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Finance / Green infrastructure

Spending the climate finance kitty

Climate finance is notoriously hard to define and track. As wealthy nations edge towards their $100bn a year target, a new question emerges: how to spend it? Energy Monitor explores whether climate finance is being spent constructively and what could improve its impact.

Total annual energy investment will need to hit $5trn by 2030, according to the International Energy Agency’s Net Zero 2050 Roadmap. In parallel, another $140–300bn will be needed by the same date for climate adaptation in developing countries, the UN Environment Programme (UNEP) estimates.

Fijian people run to find shelter in Matacawa Levu during a tropical cyclone in 2016. (Photo by ChameleonsEye / Shutterstock.com)

How to spend climate finance effectively and equitably across the Global South is a growing topic for discussion. Debates persist on adaptation versus mitigation, geographical distribution, subnational governance and considerations of gender equality.

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The failure of developed nations to provide adequate financial support for climate action in developing countries threatens to destroy the trust between North and South, which the global climate architecture rests upon. Without trust, negotiations at COP26 will fail.

Adaptation versus mitigation

Action on adaptation is critical to enable both public and private parties to prepare for and respond to climate change, says the UNEP. While the Paris Agreement clearly states that a balance between finance for adaptation and mitigation must be achieved, adaptation remains underfunded. Looking exclusively at multilateral climate funds, such as the Green Climate Fund (GCF), $1.6bn was approved in 2020 for mitigation projects while only $586m went towards adaptation, says the Climate Funds Update, a division of the not-for-profit Heinrich-Böll-Stiftung. Cross-cutting projects, which benefit both adaptation and mitigation, received $894m.

This trend extends beyond the GCF. In 2017–18, 25% of all reported public finance was allocated to adaptation, while 66% went to mitigation. The largest sources of funding for adaptation projects are the GCF; the least-developed countries (LDC) Fund, established in 2001 to help such countries implement national adaptation plans; and the $1.2bn Pilot Program for Climate Resilience, which helps developing countries build resilience to climate change. However, developed countries’ contributions to these funds remain low compared with funds for mitigation, says the Climate Funds Update.

A crucial component of climate adaptation centres on improving the security of energy systems, which supply power to homes, hospitals and other fundamental parts of the economy, says not-for-profit the International Institute for Sustainable Development. “Adaptation is much more urgent and important [than mitigation] for developing countries that are already dealing with extreme weather from climate change,” says Liane Schalatek from the Heinrich-Böll-Stiftung.

In Tajikistan, a GCF-funded $128.9m project is under way to adapt hydropower dams to cope with new climate conditions, such as an increase in severe floods. Hydropower provides approximately 98% of the country’s electricity. Tajikistan’s hydropower plants depend on river basins fed by glacial meltwater and snowmelt. As the climate warms, most climate models predict significant changes to the country’s glaciers; this will necessitate further adaptation.

Regional needs

The geographical distribution of climate finance is also off balance. According to OECD data, Asia is the main beneficiary of climate finance. It received $30.6bn a year between 2016 and 2019. In comparison, Africa received $18.5bn, while the Americas received $12.4bn, Europe $3.2bn and Oceania $0.5bn.

While these numbers tell us little in isolation, what is evident, says NGO Oxfam, is that the financial resources channelled to the LDCs and small island developing states (SIDS) for adaptation and mitigation are disproportionate to the level of climate risk they face. In 2019, only 20.5% of reported climate finance went to the LDCs while 3% went to SIDS. While climate finance for the LDCs rose strongly in 2019 (up 27% on 2018), funding for SIDS actually fell from $2.1bn to $1.5bn.

Reporting on this issue is also deficient. Biennial reports provided by developed countries to the UN Framework Convention on Climate Change do not include any official data on the share of funds going towards these two vulnerable groups; OECD data provides an indication, however. Canada, France, Germany, Japan and Norway give the smallest share of climate finance to the LDCs – less than 20%. Meanwhile, only Australia provides adequate support to SIDS, says the Oxfam report.

Other fragile and conflict-affected states, such as South Sudan and Côte d’Ivoire, have received only $9.2m and $6.3m respectively in adaptation finance from multilateral funds, the Climate Funds Update says.

National and local ownership

To ensure funds are channelled towards real needs, funding priorities should not be imposed upon a developing country or community from the outside, says Schalatek.

The original vision for the GCF was that it would operate through accredited entities, specifically national or local institutions that possessed a clear idea of funding priorities. Unfortunately, “that network of accredited entities has not been built out at speed”, says Brandon Wu from charity ActionAid.

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“Instead of using a robust network of local institutions, the GCF relies heavily on a few, primarily international, entities such as the UN Development Programme or Multilateral Development Banks,” he says. Data from the World Resources Institute (WRI) reveals the GCF has accredited 62 developing country institutions as eligible for direct access, but only 20 of them have actually received funding.

Accredited entities are expected to adhere to international standards, says the WRI. In theory, this was supposed to reinforce national leadership and ownership of climate finance. Instead, the rigorous nature of the accreditation process has hampered direct access to climate finance for many developing countries. Many governments do not have the strong financial management required, Wu suggests. Local governments need capacity-building support. If climate action is to be sustainable, donors should expand resources and assistance for locally led climate action in line with national planning and policies, Oxfam recommends.

Gender considerations

Many decisions at recent COPs have emphasised the importance of “a gender responsive approach” to climate action. However, only one-third of climate finance projects are estimated to take account of gender equality and there is little best practice on gender-responsive budgeting, says the Climate Funds Update.

Adaptation and mitigation that is gender blind risks being ineffective and exacerbating inequalities, says Oxfam. Again, reporting on this issue falls short as national climate finance reports fail to include any gender metrics.

In the face of climate change, women and men have different vulnerabilities, and all climate finance projects must “consider the different needs of women and men in objectives, design, budget and implementation”, says the NGO.

Hannah Wright

Junior Reporter

Hannah Wright previously worked as an editorial assistant and reporter at Verdict Media.