The OECD report on climate finance

Subject :Environment

Section: Climate change

Context:

A new report, published by the Organisation for Economic Cooperation and Development (OECD), showed that economically developed countries fell short of their promise to jointly mobilise $100 billion a year, towards the climate mitigation and adaptation needs of developing countries, in 2021 – one year past the 2020 deadline.

Details of the report:

The developed countries mobilised $89.6 billion in 2021 and finance for adaptationfell by 14% in 2021 compared to 2020.
The failure to mobilise adequate climate finance lowers the capacity of developing countries to address climate mitigation (like emissions reduction with renewable energy) and adaptation needs (like developing and incentivising climate-resilient agriculture), and reduces trust among the world’s poorer countries that the developed world is serious about tackling the climate crisis.

How is climate finance accounted for?

Out of the $73.1 billion mobilised in 2021 by the public sector via bilateral and multilateral channels, $49.6 billion was provided as loans (interest rate is still unknown).
An assessment by the American non-profit research group Climate Policy Initiative of global climate finance flows between 2011 and 2020 found that 61% of climate finance was provided as loans, of which only 12% was at concessional interest rates.

What is additionality?

The UNFCCC states that developed countries “shall provide new and additional financial resources to meet the agreed full costs incurred by developing country Parties in complying with their obligations under the convention”.
This means developed countries can’t cut overseas development assistance (ODA) in order to finance climate needs.
The “new and additional finance” also means developed countries can’t double-count. For example, a renewable energy project could contribute to both emission reductions and overall development in a region.
- As per the U.N. Convention, however, donor countries can’t categorise such funding as both ODA and climate finance because it wouldn’t fulfil the “new and additional” criterion.

What counts as climate finance?

There is no commonly agreed definition of ‘climate finance’.
This ambiguity works in favour of richer countries because it leaves the door open to arbitrarily classify any funding, including ODA and high-cost loans, as climate finance and escape the scrutiny that a clearer definition might bring.

How much do developing countries need?

The figure of $100 billion came out of thin air at the COP 15 talks and isn’t based on an assessment of how much climate investment developing countries actually need.
By 2025, developing countries are estimated to require around $1 trillion a year in climate investments, rising to roughly $2.4 trillion each year between 2026 and 2030.

For details on climate finance: Optimize Ias