Climate Finance Provided and Mobilised by Developed Countries in 2013-18

1. Aggregate trends

This chapter highlights the evolution of annual levels of climate finance provided and mobilised by developed countries for developing countries in 2013-18 in the context of the United National Framework Convention on Climate Change (UNFCCC). This chapter first presents an overview of main trends, followed by more detailed analyses presented by climate focus, financial instrument, and sector.

The accounting framework for this analysis is consistent with that used in the previous two OECD reports on climate finance provided and mobilised by developed countries for developing countries (OECD, 2019[1]; OECD, 2015[2]), and on related climate finance projections (OECD, 2016[3]). The framework is also aligned with the outcome of the UNFCCC COP24 on funding sources and financial instruments for the accounting of financial resources provided and mobilised through public interventions (UNFCCC, 2019[4]). The analysis is based on four distinct components:

• Bilateral public climate finance;

• Multilateral public climate finance attributed to developed countries;

• Climate-related officially-supported export credits; and

• Private climate finance mobilised by bilateral and multilateral public finance, attributed to developed countries.

Figures for the first three components are calculated using consistent methodologies and datasets over 2013‑18, complemented with estimates where needed (e.g. one-off partial data gaps in specific years). For these three components, the report, therefore, presents analyses over 2013-18.

In contrast, methods and data that underpin the mobilised private finance component significantly evolved over time, reaching greater maturity in more recent years. The private climate finance figures for 2013-14, which were estimated based on best available (sometimes semi-aggregate) co-financing data from providers at the time (OECD, 2015[2]), are not directly comparable with data for 2016 onwards. As explained in (OECD, 2019[1]) and summarised in Annex B of the present report, the latter are based on improved methods and standardised activity-level data collected on that basis by the OECD DAC (OECD, 2020[5]). The progressive implementation of these improved methods, including in terms of climate marking of mobilised private finance data, results in a data gap in the time series in 2015. Hence, analyses of total climate finance provided and mobilised by developed countries and of the mobilised private climate finance component focus on the period 2016-18.

The climate finance figures presented in this report do not capture all finance for climate action in developing countries. Due to the geographical scope, the figures include neither developing countries domestic public climate finance, nor bilateral public climate finance between developing countries in the context of the so-called “South-South” cooperation, nor multilateral and mobilised private climate finance attributable to developing countries themselves. Further, the figures presented include neither private finance catalysed by public policy interventions, for which there remains a lack of measurement methodology, nor private finance invested in the absence of public interventions altogether.

1.1. Overview across the four components

Since 2013, total climate finance provided and mobilised by developed countries has increased, reaching USD 78.9 billion in 2018. Over the period of 2016-18, for which the total volumes are comparable, climate finance grew by 22% between 2016 and 2017 (from USD 58.6 billion to USD 71.2 billion) and by 11% between 2017 and 2018 (Figure 1.1).

Public climate finance represents the largest share of total climate finance provided and mobilised, reaching USD 62.2 (79% of the total) in 2018, and is the main driver of the overall rising trend since 2013. This observation applies to both the bilateral and the multilateral climate finance components, which together constitute more than three-quarters of the annual totals in 2016-18. In particular:

• Bilateral climate finance has followed an upward trend over the six-year period despite a slight drop in 2017. In 2018, bilateral public climate finance reached USD 32.7 billion, the highest volume for this component during the period covered, representing a 45% increase compared to 2013 (USD 22.5 billion). Since 2013, bilateral public climate finance has increased on average by USD 2 billion per year.

• Multilateral climate finance attributed to developed countries has been increasing too, despite a drop in 2015, with the 2018 figure (USD 29.6 billion) reaching almost double its 2013 value (USD 15.5 billion). Since 2013, multilateral public climate finance increased on average by USD 2.8 billion per year.

Figure 1.1. Climate finance provided and mobilised (2013-18, USD billion)

Note: “Multilateral public” does not represent total outflows from multilateral institutions to developing countries but only the share calculated by the OECD as attributable to developed countries. The data gap in 2015 for mobilised private finance results from the implementation of enhanced measurement methods (see (OECD DAC, 2020[6]). As a result, grand totals in 2016-17 and in 2013-14 are not directly comparable.

Source: based on Biennial Reports to the UNFCCC, OECD Development Assistance Committee statistics, OECD Export Credit Group statistics, as well as complementary reporting to the OECD.

Volumes of officially-supported export credits and mobilised private climate finance fluctuated throughout the period, including due to variations in annual commitments. Given the increase in public climate finance, both components represent a smaller share of total climate finance in 2018 compared to 2017 and 2016.

