Commentary

Are Countries Providing Enough to the US$100 Billion Climate Finance Goal?

Julie Bos, Research Analyst for WRI’s Sustainable Finance Center, scrutinises the contributions of developed countries and explains how they can get back on track.

In 2009, developed countries committed to jointly mobilise US$100 billion annually in climate finance by 2020 to support developing countries in reducing emissions and adapting to climate change.

This long-standing commitment is key to trust and solidarity between developed and developing countries, rooted in the fact that developed nations are responsible for the majority of carbon emissions since industrialization began, and generally have greater capacity to offer support.

The OECD recently estimated that developed countries mobilised US$79.6 billion in climate finance in 2019. It’s likely that these nations failed to collectively meet the US$100 billion goal in 2020 (though actual reporting for that year is not yet available).

New WRI research finds most developed countries are not contributing their fair share toward meeting the US$100 billion goal. Three major economies — the United States, Australia, and Canada — provided less than half their share of the financial effort in 2018, based on objective indicators such as the size of their economies and their greenhouse gas emissions. Other nations that provided less than half of their fair share were Greece, Iceland, New Zealand and Portugal. In total, more than a dozen developed countries were falling short of their responsibilities.

Breaking down national contributions

The US$100 billion is a collective commitment. However, just as the collective mitigation target of the Paris Agreement — keeping global temperature rise to 1.5 degrees Celsius — depends on the actions of individual countries adding up, so, too, does the collective finance goal require individual countries to contribute sufficiently to make up the total.

Our analysis is the first to comprehensively break down how much public climate finance each of the 23 developed countries have provided towards the US$100 billion commitment as of 2018, the most recent year for which comprehensive data are available. (Private finance mobilised by developed countries can also count towards the US$100 billion goal, but we did not look at these flows — estimated around US$15 billion in 2018 — because data are much less complete, and it’s difficult to attribute to individual countries.)

Several trends emerge about the state of these 23 countries’ climate finance contributions. Here’s what we found:

  1. Quality of climate finance varies, and reporting ambiguities hinder easy comparisons

Accounting for the US$100 billion relies on multiple reporting systems. Moreover, countries and institutions take different views about what to count as climate finance in their reporting. For example, Japan counts finance for “more efficient” coal power plants, while other countries do not.

That’s not the only wrinkle. Some countries provide only grants as climate finance, while others count loans to developing countries, which must be repaid. For example, France, Japan and Germany — each of which ranks highly on a surface-level glance at headline numbers — provided most of their finance through loans. Most of the countries ranked in the middle provided the majority of their finance as grants, which requires more budgetary effort for contributors but is often better for resource-strapped developing nations.

These asymmetries undermine comparability.

  1. The biggest provide the most climate finance, but not relative to size

In absolute terms, Japan, Germany, the United States, France and the United Kingdom were the five largest providers of climate finance, which aligns with their position as the five largest economies among the 23 developed countries.

But the biggest contributors change when you look at provision of finance relative to economic size.

While three of the major nominal contributors — Germany, France and Japan — also provided over 0.25% of their gross national income (GNI) as climate finance, the US has the lowest provision of any developed country relative to its GNI, at 0.03%. Luxembourg, Norway, Sweden and Denmark were also providing a significant amount relative to the size of their economies, all more than 0.15%.

If every developed country were to make the same effort relative to the size of its economy to reach the US$100 billion goal, countries would need to contribute 0.22% of GNI. Only France, Germany, Japan and Luxembourg reached this level between 2016 and 2018. If mobilised private finance were to meet US$20 billion of the US$100 billion goal, with the other US$80 billion coming from public sources, countries would need to contribute 0.18% of their GNI. In this scenario, Norway and Sweden were then also providing a sufficient share.

  1. Most countries aren’t contributing their fair share of climate finance

Some international institutions, such as the UN and the European Union, use a combination of objective indicators, such as GNI and population, to determine how much different countries should contribute to their institutions’ budgets. Such an effort-sharing approach has never been agreed upon for the US$100 billion goal, but in recent years researchers from OxfamOverseas Development InstituteWRI and ETH Zurich have proposed approaches for how climate finance effort might be fairly allocated among contributor countries.

