Climate Finance: Treading water?


The Climate Policy Initiative Global Landscape of Climate Finance report is the nearest thing we have to an annual stocktake of finance aimed at climate change mitigation and adaptation. We spoke to CPI’s Padraig Oliver about the 2017 update.

The Landscape takes quite a purist view in its methodology, which has the upside of avoiding any double counting, but the downside of leaving some quite large gaps in its data.  For example, the report acknowledges $231 billion of investment related to energy efficiency identified by the IEA, but because this is not “project level” data[1], it is not included in the report.

The headline for 2017 is that, on CPI’s definition, climate finance actually fell in 2016, from a “high” of $437 billion in 2015 to $383 billion. CPI notes that in part the fall was due to the falling costs of technology, especially solar (meaning more capacity can be installed for less) and takes the ‘glass half full’ approach that the averages of 2015/16 was 12% higher than that for 2013/14.  Nonetheless, the outcome must surely be seen as disappointing, given the generally accepted recognition that we need to be accelerating hard between now and 2020 and then out to 2030, not cruising in the slow lane.  The report notes that “a broader scale up of investments across all sectors of the economy is needed. For the energy sector, including energy use in power, transportation, and buildings, the needs total over $1 trillion per year through 2050. Even more is needed in agriculture, forestry, water, and waste to enable a low-carbon transition, while adaptation finance needs are also pressing in order to minimize the costs of climate impacts that are already locked in”

A plus-point of CPI’s strict methodology is that changes in flows can be seen clearly within the universe.  This allows us to see, for example, that within the DFI sector, the contributions of national DFIs fell, while those of multilateral DFIs rose.  We can also see that the financing of adaptation as a fraction of public finance fell from 18% to 16%. (Though heading in the wrong direction, this is a better proportion, however, than the tiny fraction of overall finance that goes to adaptation – just 5% (or 7% if combined mitigation / adaptation projects are included).  The report does suggest that the proportion of public finance in the total has fallen in the past few years (from 40% to 34%), but this is not tied to any specific leverage metrics, so we can’t get draw any conclusions on this important measure of DFI success form the CPI data at present.

Geographically, CPI found a continuation of its past finding that the vast bulk of investment is domestic, i.e. raised and spent in the same country.  As would be expected, again the vast bulk of investment is in OECD countries, with East Asia and the Pacific doing best outside this bloc.  Flows in and to least developed areas such as Sub-Saharan Africa, remain tiny by comparison (just 3% of the total).

Positives that CPI finds in the overall outlook include NDC plans being elaborated upon to give clarity to potential investment opportunities, the greening of existing public finance flows, industry-wide discussions on use of climate- related financial risk disclosures and reporting, and greater use of new and innovative blended finance vehicles.

[1] That is, with information on the source of the finance, its destination, and the instruments used

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