Officially-supported export credits (guarantees and loans, see Annex B) for climate-related activities fluctuated around an average of USD 2 billion per year since 2013. They represent a small and decreasing share of the total climate finance provided and mobilised. This trend may be in part due to the difficulties in comprehensively tracking climate-related export credits, in particular in capturing relevant activities beyond the renewable energy sector (Annex B).

Private climate finance mobilised by developed countries grew by USD 4.4 billion (43%) between 2016 and 2017; i.e. from USD 10.1 billion to USD 14.5 billion. Between 2017 and 2018 it increased by USD 0.1 billion. Chapter 3 provides further analyses of mobilised private climate finance, including in contrast to private finance mobilised for non-climate projects.

1.2. Thematic split

Over the period of 2016-18, for which the grand totals are comparable, climate finance targeting mitigation and adaptation objectives was on the rise on a year-by-year basis (Figure 1.2). Adaptation finance grew by an annual average of 29%, from USD 10.1 billion in 2016 to USD 16.8 billion in 2018. However, tracking finance for climate change adaptation remains challenging, as highlighted in Box 1.1. Mitigation finance increased mainly from 2016 to 2017 when it grew from USD 42.2 billion to USD 52.3 billion (+24%), and subsequently more modestly to reach USD 55 billion in 2018 (i.e. an annual average growth of 15%). Finance for cross-cutting objectives (which is mostly reported by bilateral providers, much less so by multilateral institutions) first decreased from USD 6.2 billion in 2016 to USD 5.5 billion in 2017 but rose subsequently in 2018, when it reached USD 7.1 billion (an increase of 15% from 2016).

Figure 1.2. Thematic split of climate finance provided and mobilised (2013-18, USD billion)

Source: based on Biennial Reports to the UNFCCC, OECD Development Assistance Committee statistics, as well as complementary reporting to the OECD.

In relative terms, mitigation continues to represent over two-thirds of total climate finance provided and mobilised. Adaptation finance, however, grew slightly in relative terms, from 17% in 2016 to 21% in 2018 Figure 1.2. Finance for cross-cutting activities fluctuated slightly between a minimum of 7% of the total and a maximum of 11% of the total over the 2013-18 period.

Box 1.1. Tracking adaptation-related development finance

The Intergovernmental Panel on Climate Change (IPCC) (2018[7]) defines adaptation as the process of adjustment of human and natural systems to actual and expected adverse effects of climate change, differentiating between incremental and transformational adaptation. Incremental adaptation “maintains the essence and integrity of a system or process at a given scale.” Transformational adaptation “changes the fundamental attributes of a socio-ecological system in anticipation of climate change and its impacts.” Continued incremental adaptation may accrue to transformational adaptation.

The adoption of the Paris Agreement raised the profile of climate change adaptation with the establishment of a global goal of “Enhancing adaptive capacity, strengthening resilience and reducing vulnerability to climate change, with a view to contributing to sustainable development and ensuring an adequate adaptation response in the context of the temperature goal referred to in Article 2” (Article 7.1). The Agreement further recognises that adaptation is a global challenge faced by all with local, subnational, national, regional and international dimensions (Article 7.2). Potential areas of collaboration for adaptation are elaborated in Article 7.7 and potential areas of focus in Article 7.9. This is complemented by a call for scaled-up financial resources to aim for a balance between adaptation and mitigation (Article 9.4). Further, the Agreement includes the establishment of adaptation communications as a means for countries to highlight their adaptation priorities, implementation and support needs, plans and actions (Article 7.10) (UNFCCC, 2015[8]).

Outside of the UNFCCC processes, the OECD Rio markers (OECD DAC, 2016[9]) and the joint MDB methodology for tracking climate finance (MDBs, 2020[10]) recommend a three-step approach for identifying adaptation-related finance (Table 1.1). While the two reporting frameworks are independent, the OECD eligibility criteria were informed by the already established joint MDB methodology when it underwent review and revision in 2015.

Table 1.1. Key steps of MDBs’ and OECD Rio markers approach to track adaptation finance

MDB joint methodology	OECD DAC
Set out the climate-change vulnerability context of the project Make an explicit statement of a project’s intent to reduce climate vulnerability Articulate a clear and direct link between specific project activities and the project’s objective of reducing vulnerability to climate change.	Set out the context of risks, vulnerabilities, and impacts related to climate variability and climate change State the intent to address the identified risks, vulnerabilities, and impacts in project documentation Demonstrate a clear and direct link between the identified risks, vulnerabilities, and impacts and the specific project activities

Source: (MDBs, 2020[10]), (OECD DAC, 2016[9]).

