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ACCOUNTING COUNTS

No one knows how $80 billion in climate financing was spent in 2019

A thermosolar power plant near the city of Ouarzazate, Morocco
Youssef Boudlal / Reuters
A thermosolar power plant near the city of Ouarzazate, Morocco.
  • Samanth Subramanian
By Samanth Subramanian

Looking into the Future of Capitalism

Published

Over the past decade, rich nations and private enterprises have raised at least $500 billion to help developing countries cope with climate change. This financing plan, hatched in 2009, was supposed to build to an annual mobilization of $100 billion by 2020, and was designed to offset the unfairness of climate change—of poor countries suffering because rich countries had already emitted their way to wealth.

Developed countries, as we’re finding out now, have missed that $100 billion target. Just as importantly, though, it turns out that no one—no individual, no government, no multilateral agency—knows precisely how all this climate funding is being spent, or even if it’s being spent at all. Even the best such database, maintained by OECD, is a broad-brush one and has many gaps—not least in the details of private financing. The very term “climate financing,” in fact, has often proved to be slippery and malleable, defined by parties according to their own need or convenience.

At the COP26 climate summit in Glasgow, scheduled to end on Nov. 12, ever-bigger climate financing numbers are being proposed: $130 trillion from a private sector consortium, an annual $1 trillion demanded by India, an annual $1.3 trillion demanded by African nations. But without a way to track how this money is used, these larger numbers “feel like greenwashing,” said Liane Schalatek, associate director of the Heinrich-Böll-Stiftung, a policy think tank headquartered in Berlin. “It isn’t just, ‘Tell me the number,’ it should also be, ‘Show me how the number is computed,’ otherwise it’s a fig leaf.”

Insofar as some funds are more important than others, these climate financing funds are among the most important quantities of money in the world; human civilization itself hinges on whether these funds are raised in full and spent well. The absence of a detailed, publicly available account of this financing, said Schalatek, risks all sorts of omissions: donors mislabelling their funding, or money being misspent, or an under-estimation of the true volume of money required. Which, in turn, risks leaving the world far less prepared for climate change than it needs to be.

How much money are countries raising to fight climate change?

In 2019, the last year for which the OECD has published full data, rich countries raised nearly $80 billion as part of their climate financing pledge. Most of this was either in the form of bilateral funds—loans or grants from one government to another—or multilateral public funds, whereby developed countries channeled their money through international banks or climate funds. The money is intended to help developing countries both mitigate the effects of climate change—including investing in cleaner energy sources—as well as adapt to a harsher climate.

The data available on these funds, Schalatek said, resembles an onion. At the core are projects for which the most details are available: those financed through multilateral agencies. Schalatek’s team tracks a portion of these, “covering the most important multilateral climate funds,” she said, “although we don’t know what fraction it is of the overall multilateral funding.” In the Heinrich-Böll-Stiftung database, for instance, grants can be found:

  • from the Global Environment Facility, in 2014, of $2.78 million to Argentina to introduce biogas technologies into the national waste management program
  • from the Green Climate Fund, in 2019, of $9.68 million to Bangladesh to build plinths that raise the land of high-risk villages above any potential climate-related floods
  • from the Adaptation for Smallholder Agricultural Programme, in 2015, of $4.56 million to Liberia to improve the climate resilience of its cocoa and coffee crops

Moving outward through the other layers of the onion, though, the details get less granular, Schalatek said. “Lots of bilateral initiatives, for instance, don’t give you a project-by-project breakdown.” A report by the non-profit Climate Policy Initiative (CPI), analyzing climate financing initiatives in 2019 and 2020, found, for instance, that “finance for buildings with high energy and thermal insulation  performances—green buildings—is growing fast but lacks transparency.” Even many multilateral funding efforts can only be slotted into broad categories: agricultural development, for example, or disaster risk reduction. As a result, Schalatek said, “there’s less data accuracy, more guesswork.”

Are rich countries greenwashing their climate funding pledges?

Another source of doubt has to do with how rich countries label the money they’re disbursing. Under the OECD system, countries attach a so-called “Rio marker” to any funds they claim to be pledging under the climate assistance rubric. The marker can either be a “2,” to signal that the money’s main purpose is climate-related, or a “1,” to signal that a significant part of the money’s purpose is climate-related.

But Schalatek pointed out that no standards exist for what the term “significant” might mean. Each country merely decides this for itself. “That makes the ‘significant’ tag very, very fishy,” she said. “There’s a risk that countries will overuse the ‘significant’ marker and inflate the overall amount of money they’re giving. There has been a lot of mislabelling—or uplabelling, you could call it—going on.”

Indeed, a study of the OECD database reveals projects that sound like traditional forms of assistance but that have been described as climate-related. Finland, for instance, gave Ethiopia a grant of $4.47 million to develop its water supply and sanitation systems, and labeled the money with a “1.” But water aid projects have existed for decades, and it is arguable whether the purpose of this grant—at least as described in the OECD database—has “significant” relation to climate change. Some examples are even more egregious. Baysa Naran, a senior analyst who co-authored the CPI report, pointed out that her team had to regularly leave out projects that were tagged as climate financing but that were nothing of the sort: “energy-efficient coal, for instance.”

At Glasgow, developing countries called for tighter definitions of climate financing, and the United Nations Framework Convention on Climate Change is attempting to bring more transparency to the funding initiatives. There are so many undefined areas, Naran said. “Which sectors do you count for mitigation, and which for adaptation? Do you count loans, or should only the equivalents of grants be considered climate finance? Some countries channel a lot of money through multilateral institutions, which then channel money to climate finance. In those situations, how do you account for each country’s contribution?”

Measuring what countries are ponying up thus becomes very tricky, Naran noted. “There’s no third party that reviews and audits and makes independent conclusions about this financing,” she said. “It’s going to be a very difficult topic to reach a united agreement on.”

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