Since the obligation to provide climate finance is rooted in both developed countries’ relatively larger responsibility for climate change (i.e. their greenhouse gas emissions) and capacity to provide support (i.e. wealth), most of these approaches use metrics that capture these dimensions. Some also bring in other criteria such as population (to account for high per-capita emitting countries) and overseas development aid provision (as a measure of willingness to provide international funding).

Despite different methodologies, they are broadly aligned in showing that the United States had a shortfall of at least US$21 billion and up to US$40 billion per year between what it provided in climate finance in 2018 and its fair share of the US$100 billion climate finance effort (between 40% and 47% of the total). Under every effort-sharing approach, the US shortfall was more than double the shortfalls of all other countries combined.

Based on the average of different effort-sharing approaches, only seven of 23 countries provided their fair share of climate finance in 2018, assuming US$80 billion of the US$100 billion came from public sources: France, Japan, Norway, Germany, Sweden, Denmark and Austria. If all US$100 billion came from public sources, only five countries provided enough: France, Japan, Norway, Germany and Sweden (though France, Japan and Germany all provided most of their finance as loans).

At the other end of the spectrum, the United States, Greece, Australia, Iceland, New Zealand, Portugal, Canada and Ireland provided less than half of their fair share in 2018 under both the US$80 billion and US$100 billion scenarios. Canada and Australia had shortfalls in 2018 exceeding US$1 billion according to every effort-sharing approach. The United States provided less than 20% of its fair share and less than half of its finance as grants.

President Biden’s recent pledge to increase US climate finance can help close the gap somewhat, but it’s unlikely to fully meet the country’s fair share of the effort towards the US$100 billion goal.

  1. Adaptation finance is falling short

The Paris Agreement includes an aim to balance climate finance between mitigation and adaptation. Many climate-vulnerable countries and the UN Secretary-General have called on developed countries to achieve a 50/50 split.

The largest climate finance contributors in absolute terms — France, Germany, Japan and the United States — heavily skew their finance towards mitigation, so adaptation finance makes up only about 25% of total climate finance. Australia, Belgium, Iceland, Ireland, the Netherlands and Switzerland were approaching a 50/50 balance in their provision of adaptation finance. The United Kingdom is the only country in the top five contributors to get close to achieving a balance (and indeed has set its own target to do so).

  1. Little finance flows through multilateral climate funds

Developed countries vary in which channels they prioritise for their climate finance contributions. The majority put their largest shares through multilateral development banks (MDBs) such as the World Bank and Asian Development Bank, reflecting the fact that developed countries are significant shareholders in these institutions and that MDBs are dedicating an increasing share of their funding to climate objectives.

By far the smallest channel used by every country is other multilateral institutions, such as the Green Climate Fund and Adaptation Fund. This is concerning given the Paris Agreement mandates many of these funds with a special role in the implementation of the Agreement. These funds also give developing countries a greater say in the governance of climate finance and enable them to directly access funding, something climate-vulnerable countries are calling for.

Getting climate finance on track

Climate finance is key to supporting developing countries’ increased climate action. Developed countries must ensure they collectively deliver on the $100 billion goal and go beyond it.

Three actions will be critical:

First, many countries must provide more climate finance to contribute their fair share of the effort, with the United States holding the greatest responsibility.

Second, countries need to improve the quality of the climate finance they provide. Developing countries need more finance in the form of grants and for adaptation. Developed countries should address these requests, which are also emphasized in the Paris Agreement.

And finally, data reporting needs to improve significantly. Rectifying reporting ambiguities is crucial to increase accountability, transparency and trust. The upcoming UN climate conference in Glasgow (COP26) will consider the common tabular formats that developed countries must use to report on financial support under the Paris Agreement’s Enhanced Transparency Framework from 2024 onwards. This provides an opportunity to address gaps and improve individual countries’ reporting, building on the lessons learned from the current transparency system.

Finance holds international climate action together and powers its acceleration. There is no time to waste.

This article was originally published on WRI.org and was co-authored by Lorena Gonzalez, Senior Associate for UN Climate Finance, and Joe Thwaites, an Associate in WRI’s Sustainable Finance Center.

 

To Top
Newsletter SignupReceive all the latest stories from the ESG Investor editorial team

Subscribe to our free weekly newsletter below and never miss a story.

Share via
Copy link
Powered by Social Snap