Not only have rich countries failed to deliver the annual US$100 billion in climate finance they promised back in 2009, but they’ve also vastly overstated the funds they did pony up, finds a new report by Oxfam International, resulting in a brewing distrust that could undermine ongoing climate negotiations.
Official accounting and reporting practices show that the total climate finance delivered in 2020 was $83.3 billion, Oxfam says. But “the real value of financial support specifically aimed at climate action” was only around $21 to $24.5 billion, far less than official figures suggest.
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“Urgent action is needed to restore trust and provide much-needed finance, starting with immediately fulfilling the $100-billion-a-year goal and making up for the shortfalls in years where it has not been met,” Oxfam writes.
But how finance is delivered is just as important as the amount, the organization adds, noting that the paltry funds delivered are coming mostly as debt, “harming rather than helping local communities, as they add to the debt burdens of already heavily indebted countries.”
“This report lays bare how an excessive number of loans, insufficient grants, inadequate funding for adaptation, and misleading accounting practices mean that climate finance is far from fulfilling its purpose,” Oxfam writes.
The report’s main messages are about accounting and transparency, but also the fact that climate financing is not reaching the most vulnerable, Dana Stefov, women’s rights policy and advocacy specialist at Oxfam Canada, told The Energy Mix.
“It’s about accounting, but it’s also about taking responsibility and trying to fight inequality.”
Climate finance is expected to be a priority issue this week and next during mid-year climate negotiations in Bonn, Germany. It is also a contentious topic, after wealthy countries fell short of their $100-billion pledge in 2021 and put delivery off until 2023. Christian Aid’s head of global policy and advocacy Fionna Smyth called the delay a “breathtaking” lack of ambition, pointing out that the sum was already just “a drop in the ocean.”
When in 2022 a new report warned that developing countries will need something like US$2 trillion per year by 2030 to address climate impacts, United States climate envoy John Kerry shifted the responsibility of fulfilling the sum on to private finance. “No single government—no group of governments—can meet the $2.5 trillion to $4.6 trillion deficit that we face in order to effect this transition,” Kerry said, calling the private sector “critical to success.”
Then in March 2022, on the heels of new funding commitments from the Biden administration, Kerry said rich countries were nearing their target. But developing countries on the front lines of climate change had already turned their attention to post-2025 climate finance requirements, with some negotiators saying since 2021 that the original $100-billion commitment was never based on an accurate assessment of needs. It was a number rich countries came up with on their own, with little or no input from other nations, they pointed out.
Still, the $100-billion target is pertinent and is expected to be discussed in Bonn, and rich countries’ continuing failure to keep their promise threatens to corrode trust, Oxfam says.
“The $83.3-billion claim is an overestimate because it includes projects where the climate objective has been overstated or as loans cited at their face value,” the organization says. Making matters worse, “donor countries are repurposing up to one-third of official aid contributions as climate finance rather than putting forward new and additional money.”
As well, only small shares of international climate finance are used for locally-led climate action, or with gender equality as a principal objective. And there is a worryingly high percentage of funds contributed through private financing compared to public financing, with financing for mitigation far outpacing adaptation because “adaptation projects generally do not offer sufficient financial returns to attract private investors.”
“We’re not advocating for adaptation financing to replace mitigation financing,” explained Stefov. “It really has to be a dual track.”
With rising inflation and economic pressures, wealthy countries might also curtail funding, either for new climate financing or for other international aid. Canada, for example, has scaled back its international aid commitment by 15% in its 2023 budget, though International Development Minister Harjit Sajjan said the Liberal government could reverse course if the national economy improves.
“We’re worried about overall the displacement of other priorities like health care or humanitarian response, and they’re all interrelated to some degree with climate, but the scale of funding needs to be increased,” Stefov said.
A major problem lies with current accounting methods for monitoring climate finance, which lack clarity about how funding is being used and how effective that is. A recent analysis by Reuters showed that financing has been misused in some cases. Advocates have called for systematic accounting methods and standards to build trust between contributing and receiving countries, but nothing has been done. Oxfam says better transparency measures must be put in place to hold contributing countries to account.
“This report is about taking responsibility for inequality, and making sure the people that we’re trying to support are actually being supported,” Stefov said. “There’s a big transparency gap, and that is really fundamentally about justice.”