TWN Info Service on Climate Change (Oct15/04)
30 October 2015
Third World Network

More Half Empty than Half Full: A Preliminary Review of the OECD/CPI Report, Climate Finance in 2013-14 and the USD 100 Billion goal.
By Marjorie Williams (30 October, 2015)

The OECD/Climate Policy Initiative Report, Climate Finance in 2013-14 and the USD 100 Billion goal, launched on 7 October 2015, argues that developed countries are on track to meet the promised climate finance to developing countries of $100 billion per year by 2020.

According to the report, the annual average over the two years (2013 and 2014) of climate finance mobilised by developed countries was $57 billion, with $52.2 billion in 2013 and $61.8 billion achieved in 2014. Hence there has been ‘significant progress’ made towards the $100 billion goal.  

However, the accounting approach and methodological framework captures the full value of the loans of multilateral development banks (MDBs), co-finance-led private finance and export credits.  These are the dominant flows reported to have gone to developing countries. As with the fast start finance initiative of $30 billion for 2010-2012 pledged by the developed countries in Copenhagen in 2009, developing countries are asking, ‘where is the money?’ for adaptation, loss and damage and now the intended nationally determned contributions (INDCs) that so many developing countries work so hard to produce.

The primary objective of climate finance is to support developing countries in implementing their obligations and thus to help to achieve the overall objective of the United Nations Framework Convention on Climate Change (UNFCCC) by supporting their climate actions. So what is important is what gets to the ground for policies, projects and programmes for mitigation and adaptations actions, as well as for financing related to technology development and transfer. So there are very real concerns about this new claim that over $50 billion per year has been provided.  Any claims about progress on achieving the $100 billion per year goal must be perceived as an accurate and rigorous  assessment  of climate finance flows that is reflective of the situation on the ground. 

This is especially the case because of the controversy surrounding the delivery of the climate financial flows of the so-called fast start finance initiative of $30 billion for 2010-2012, and developed countries claimed to have delivered over that amount. There were serious questions with data, acounting and measurement and the verification of claimed delivered amounts. Issues raised included double counting, rampant mis-labeling, and recycling of official development assistance (ODA) items as climate finance. This situation has led to significant leaching of trust between the UNFCCC Parties with regard to climate finance.

Climate finance flow is mandated under the UNFCCC to be new and additional, primarily grants and concessional flows from Annex II Parties (those countries with responsibility, accountability  and the capacity to pay for the consequencies of the historical emissions associated with their economic growth ) to the Non-Annex I Parties (developing countries), who do not have this historical emissions responsibility and accountability.

The information provided in the OECD/CPI report, which was commissioned by France (incoming Presidency of COP 21)  and Peru (the out-going Presidency of COP 20), will be used to solidify the developed countries’ narrative that  ‘climate finance is already flowing at increasing levels’ and hence there will be no need for any specification on finance in the new agreement.  This narrative was formalised with the Joint Statement on Tracking Progress Towards the $100 billion Goal in Paris, France, 6 September 2015, in advance of the release of the OECD-CPI report commissed. The report can thus throw cold water on the finance negotations of the Paris agreement.

Key pointers about much hyped OECD/CPI report

According to the report, 77% of the climate finance mobilized is allocated towards climate change mitigation and 16% towards climate change adaptation with 7% targeted to both. (Over 90% of the the private finance flows identified in the report is targeted at mitigation.)

The OECD/CPI Report, however, suffers from the same issues that has plagued all reporting on climate finance flows: the persistent challenges around the definition of climate finance, the delivery channels and the financing instruments used in delivering climate finance,  which are the base of the accounting methodolgy of the Report. These challenges are obstacles to complete confidence about the magnitude and impacts of reported climate finance flows from developed to developing countries. Additionally, as noted by a representative of the Least Developed Countries group at the OECD’s presentation of its report on the side-lines of the October Bonn negotiations, it is hard to digest that  $52 billion to  $62 billion of climate finance flowed to developing countries when  approximately one-quarter billion dollars of projects proposed by the LDCs remain unfunded under the Least Developed Countries’ Fund. In addition, the Adaptation Fund is still struggling to secure stable and adequate finance for funding projects due to the perilous state of the carbon market from which the significant portion of its funding is derived.