The OECD Rio markers differentiate between commitments that include adaptation as a principal (or primary) objectives or as a significant (or secondary) objective. The full amount of commitments marked either principal or significant is reported in the OECD Creditor Reporting System (CRS). Many OECD members draw on the Rio-marked data when reporting their climate finance to the UNFCCC. In doing some, most adjust the amount reported, notably by applying coefficients (also see Annex B). The MDBs use a component approach which means that for each individual commitment an assessment is made to the determine the component focused on adaptation objectives and only that component is reported as adaptation, in their own reporting systems but also in the OECD CRS.

1.3. Instrument split

Over the period 2013-2018, the growth of public climate finance provided by developed countries (bilateral and multilateral attributed combined, excluding export credits) was mainly driven by developmental loans (Figure 1.3). Loans more than doubled from USD 19.8 billion in 2013 to USD 46.3 billion in 2018. After an initial fluctuation around USD 10 billion in 2013-15, grant financing grew to USD 12 billion in 2016 and retained similar values in the next two years. Equity appears as a marginal instrument during the six-year period, oscillating around USD 1 billion. In relative terms, the share of loans in public climate finance rose from 52% in 2013 to 74% in 2018 while the share of grants decreased from 27% in 2013 to 20% in 2018.

Figure 1.3. Public climate finance provided per instrument (2013-18, USD billion)

Note: Figures exclude export credits and mobilised private finance. Guarantees relate specifically to United States bilateral climate finance data, which includes developmental guarantees. For other bilateral providers and multilateral institutions, developmental guarantees are instead accounted for their mobilisation effect on private finance.

Source: based on Biennial Reports to the UNFCCC, OECD Development Assistance Committee statistics, as well as complementary reporting to the OECD.

As highlighted by previous OECD analyses (OECD, 2019[1]) and illustrated in Box 1.2, a majority (72%) of bilateral loans provided during 2016-18 were concessional according to ODA-related criteria. Multilateral providers do not extend concessional finance based on ODA-related considerations but rather on the income group status of the recipient. On that basis, 54% of loans committed by multilateral climate funds were reported as concessional. In contrast, the majority (76%) of MDB loans were labelled as non-concessional since they are for a large share provided to recipients outside the low-income countries (LICs) category. In practice, such non-concessional multilateral loans still present favourable terms and conditions compared to the capital market and/or are provided for activities in which the private sector may be reluctant to participate.

Breaking down the use of different public finance instruments by climate focus (Figure 1.6), equity investments and loans predominantly targeted mitigation objectives (89% and 75% respectively). In contrast, grants focused on adaptation and cross-cutting activities (38% and 29% respectively). The climate theme composition of grant and equity public finance was stable over the three years, in relative terms. On the other hand, the use of loans for adaptation increased from 16% in 2016 to 24% in 2018, while the share of loans for mitigation finance decreased from 79% in 2016 to 70% in 2018.

Box 1.2. Concessionality of loans: elements of definitions and illustrations

A concessional loan is extended to a borrower on more preferential terms than those available on the market. Such preferential terms may include below-market interest rates, extended grace periods, or a combination of both. Concessionality is an essential part of development finance. The reporting of concessional and non-concessional loans is, however, underpinned by different definitions for DAC members (bilateral donors and the EU) on the one hand and for multilateral development banks (MDBs) and other lending multilateral institutions on the other.

Concessionality of loans for DAC members

For DAC members, the level of concessionality of a loan is a core criterion for its eligibility to qualify as ODA. Concessionality is assessed through the “grant element” calculation, i.e. an assessment of the financial terms that takes into account four factors: the interest rate, the grace period, the maturity, and the discount rate. A loan is considered concessional if its grant element is above 10% for UMICs, 15% for LMICs or 45% for LDCs and other LICs. Furthermore, loans whose terms are not consistent with the IMF Debt Limits Policy or the World Bank’s Non-Concessional Borrowing Policy are not reportable as ODA. Development finance loans that do not qualify as ODA are recorded as Other Official Flows (OOF). On that basis, and as highlighted in Figure 1.4, almost three-quarters (72%) of climate finance loans committed by DAC members in 2016-18 were concessional. The share of concessional loans committed by DAC members grew from 65% in 2016 to 80% in 2018 (+15%), noting that concessionality was unspecified for 20% of DAC members’ loans in 2016.

