This Insight was updated on 3rd November 2021 to reflect recent developments.

Countries meeting in Glasgow in November 2021 for COP26 aim to agree measures to keep global temperature increases below 1.5oC. Climate finance, provided by developed countries to developing countries to support their efforts to address climate change and its impacts, will be one of the main issues at COP26.

It’s generally agreed that an existing target to provide $100bn of climate finance a year by 2020 has been missed. In October, the UK COP presidency suggested it will be met by 2023. Not meeting the target going forward will affect the level of trust that developing nations have in developed countries. They are being asked to cut their own future emissions while suffering the effects of climate change which they are not responsible for.

Why climate finance matters

In 2009, at the fifteenth conference of the parties (COP15 ) of the UN Climate Change Conference (UNFCCC) in Copenhagen, climate finance funding of $100 billion a year by 2020 was agreed.

Climate finance is being delivered by Annex I countries of the UNFCCC agreement  (referred to as developed countries by the UNFCCC, with high greenhouse gas emissions) to non-Annex I countries (referred to as developing countries).

The finance is to fund climate change mitigation, which are measures to reduce greenhouse emissions, and adaptation to climate change. Funding can come from public and private sources and be provided in different forms.

The $100bn commitments were reiterated at COP 16 in Cancun in 2010, and at COP21 in Paris in 2015, where it was agreed to extend the commitment to provide $100bn every year to 2025.

Final figures will not be available until 2022 but it’s generally accepted that the 2020 goal has not been fully met. This, together with what form climate finance takes (loans or grants), is a key area of contention for developing countries in the run up to COP26.

Ensuring the $100bn pledge is met going forward is one of the four goals of the UK’s COP26 presidency.

How is climate finance delivered?

Climate finance from both public and private sources is provided through loans, guarantees, export credits, bilateral funding and funding from donor governments via multilateral bodies. These bodies can be funds such as the Green Climate Fund, created specifically for the purpose, or more general ones, for example the Asian Development Fund or the World Bank.

Most climate finance to date has been provided for mitigation rather than adaption.

The target has been missed every year since 2013

In 2019, the most recent year for which data is available, around $79.6 billion was raised in climate finance.

There was a 2% rise in funding raised from 2018 to 2019. This followed rises of 22% from 2016 to 2017, and 11% from 2017 to 2018. Total spending before and after 2015 cannot be compared directly.

In 2019, the most recent year for which data is available, around $79.6 billion was raised in climate finance.

A UN-appointed independent expert group said that “the only realistic scenarios” for 2020 are that the target is not met.

Others have argued that the lack of clear definitions for what counts as climate finance “make it impossible to know if developed countries have delivered”.

Most public finance has been loans

Most climate finance is from public funds, usually from governments. In 2019 it was around 79% of the $79.6 billion provided.

Most public funds are provided as loans. Loans have increased from $19.8 billion in 2013 to $44.5 billion in 2019,  71% of the public climate finance provided in 2019.

In 2020, Oxfam estimated that in 2017/18 around 40% of $59.5 billion in public climate finance was non-concessional. Non-concessional finance broadly means loans issued on or above market interest rates, or with shorter grace periods.

The value of grants remained stable from 2016 to 2018 (around $12-13 billion per year), increasing to $16.7 billion in 2019. This was around 27% of public finance.

Most climate finance is from public funds, usually from governments. In 2019 it was around 79% of the $79.6 billion provided.

Around 87% of UK climate finance between 2014 and 2021 was delivered as grants (£4.9bn). Only 0.1% (£5.9 million) was delivered through loans.

Calls for more grants

In July 2021, the V20 group, which includes some of the countries most exposed to the effects of climate change, said loans are increasing their financial burdens. They called on donors to increase the proportion and value of grants provided.

The UN Expert Panel on Climate Finance has also said that by 2025, the value of grants needs to treble compared to 2018.

Oxfam has called for COP26 to reach agreement that non-concessional finance and loans should not be counted towards the UN $100bn target.

COP26: Achieving $100bn

The UK’s COP 26 President-Designate, Alok Sharma, has said that although $100bn is just a fraction of the investment needed to tackle the climate crisis, delivering it is a matter of maintaining trust.

The UK has increased its commitment to £11.6bn in the next four years. In recent months the US, Germany and Canada have also increased their pledges. Reports ahead of COP26 suggested total pledges were $10bn short of the target, but that further contributions where expected.

On 25 October 2021, the UK COP presidency published a Climate Finance Delivery Plan. This concluded that the $100bn target would be met, but not until 2023. The plan also sets out where developed countries will focus efforts: increasing finance, especially for adaptation; prioritising grant funding for poorer and most vulnerable countries; and addressing barriers to accessing finance.

What next?

Achieving and sustaining $100bn a year until 2025 is just one of the issues on Alok Sharma’s list central to the success of COP26. Another is delivery of climate finance beyond 2025. As is reviewing and providing guidance for multilateral climate funds, which the International Development Committee has criticised for their finance delivery.

Compensation and support for unavoidable climate change loss and damage in developing countries has yet to be fully addressed. It is a priority for Least Developed Countries and Small Island Developing States. It will also require agreement on levels and type of funding.

Further reading

COP26: The international climate change conference, Glasgow, UK, House of Commons Library.

About the authors: Elena Ares is a researcher specialising in climate change and Philip Loft is a researcher specialising in international development.

Photo by Rhema Kallianpur on Unsplash 

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