What the OECD report says of climate finance ahead of COP 28

Contact Counsellor

What the OECD report says of climate finance ahead of COP 28

  • The Organisation for Economic Cooperation and Development (OECD) recently published a report titled ‘Climate Finance Provided and Mobilised by Developed Countries in 2013-2021’.

Major Highlights of the Report Published by the OECD:

  • Economically developed countries fell short of their promise
    • The report showed that the 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.
    • The report said developed countries mobilised $89.6 billion in 2021 and that finance for adaptation fell by 14% in 2021 compared to 2020.
    • The failure to mobilise adequate climate finance lowers capacity in developing countries to address climate mitigation and adaptation needs.
    • It also reduces trust among the world’s poorer countries that the developed world is serious about tackling the climate crisis.
  • Climate finance being provided in the form of Loans
    • The OECD report showed that of the $73.1 billion mobilised in 2021 by the public sector via bilateral and multilateral channels, $49.6 billion was provided as loans.
    • It sheds light on the extent to which rich countries rely on loans at commercial rates to fulfil their climate finance obligations.
    • For example, an assessment by a research group of global climate finance flows between 2011 and 2020 found that 61% of climate finance was provided as loans.
  • Issue of ‘Additionality’
    • Another issue in the OECD report pertains to 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.
    • In the real-world, it could cut off support for healthcare in order to reallocate that money to, say, install solar panels.
    • The “new and additional finance” also means developed countries can’t double-count.
  • Lack of universal definition of ‘Climate Finance’
    • At present, there is no commonly agreed definition of ‘climate finance’ because developed countries have endeavored repeatedly to keep it vague.
    • The lack of definitional clarity has reportedly led to strange situations like funding for chocolate and gelato stores in Asia and a coastal hotel expansion in Haiti being tagged as climate finance.
    • The 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 OECD report added that 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.
    • The $100 billion goal is too small in comparison, dwarfed further by the fact that it remains unmet.
  • Role of private sector:
    • To meet the scale of the challenge, people like the U.S. climate envoy John Kerry and World Bank president Ajay Banga have routinely emphasised the role the private sector could play.
    • The OECD report says that private financing for climate action has stagnated for a decade.
    • The problem is particularly worse for climate adaptation because investment in this sector can’t generate the sort of high returns that private investors seek.
    • There also haven’t yet been signs that the private sector is interested in massively scaling up its climate investments.