OECD climate finance figures: essential, clear upward trend not discernible

In November 2017, the OECD published its latest survey on the implementation of the USD 100 billion pledge, “Climate Finance Provided and Mobilised by Developed Countries in 2013-17”. According to the report, the figures achieved in 2016 and 2017 for public climate finance provided to developing countries by industrialized countries are roughly consistent with previous projections, in which these funds would increase to around USD 66.8 billion by 2020. Export credits are not included here. Furthermore, it states that significant efforts are needed to “scale up public finance and improve its effectiveness in mobilising private finance”.

The figures of the OECD Creditor Reporting System for bilateral climate-relevant development finance in 2018 have been available for some weeks now. Contributions to multilateral institutions such as the Green Climate Fund or the Adaptation Fund are not taken into account in the system. While these represent an important basis for countries’ climate finance reporting to UNFCCC, they cannot be compared directly. According to Oxfam, Germany, for example, had reported an average of USD 8.3 billion in bilateral climate finance for 2015-16, while the pure OECD figures only come up to around USD 7.2 billion. However, the OECD figures are released in detailed form every year, while the UNFCCC’s reporting takes place on a biennial basis.

As already explained elsewhere on www.deutscheklimafinanzierung.de, the OECD figures have their weaknesses, for example their excessive crediting of projects whose climate protection or adaptation orientation tends to be questionable [links]. However, they are the most current and detailed source and are publicly available. They therefore play an important role for transparent, independent analysis by civil society.

OECD figures for climate-relevant development finance in 2018 show far too small an increase

Unfortunately, the 2018 figures do not reflect a clear upward trend. For the total figures presented here, the amounts from marker 2 (climate as principal objective) and marker 1 (climate as significant objective) were added together. For the industrialized countries as a whole, reported development finance with mitigation and adaptation aspects for 2018 amounts to slightly more than USD 40 billion. This represents an increase of around 5% over the 2015-2018 average of just under USD 38 billion, but is hardly more than the 2017 figure of USD 38.8 billion. The picture for urgently needed adaptation finance is worse. An overall decrease of 10% was recorded relative to 2017, and for funds that have adaptation as their principal objective, the decrease was no less than 26%. There has been an overall increase of about 16% for mitigation, but funds for projects with mitigation as their principal objective (marker 2) have decreased by 15%. At 41% in 2018, the share of adaptation finance was significantly lower than in 2017 (47%).

Trends vary by donor country

Depending on the donor country, the figures for 2018 vary considerably. The countries that come in considerably above the 2015-2018 average in combined mitigation and adaptation finance (marker 1 and marker 2) in 2018 include Spain (93%), Sweden (74%), New Zealand (48%) and Canada (42%). Of course, it cannot be deduced from this that this upward trend will continue in the same way in the coming years – the figures can vary greatly from year to year – but for now it is an important signal. In contrast, France has reported 55% less climate finance in 2018 relative to the 2015-2018 average. Luxembourg is 32% below the 2015-2018 level, and the USA, as one of the largest donors, is 26% below the average level of the last four years. The USA reached its peak in 2016; under the Trump administration, the total fell by nearly 50% in 2017 and 2018, but still amounted to more than USD 1 billion in 2018.

Japan, as the largest donor with almost USD 9.7 billion, was almost 10% above the 2015-2018 average in 2018, but with a clear negative trend in adaptation relative to 2017 (-55% for the total of markers 1 and 2). According to the data, mitigation finance has more than doubled. However, Japan’s crediting practice must be viewed critically, as the government credits the entire budget of marker 1 projects, i.e. those with climate as a significant objective. Germany usually only credits 50%, as Oxfam’s Climate Finance Shadow Report shows.

The United Kingdom, as the country holding the next COP presidency, has recorded an increase of 20% in 2018 compared to 2015-2018 and about a 43% increase compared to 2017. With its announcement that it intends to to double its climate finance by 2025 relative to 2020 levels, it was also the first country to send a signal to further increase support for developing countries.

The institutions of the European Union are among those donors that have significantly increased funding for adaptation in recent years. While this still amounted to around USD 2.5 billion in 2015, it has been consistently more than USD 4 billion since 2016.

Where does Germany stand?

Germany is one of the countries that can record an overall upward trend. Slightly more than USD 9 billion in climate-relevant development finance – adaptation and mitigation combined – was announced in 2018. This figure is about 15% above the 2015-2018 average and about 9% above the 2017 level.

Total adaptation finance in 2018 was about 9% higher than in 2017 and about 20% higher than the average for 2015-2018. Most of this increase was recorded for marker 1 projects, i.e. those that have climate change adaptation as a significant, but not as principal, objective. In 2018, such funds accounted for about 85% of adaptation finance. A significant increase would be in order for projects with a clear adaptation orientation.

For mitigation, the total figures for 2018 are about 10% above the 2015-2018 average and about 10% above the 2017 level. Compared to 2017, there was a 30% increase for projects with marker 2 (mitigation as the principal objective) and a 10% decrease for projects with marker 1. Of the nearly USD 5.3 billion in 2018, marker 2 projects account for about 62% and marker 1 projects for 38%.

While the adaptation share in bilateral climate-relevant development finance has increased, it is still only 40% (roughly constant in 2017 and 2018, about 32% on average in 2015-2018). Funds for adaptation should therefore be increased further to achieve the balance between mitigation and adaptation envisaged in the Paris Agreement.

According to OECD figures, Germany is the second largest bilateral climate finance provider after Japan, with around USD 9.1 billion in 2018. However, relative to economic strength, Sweden was the largest donor in 2018, providing about USD 3.5 per USD 10 million GDP, while Germany came in at just over USD 2.

Source: own calculations based on OECD data (as of 30.5.2020)

Climate funds must continue to increase

Overall, we can conclude that a clear upward trend, which would be necessary to fulfil the USD 100 billion pledge and to actively combat the climate crisis, is not evident for all industrialized countries. A balance between mitigation and adaptation has receded into the distance again lately. Room for improvement therefore exists with regard to developing countries’ confidence in the industrialized countries’ pledges. This could be strengthened by further increasing climate finance, especially for adaptation, and through new pledges for the period after 2020. Due to the many opportunities for synergy between climate measures and economic and social policy objectives and the need to improve future resilience, climate-relevant development finance must continue to gain in importance, particularly in the context of COVID-19.

Sven Harmeling, Care