OECD: Climate finance cracks the 100 billion mark

Good news just in time for the Bonn climate talks SB60: In 2022, developed countries’ climate finance has reached and even exceeded $100 billion, a level originally promised for 2020. Yet, some issues remain.

Since developed countries promised, back in 2009, to increase financial assistance to support climate action in lower-income countries to $100 billion annually by 2020, they have been under pressure to show credible progress, eventually facing heavy cricitism for breaking their promise – as only $83.3 billion was reported for 2020 and only $98.6 billion for 2021. Now, however, the OECD reports that the promised level was not only achieved in 2022 with a total of USD 115.9 billion, but was actually significantly exceeded. At first glance, this is certainly a success story. But the picture is mixed.

It is unclear what exactly contributed to the significant jump from 2021 to 2022, as climate financing had only increased moderately in each of the previous years. The question remains as to whether there will be further growth in the following years or whether climate finance can at least stabilise at above 100 billion. Source: OECD

Real support effort less than a third of reported figures

In fact, the nearly $116 billion reported for 2022 do not reflect the actual support effort by developed countries in providing climate finance, but are based on figures from the reporting system under the Paris Agreement, which allows for overly generous assessment of climate relevance of funded programmes, for example. In addition, loans are accounted for at face value and not based on the financial effort of a donor country when issuing these loans, for example if the loan is provided at reduced interest rates. Oxfam estimates that the actual support effort by donor countries in 2022 amounted to $28-35 billion.

Climate finance in 2022, broken down by channels, instruments and sectors. Clearly visible: Most of the funding came in the form of loans, which can exacerbate the debt burden of recipient countries. And: the internationally agreed balance between adaptation and mitigation has still not been achieved. Source: OECD

Majority of the funds: Loans

The next problem: Around 70% of public climate finance in 2022 came in the form of loans, and a large proportion of these were probably loans that were not even offered on concessional terms, but more or less at market rates. Although low-income developing countries receive significantly more grants than loans, for other developing countries the share of loans accounts for over 80 percent. This can exacerbate the debt burden of recipient countries, especially as they are often struggling with other crises at the same time. In any case, providing climate finance as loans is grossly unfair for countries that contribute or have contributed little or nothing to the climate crisis, but now have to accept loans to confront the climate crisis – an too often loans from which the donor country expects profit.

Adaptation remains neglected

Less than a third of 2022 climate finance was allocated to adaptation, even though support for adaptation has increased slightly in absolute terms. Nevertheless, developed countries remain a long way from achieving the agreed balance between climate change mitigation and adaptation, which would require a 50:50 split between the two areas. The goal set by the UN climate change conference COP26 in Glasgow to double adaptation finance by 2025 (compared to 2019) is also not secured. Although the data so far shows an increasing trend in funding, this has been accompanied by an overall increase in climate finance over the years. That this growth will continue in the coming years beyond the $116 billion is questionable, and this will have consequences for adaptation finance, too.

And Germany?

Germany substantially contributes to the $116 billion now reported, with almost €9.5 billion in German public climate finance in 2022, of which around €6.4 billion in budget allocations  (and grant equivalents of climate loans). In climate finance from Germany, too, more than half of the funds (52 percent) are provided as loans, and there is an also imbalance in allocation, with adaptation  receiving 22 percent and mitigation 52 percent. (Or: 35 and 65 percent – if finance reported to serve cross-cutting purposes is split and then allocated equally to adaptation and mitigation.)

With the aforementioned €6.4 billion in budget allocations in 2022, the German government has fulfilled its promise to reach at least six billion euros annually by 2025 at the latest. However, the German government is now planning cuts in the 2025 federal budget, which could push the pledge back into the distance – with significant impact also to overall international climate finance over the coming years.

Jan Kowalzig, Oxfam