Back to Blogs

The Wealthiest Nations Pledged to Give $100 Billion as Climate Aid. In 2021, They Aren’t Even Close

Broken Climate finance
Published on Oct 30, 2021

Every year, on April 22, the world celebrates Earth Day. The anniversary is a celebration of the modern environmental movement that was born in 1970.  

However, Earth Day in 2016 was extra special. On April 22, 2016, the Paris Agreement was opened for signatures. Today, over 190 countries have signed the ambitious agreement, pledging to deploy climate policies and innovate in technologies that reduce the impact of man-made climate change. 

leading climate authorities

The objective of the Agreement is to reduce greenhouse emissions to net-zero by 2050 and limit global temperature rise to 2 °C (3.6° F) in this century, if not 1.5 °C (2.7 °F), which would be ideal. If we don’t, climate-related disasters such as droughts, floods, and heatwaves will grow in frequency and intensity.  

However, what’s unfair is that the countries that contribute the most to greenhouse emissions also happen to be the wealthiest. But unlike developing and even poorer nations, wealthy nations possess the means to adapt to or mitigate the adverse effects of climate change. 

That’s the reason the Paris Agreement stipulated that the wealthiest nations channel $100 billion annually to their poorer counterparts by 2020. So that they, too, can adapt to or mitigate the adverse effects of climate change. 

What is climate finance
“If we don’t, climate-related disasters such as droughts, floods, and heatwaves will grow in frequency and intensity.”

But recent reports by leading climate authorities suggest that the promise for climate finance has been broken. The $100 billion target is out of reach. And while many argue that the pandemic slowed down progress, reports by the United Nations, Climate Police Initiative, and Oxfam conclude that contributions had plateaued before 2020.  

Even though the conclusions are unnerving, they have come through at the right time, just ahead of the Climate Change Conference 2021 or COP26, in Glasgow, UK. The question is, where did the money go? 

‘Completely unable to meet their obligations’ 

What’s interesting is that the members never established precisely what they ought to contribute. Even though the Paris Agreement lays firm emphasis on regulation and evaluation, the negotiators never agreed upon how to measure the contributions related to climate finance. 

How do we know the target is out of reach? Even though the official figures are yet to be released, separate studies by leading climate authorities have offered an estimate. A report, for example, by the Organization for Economic Co-operation and Development (OECD) estimates the figure to be around $80 billion in 2019, a slight rise from the $78 billion channeled in 2018. 

US $100 billion a year in climate finance by 2020
Source: Nature

The credibility of the report is in question since OECD is an intergovernmental body mostly comprising rich nations. Its assessment is based on reports mostly generated by countries that make the contribution, instead of coupling the data with reports generated by countries on the receiving end of the transaction. 

In any case, the estimated figure, rising from $78 billion in 2018 to $80 billion in 2019, is unlikely to have risen and surpassed $100 billion last year. In fact, reports by Multilateral Development Banks (MDBs) claim that the number actually fell through the COVID-19 pandemic. 

Actually, it gets worse. 

Data by Oxfam suggests that the figure is much lower. Oxfam, which stands for Oxford Committee for Famine Relief, is a group of independent aid organizations. It claims that the actual amount channeled in 2018 is north of just $19 billion—less than a third of what OECD’s data suggests. In fact, accusations of climate finance being inflated have been raised well before Oxfam published its data. Around $62 billion was reportedly channeled in 2014. However, India disputed the estimate, claiming it only received $1 billion. 

US contribution in climate change

What explains the discrepancy? 

According to the data published by OECD, climate aid is mainly composed of public grants and loans, while the rest constitutes private finance. Oxfam contests that not all loans should count since not all loans benefit middle- and low-income countries—only those borrowed at below-market rates. 

What’s more, many wealthy nations such as Japan have been accused of labeling non-climate aid as climate aid. Wealthy nations also provide development aid, say, for road construction. However, experts like Diann Black-Layne claim that the nations intentionally group development aid with climate aid to inflate their estimate. Why? To make it seem as though they have contributed more than they have. 

In any case, the fact remains that the target seems to be out of reach. As Nature has written, the wealthiest members have been ‘completely unable to meet their obligations.’ 

And who has contributed the least? Given the size of its economy, emissions, and population, the United States has contributed the least compared to nations like France and Germany. According to World Resources Institute (WRI), the US should contribute at least 40% of the aid. However, the superpower has fallen far short, contributing just over $7 billion. 

US share in climate change -  Grants & Loans
Source: Nature

In response, the US has pledged to contribute $11.4 billion in annual aid by 2024—almost double what it currently contributes. Indeed, ahead of COP26, many have re-affirmed their pledge. Canada, Japan, Germany did it last year. So did Denmark, the Netherlands, and the UK. 

Read more: Australia’s New Renewable Record and What’s Next for Solar in 2022 

That’s great. But will the contributions be balanced? 

Adaptation, mitigation, and fixing climate finance 

The Paris Agreement demands that climate aid be equal for adaption and mitigation. However, historically, it has been dominated by mitigation.  

Investments in mitigation help the recipients reduce emissions. Middle- and low-income nations can use the aid to develop solar farms and electric cars, for example. On the other hand, investments in adaption help them to adapt to the changes brought on by climate change. Repairing damages caused by climate-related disasters is an example.  

Why is mitigation aid more favorable? 

Mitigation aid is more favorable because its contributions are much easier to quantify. A reduction in emissions, for example, is clear and measurable. In contrast, what constitutes the success of adaption aid is less clear. Also—and this is crucial—adaptation aid offers no return on investment. It merely helps people adapt. That’s all. 

fix climate finance

As a consequence, mitigation aid has been consistently greater than adaption aid—more than double in 2019. And the more the wealthy nations invest in mitigating climate change, the less they get to invest in adapting to its impact. Adaption costs are already high, and the UN estimates they will reach $300 billion by 2030. And why leave it at mitigation and adaptation? What about the loss and damage that are irreversible, that can’t be adapted to? 

Read more: 43% Of the World’s Largest Companies Struggle to Drive Sustainable Growth. Here’s Why 

Mitigation, adaption, and loss and damage costs are rising and may seem harder and harder to cover. But they really aren’t.  

Climate transactions reached $640 billion in 2020. That may seem a lot, but is actually less than 1% of the world’s GDP. Even at $1 trillion, we’re quite behind on what we ought to invest to achieve the objectives outlined in the Paris Agreement—between an estimated $1.4 trillion to $4 trillion, according to the UN. 

How can we raise more funds? Well, one way is to take them out of other funds. The global expenditure on military and defense last year was over $2 trillion. Shockingly, a whopping $500 billion was spent on subsidizing the fossil fuel industry. 

What is climate finance
“A whopping $500 billion was spent on subsidizing the fossil fuel industry.”

There are valid arguments as to why we can’t defund, say, the fossil fuel industry. The industry provides the livelihood of millions of people, and defunding it, or letting prices rise, would affect the economy. But the sum could also be invested in education and training. In the long run, the investment will pay off, when we eventually go fully green. 

Read more: “COVID’s Starkest Lesson”: Global Data Is Broken. Here’s How to Fix It 

We can fix climate finance if we want to fix climate finance. 

With offices in New York, Austin, Seattle, London, Zurich, Pune, and Hyderabad, SG Analytics is a leading research and analytics company that provides tailor-made services to enterprises worldwide. If you’re looking to make critical data-driven decisions, decisions that enable accelerated growth and breakthrough performance,contact us today.


Contributors