Rich countries met US$100 billion climate-finance goal by ‘relabelling existing aid’

Billions of dollars of foreign aid have been reclassified as ‘climate finance’, thereby helping rich countries to meet a long-overdue target, according to new analysis.

Climate_Protest_Finance_COP28
Developed countries failed to hit the US$100 billion goal by 2020, raising just US$83.3 billion that year. This was poorly received by developing country governments, who view this money as essential to meet their climate targets under the Paris Agreement. Image: , CC BY-SA 3.0, via Flickr.

Newly released figures suggest that developed nations achieved their goal of raising US$100 billion in climate aid for developing countries in 2022 – two years after the deadline.

The Organisation for Economic Co-operation and Development (OECD) says these countries raised US$115.9 billion for climate-related projects, following a record surge in spending.

However, analysis conducted by the Center for Global Development (CGD) and shared with Carbon Brief suggests that around US$27 billion of the US$94.2 billion annual increase in public climate funds in 2022, compared to figures two decades ago, came from existing development aid.

Specifically, the CGD identified at least US$6.5 billion of climate aid within the record 2022 increase that was diverted from other bilateral development aid programmes. This is despite the widespread expectation that wealthy countries should provide climate finance that is “new and additional”. 

Such accounting changes could allow some developed countries to reach their climate targets, even while slashing their wider aid budgets

Meanwhile, wealthy nations are under pressure to rapidly increase climate spending in the global south. At COP29 this year, all parties must agree on a new climate target that will help raise the trillions of dollars these nations say they need to address climate change. 

‘Largest increase’

The US$100 billion target was set in 2009 at COP15 in Copenhagen to help developing countries cut their emissions and protect themselves from climate change.

A group of “developed” countries, including many European nations, the US, Canada, Japan, Australia and New Zealand, agreed to “mobilise” this amount by 2020 and then each year through to 2025.

The intention was to provide ‘new and additional’ finance and I think the very lowest bar for that is that the face value of [total] finance would have gone up US$100 billion.

Ian Mitchell, Center for Global Development, senior policy fellow

This money largely comes from countries’ foreign-aid budgets, which finance climate-related development projects. A smaller proportion is also raised from the private sector.

Crucially, countries have determined during UN climate negotiations that climate finance should be “new and additional”. This is widely interpreted as meaning the US$100 billion objective should all be supplied on top of existing aid, although such an interpretation has sometimes been contested by developed countries.

Developed countries failed to hit the US$100 billion goal by 2020, raising just US$83.3 billion that year. This was poorly received by developing country governments, who view this money as essential to meet their climate targets under the Paris Agreement

Last year, the OECD, which tracks international climate finance, announced that developed countries had “likely” met the target in 2022 – two years late. It did not release the data underpinning this estimate at the time.

The OECD has now published a report confirming that the US$100 billion goal was met. In fact, the organisation says climate finance underwent its “largest year-on-year increase observed to date” in 2022 – reaching US$115.9 billion. This US$26.3 billion increase can be seen in the chart below.

CB_Climate_Finance_1

Climate finance, $bn, provided and mobilised by developed countries between 2013-2022. Private finance data for 2015 is not available. Source: OECD. Chart: Carbon Brief.

This uptick in climate finance was driven by record increases in spending both bilaterally – directly from country-to-country – and via multilateral development banks and funds.

There was also an unprecedented US$7.5 billion increase in private finance, which was mobilised by developed country investment. This comes after years of private investment remaining essentially unchanged each year.

The OECD notes that the “lion’s share” of public climate finance was provided as loans – around 69 per cent of the total. This has raised concerns, given the number of global south countries that are already struggling with debt

‘New and additional’

Countries are set to decide on a new climate-finance goal – known as the “new collective quantified goal” – at COP29 in Baku, Azerbaijan, later this year. This target is expected to go beyond the US$100 billion goal and be based on an assessment of countries’ real-world needs.

Meanwhile, some wealthy countries have announced major cuts to their foreign-aid budgets. Many nations have also decided to channel large amounts of aid to Ukraine, following Russia’s invasion in 2022, while also diverting funds to accommodate refugees on their own soil. 

All of this could squeeze the wider development-aid budget and, in theory, make achieving climate finance goals more challenging.

Some countries, including the UK, have opted to meet their climate finance targets by “redirecting” or “relabelling” existing funds as “climate finance”, while failing to commit new money in sufficient volumes.

According to analysis by the CGD – released one week ahead of the OECD’s assessment – this is largely what enabled developed countries to meet the US$100 billion target in 2022.

It concluded that, when considering public climate finance, the goal was “partly achieved by adding climate objectives to existing development finance flows”. (The CGD analysis did not attempt to estimate the increase in private finance, assuming it would remain stable as it had in previous years.)

Applying the CGD analysis to the public portion of the OECD’s US$115.9 billion climate finance figure – which amounted to US$94.2 billion – shows that around US$27 billion comes from existing development aid.

This is based on overall aid only increasing US$67.2 billion between 2009 and 2022, meaning the remaining increase in climate aid must have come from existing sources.

Ian Mitchell, the CGD senior policy fellow who led the analysis, tells Carbon Brief:

“The intention was to provide ‘new and additional’ finance and I think the very lowest bar for that is that the face value of [total] finance would have gone up US$100 billion.”

As the chart below shows, while the overall aid budget grew in 2022, due partly to new aid for Ukraine and more spending on housing refugees, existing bilateral development aid fell in 2022. 

Given this, the CGD says the US$6.5 billion increase in climate finance that year can definitively be attributed to countries’ existing foreign-aid budgets, rather than an increase in spending.

CB_Climate_Finance_2

Bilateral development aid spending by developed countries, with specific issues indicated in shades of blue and everything else in red. This chart is based on CGD figures, meaning the bilateral public climate finance targets do not align precisely with the official OECD figures. Source: CGD. Chart: Carbon Brief.

Diverting funds

Mitchell highlights the key issue with hitting climate finance targets without committing enough new resources:

“The problem with meeting that US$100 billion from existing resources is that it’s either rebadging it, which is not providing climate finance, or it’s diverting it from other development objectives…reducing spend on health or education.”

However, Joe Thwaites, senior international climate finance advocate at the Natural Resources Defense Council (NRDC), tells Carbon Brief that not all diversions are “bad diversions”.  

A report by the thinktank ODI last year found that much of the funding being reclassified came from sectors such as energy and transport. Thwaites points out that this could mean cutting back on support for fossil fuels and targeting clean energy instead: 

“Given the massive development and climate needs, we need to be growing the overall international public-finance pie. But shifting finance from one area to another isn’t necessarily a bad thing, it all depends what it’s being taken from and going to.”

More broadly, Harjeet Singh, global engagement director at the Fossil Fuel Non-Proliferation Treaty Initiative, tells Carbon Brief that developed countries are taking advantage of “creative accounting” and “fiscal loopholes” to meet their targets. 

He warns that, as nations prepare to negotiate a new climate finance target at COP29, there is a need for a clear definition of what counts as “climate finance” to avoid such behaviour:

“The absence of a unified definition of climate finance is not a mere oversight; it mirrors historical patterns of power…Developed countries have aimed to keep their financial responsibilities ambiguous.”

This story was published with permission from Carbon Brief.

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