The mis-match between the headline figures of the report and the unmet needs of developing countries gives rise to mistrust of the reported information, and may be due to what lies behind the numbers.  These factors include the finance providers’ self-defined parameters of climate finance, the  tendency to minimize the role of the funds under the UNFCCC in favor of their own bilateral entities and the mulitlateral development banks (MDBs), the nature of the finance instruments as well as the underlying assumptions behind the methodologies of reporting.  According to the OECD’s own data, loans comprise about $20 billion of the reported flow for 2013 with private finance accounting for another $20 billion, while grants account for only $13 billion. So in the first case developing countries are incurring debts for climate actions and in the latter they are really not seeing the money, which presumably laregly flows to and stays within the international private sector.  The adaptation finance gap continues with adaptation reported to receive only about 16% of the total flows.

Challenges with North-South financial flows: ODA-loans,  double counting  and ‘new and additional’

Researchers from Oxfam and the Development Initiatives have noted that approximately 80% of bilateral flows are from ODA accounts. Many of these are tagged as ‘principal’ or ‘significant’ or ‘climate relevant.’

But ODA coded for climate needs to be more rigorously examined.  In 2008, Oxford Energy undertook a review of a sampling of 115,000 bilateral ODA projects coded as ‘climate-relevant’ and found that only 25% of these were ‘genuinely related to climate actions’.  Additionallly, Oxfam’s analysis of the $30 billion fast start finance showed that only a small percentage (24%) of developed countries’ fast start finance claims in 2010-2012 that was counted towards this goal, was additional to existing ODA obligations.

It cannot be simply be assumed that  ODA refers to grants only; ODA loans are an increasing component of development assistance, especially for big OECD DAC countries such as Japan, France and Germany. Research by Development Initiative shows that while ODA grants increased by 25%, ODA loans increased by 73% for the period 2005-2013. It also notes that during the same period, developing countries’ loan repayment on ODA loans was approximately $5 billion per year.

Both the challenges around coding ODA for climate change and the growing prevalence of ODA lending point to the need for further unpacking of aggregated figures and some corroboration of flows with regard to destination and impacts. There is a clear need for balancing these top-down estimates with the reality and impacts on the ground in developing countries. This includes strict processes for avoiding double counting of categories identified in the quantum estimated and agreed rules for transparency of climate finance.

Despite the cautionary approach of this critique, the OECD/CPI tracking report, which certainly was faithful to the mandate and TOR granted to the researchers, also points to a number of known pitfalls that must be collaboratively addressed, including the need for policies to be designed and implemented in the areas of accounting rules and transparency.

We propose a clear definition of climate finance that is aligned with the UNFCCC (e.g. Article 4.1,  4.3 and 11.4)  and the needs of developing countries’ climate change strategies is needed. There should be development of clear and well-defined methodologies for tracking climate finance – broadly discussed with the effective participation of both non-Annex I and Annex I Parties and  stakeholders – on the types of financial instruments that are the most efficacious for delivering climate finance and how these instruments are to be assessed.

There needs to be accounting rules in defining climate finance flows, including what should or should not be counted, including some specification around incremental costs (in alignment with UNFCCC Article 4.1 and 4.3).  The role of and the nature and extent of developing countries’ participation in constructing these rules are central to their legitimacy and effectiveness and there must be transparency and processes for reviewing and updating the provision of finance. The role of the UNFCCC Standing Committee of Finance is pivotal here for creating objectivity and fairness.

Climate funds should be channeled through the Green Climate Fund and other mechanisms under the Convention. Finally, there is urgent need for additional public resources, primarily from budgetary sources directed to adaptation and loss and damage.