100 billion / International climate finance / Private climate finance

OECD report on climate finance: Fit for purpose or well on the way to meet the $100 billion promise?

OECD-Study: fit for purpose or more than halfway done with the $100 billion? What now matters is what donors will pledge before Paris to ramp up financial support for adaptation. Source: OECD

Pressure is mounting on rich countries to ramp up financial support for developing countries to the promised $100 billion a year by 2020. It’s been said several times, including by French President Francois Hollande, that failing to deliver on that promise risks undermining the upcoming Paris climate talks where governments are to adopt a new climate treaty.

With that in mind, donor countries tasked the OECD to analyse the current state of affairs – and ideally demonstrate progress and support the G7 declaration’s claim that “we and others are well on our way to meet the USD 100 bn goal.”

Now the OECD presented its final report – with the headline message that climate finance mobilized by developed countries for developing countries reached an annual average of $57 billion over 2013-2014, with about 71% of the total coming from public finance. To many developed countries, being beyond the halfway mark will be a big relief these days.

To be sure, as Paris approaches, the increase of climate funds and the relatively high share of public finance appesar as encouraging signals. But not all that glitters at first sight is gold when you look more closely. In fact, some of the figures included in the report, while carefully pulled together by the OECD team, may be over-estimating the net climate support provided to developing countries.

For instance, the overall amount includes funding for projects where climate change is not the principal objective but one among several objectives. There is no shared methodology on how to take into account programs that only partially address climate change. Germany counts 50% of support for such projects (and also that may be over-stated in many projects), others simply count all of it. Hence, the $22.8 billion in bilateral climate-related development finance may well be an over-statement. Counting only those projects where addressing climate change has been the principal objective, $14.5 billion have been made available in 2013, according to the OECD data for 2013.

Also, $40.7 billion are reported as public finance. Yet, according to the OECD DAC data base, in 2013 only $12 billion were provided as grants. The remainder have been concessional loans or equity or non-concessional financing. Financial instruments such as loans will eventually be repaid by recipient countries so only their grant equivalent (e.g. the financial benefit from lower interest rates of concessional loans compared to market-rate loans) constitutes actual support. And the idea to count export credit at all seems bizarre – experience shows that such export credits do not mobilise additional finance but define who wins the tender for a given project, e.g. a German over a French company, both bidding for the same project in a developing country.

On mobilised private finance, the OECD reports $14.7bn of private co-finance mobilised in conjunction with public, bilateral and multilateral finance on average during 2013-2014. The report acknowledges the methodological challenges to assess private funds mobilisation and the OECD has taken a cautious approach, which Oxfam believes should remain the principle. Focus, in any case, needs to remain on the actual, net support that developed countries provide to developing countries.

The most appalling, and revealing, result of the OECD analysis is, however, the persistent neglect of adaptation needs in the poorest countries. According to the report, on 2013-2014 average, only 16% of international climate finance went to adaptation. Since 2009, when the $100 billion promise was made, adaptation needs have been massively under-funded across countries and regions, with Africa suffering in particular. Counting grant financing for projects for which climate change adaptation is the principal objective, Oxfam calculates that only $1.5 billion of the funds channelled in 2013 were allocated for adaptation. Relying on lending instruments or funding that obliquely addresses climate change or hoping the private sector will step in, is not the support that coastal communities in the Pacific Islands need to deal with rising sea levels or in African dry-lands need to cope with the loss of arable lands.

When looking beneath the numbers, the report clearly indicates what the shortcomings of climate finance have been so far and points at challenges ahead. The main one is: not enough funds have been provided for climate adaptation in the most vulnerable countries.

With the report now out to help everyone understand where donor countries stand, the real credibility test lies ahead of them: how will they increase, between now and 2020, the provision of public finance, especially grant-based finance for adaptation. Germany has said it will double its financial support by 2020, including doubling its roughly €2 billion from the federal budget in 2014 to €4 billion by 2020. The UK have said they’ll increase financial support to reach at least £1.76 billion by 2020, and France aims for about €5 billion (be carefull with that big figure; it’s mostly loans, including non-concessional loans). Even China, with no financial obligation under the UNFCCC, has pledged $3.1 billion in bilateral support to poorer countries, beyond the $100 billion promise by rich countries. Others, in particular Japan, Norway, Switzerland, Australia, Canada, most of the EU Member States and of course the United States have remained silent so far.

The world is now waiting for pledges and commitments from these countries ahead of the UN climate summit in Paris, so that developed countries can present, before Paris, a robust plan how they will meet their $100 billion promise.

Jan Kowalzig, Oxfam