OECD Report highlights the extent of climate finance, and it’s worrying

The recent report by the Organisation for Economic Co-operation and Development (OECD) on climate finance has raised concerns

By Ground Report 17 Nov 2023

New Update

OECD Report highlights the extent of climate finance, and it’s worrying

The recent report by the Organisation for Economic Co-operation and Development (OECD) on climate finance has raised concerns about the current state of global climate funding. The report, titled “Climate Finance and the USD 100 Billion Goal”, provides an update on the progress made by developed countries towards the goal of mobilising USD 100 billion per year by 2020 for climate action in developing countries.

The report reveals that climate finance provided and mobilised by developed countries largely focused on mitigation in relatively high-emitting countries.

Key findings include:

In 2021, total climate finance provided and mobilised by developed countries for developing countries amounted to USD 89.6 billion, showing a significant 7.6% increase over the previous year.
Public climate finance (bilateral and multilateral) almost doubled over the 2013-21 period, from USD 38 billion to USD 73.1 billion, accounting for the vast majority of the total USD 89.6 billion in 2021.
Adaptation finance dropped by USD 4 billion (-14%) in 2021, resulting in a decrease in its share of total climate finance from 34% to 27%. At the same time, cross-cutting finance, increased from USD 6 billion in 2020 to USD 11.2 billion in 2021.
Mobilised private climate finance, for which comparable data are only available from 2016, amounted to USD 14.4 billion in 2021, or 16% of the total.

OCED Report highlights the extent of climate finance

However, the relative share of adaptation finance was significantly higher in lower-income countries (LICs), Small Island Developing States (SIDS), and Least Developed Countries (LDCs). This suggests a need for a more balanced distribution of climate finance to ensure that all countries, regardless of their income level or geographical location, can effectively respond to the impacts of climate change.

Another key finding of the report is that the mobilisation of private climate finance was lower than anticipated, with most mobilised in middle-income countries with relatively conducive enabling environments and low-risk profiles. This highlights the need for increased efforts to attract private sector investment in climate action, particularly in countries that are most vulnerable to the impacts of climate change.

In a recent tweet, Joe Thwaites, a Senior Advocate for International Climate Finance, echoed these concerns. He highlighted that the UNFCCC's Biennial Assessments, overseen and approved by a Committee of equal numbers of developed and developing countries, consistently report higher numbers than the OECD’s analysis.

Climate Finance in 2021: A Mixed Bag of Progress and Stagnation

In 2021, both bilateral and multilateral climate finance continued to grow, but private finance mobilised by public interventions remained stagnant. This is concerning given the emphasis developed countries place on mobilised private finance. The OECD also launched a special report on scaling up the mobilisation of private finance in developing countries, providing more granular data.

Most private finance mobilised went to energy, Asia, and middle-income countries. However, the drop in adaptation finance is worrying. At COP26 in 2021, developed countries agreed to double their adaptation finance from 2019 levels by 2025, i.e., $40.6bn based on OECD data. The fall in 2021 puts this commitment into question.

The OECD also released a report on scaling up adaptation finance. Of the $4bn adaptation finance drop, $2.3bn was in public finance. Multilateral climate funds actually increased - the drop was due to bilaterals and MDBs.

One potential positive sign is that in 2021, the share of grants and equity increased slightly and the share of loans fell from 2020 levels. This could be a sign that developed countries are responding to concerns that climate finance as loans could add to the debt crisis.

However, the report is less transparent on recipients of finance. Prior reports included data on climate finance by region and to SIDS & LDCs. This year, the only recipients graphic is by income group. The only change is that finance to low-income countries is up from 8% 2016-20 to 9% 2016-21.

OECD’s prediction for 2022: A Reality Check

The share of finance to LDCs dropped, from 25% in 2020 to 20% in 2021. The OECD did not state the SIDS share in 2020, leading to speculation about why the graphic on finance to SIDS and LDCs was cut.

The head of OECD, Mathias Cormann, stated in the foreword of the report, "As of 2022, we believe we have likely already met the goal, based on preliminary and unverified data." However, if the 7.6% increase from '20-'21 continues into '22, it would only reach $96.4bn. We need higher growth.

Without publishing the data, it’s unclear how much reassurance the OECD’s statement provides. The EU is due to release its detailed annual reporting on 2022 later in November. A State Department official was recently quoted saying U.S. 2022 climate finance “was nearly $6 billion, of which $2.25 billion was grant-based.”

Lastly, if the $100bn was met in 2022, there’s still the issue of what to do about the shortfalls in 2020 ($16.7bn) and 2021 ($10.4bn). Developed countries must demonstrate their commitment to the “rules-based international order” by retroactively filling the $27.1bn gap.