewable energy (RE) and transport continue to display most growth, with the former comprising 44 per centof total mitigation finance and the latter 29 per centof it. Both sectors are dominated by private financing. Total mitigation finance flows amounted to $ 1.15 trillion
  • The United States, Europe, Brazil, Japan, China and India received 90 per centof the funds for clean energy
  • Agriculture and industry, despite being the second largest sources of emissions, received less than 4 per centof total mitigation and dual benefits finance — significantly lower than RE and transport mentioned above

Adaptation Finance

  • Adaptation finance has reached an all-time high of US $63 billion according to the report, but still does not measure up to the estimated needs of $212 billion per year by 2030 just for developing nations
  • 98 per centof all adaptation finance tracked for the report stemmed from public actors

Geographically concentrated

  • The report showed that developed countries mobilised majority of the climate finance, with highest contributions being from the private sector 
  • East Asia and the Pacific, US and Canada and Western Europe accounted for a total of 84 per centof all the climate finance. Countries in these regions also had the highest domestic resource mobilisation for climate finance, with China leading at 51 per centof all domestic climate finance globally 
  • Developing and low-income countries continue to face a paucity of funds. Less than 3 per centof a total $30 billion went to or within least developed countries, and 15 per cent went to or within emerging markets and developing economies (excluding China). Alarmingly, the report noted, “The 10 countries most affected by climate change between 2000 and 2019 received just $23 billion; less than 2 per cent of total climate finance.”

The report noted that private actors contributed 49 per cent of total climate finance, to the tune of $625 billion. Interestingly, the highest growth in private finance came from household spending, specifically from the sales of electric vehicles, which have doubled from 2020 to 2021, the authors added. The increase was stated to have been driven by strong fiscal policies promoting low-carbon technologies.

Uses of climate finance with private-public splits

Source: Global Landscape of Climate Finance 2023, CPI

Way forward 

The authors of the report outlined measures to enhance the scale and quality of climate finance to meet the urgent and growing needs of countries across the world. The recommendations were broadly divided into four categories: Transforming the financial system, bridging climate and development needs, mobilising domestic capital and improving the state of climate finance data overall. 

Highlighting the need for reducing cost of capital barriers, which impact developing and low-income countries severely, the researchers suggested building on the growing momentum to reform financial institutions and make concessional finance more accessible. 

Overall, the data presented in the report suggested that climate finance flows are increasing, as are the methods of data collection and interpretation. The authors also highlighted that the need for increasing the pace and scale, however, remains imperative.

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