Figure 1.4. Bilateral climate finance loans by concessionality level, (2016-18, %)

Source: based on Biennial Report to the UNFCCC.

Concessionality of multilateral loans

For lending by multilateral organisations (i.e. MDBs and multilateral climate funds), concessionality does not relate to a grant-element calculation, but rather to their ability to extend credit on financially-sustainable terms, based on their own financing costs. Multilateral concessional loans require external grant resources to be financially sustainable. Non-concessional loans are financially sustainable solely based on multilateral organisations’ low cost of funding and preferred creditor status. Non-concessional multilateral loans may, therefore, be extended on more preferential terms than those available on the market terms. The use of concessional or non-concessional loans by multilateral organisations depends on the recipient country’s income level as well as considerations for its creditworthiness and debt sustainability. In general, MICs and HICs can access non-concessional multilateral loans. On that basis, as highlighted in Figure 1.5 over three-quarters (77%) of MDB loans committed in 2016-18 were reported as non-concessional. On the other hand, 54% of loans extended by multilateral climate funds over the same period were reported as concessional.

Figure 1.5. Multilateral climate finance loans by concessionality level (2016-18, %)

Source: based on OECD Development Assistance Committee statistics.

Figure 1.6. Public climate finance provided by climate focus and instrument (2016-18, %)

Source: Based on Biennial Reports to the UNFCCC, OECD Development Assistance Committee statistics, as well as complementary reporting to the OECD.

Over 2016-18, the majority of climate-related export credits (72%) were provided in the form of credit risk guarantees to the lender against non-repayment by the borrower, while export credit loans represented (24%). For the remaining 4%, the instrument was unspecified. Data on private climate finance mobilised do not currently allow for an analysis by financial instrument as this information has not been collected thus far. Chapter 3, however, provides insights about the types of public finance mechanisms used by developed countries to mobilise private climate finance.

1.4. By sector

The energy sector, followed by the transport and storage sector were the most targeted sectors in the context of total climate finance provided and mobilised by developed countries in 2016-18 (Figure 1.7). With a yearly average of USD 23.8 billion, climate finance provided and mobilised towards energy accounted for 34% of the three-year average, followed by transport and storage (USD 9.7 billion; 14%), agriculture, forestry and fishing (USD 6 billion; 9%), water and sanitation (USD 5.2 billion; 7%) and banking and business services (USD 3.4 billion; 5%). Climate finance provided and mobilised for other sectors amounted to USD 13.4 billion (19%) per year on average during the three-year period, mainly including general environmental protection, health, education, other social infrastructure and multisector. The beneficiary sector was unspecified for the remaining 11% (USD 7.9 billion) of the three-year average.

Figure 1.7. Sectoral breakdown of climate finance provided and mobilised (2016-2018, %)

Source: based on Biennial Reports to the UNFCCC, OECD Development Assistance Committee statistics, OECD Export Credit Group statistics, as well as complementary reporting to the OECD.

Breaking down climate finance provided and mobilised in different sectors by climate focus (Figure 1.8), mitigation finance is clearly dominant in the energy (96%) and transport and storage (88%) sectors, as well as in the industry, mining and construction sectors (82%) and banking and business services (79%). In contrast, adaptation finance represented the largest share in water and sanitation (63%), agriculture, forestry and fishing (52%) and other social infrastructure (44%). The sectors where cross-cutting finance played a significant included general environment protection (39%), agriculture, forestry and fishing (20%) and multisector (17%).

Figure 1.8. Climate focus of climate finance provided and mobilised by sector (2016-18, %)

Source: based on Biennial Reports to the UNFCCC, OECD Development Assistance Committee statistics, OECD Export Credit Group statistics, as well as complementary reporting to the OECD.

Focusing on the sectoral breakdown in individual climate themes (Figure 1.9), almost two-thirds of climate finance provided and mobilised for mitigation during 2016-18 was primarily distributed over the energy (46%) and transport and storage sectors (17%). Around half adaptation finance provided and mobilised for the water and sanitation (24%) and the agriculture, forestry and fishing (23%) sectors, with 35% distributed over other sectors, including the broad category of general environmental protection and multisector as well as health, education and other social sectors.

Figure 1.9. Sectoral distribution of climate finance provided and mobilised by focus (2016-18, %)

Source: based on Biennial Reports to the UNFCCC, OECD Development Assistance Committee statistics, OECD Export Credit Group statistics, as well as complementary reporting to the OECD.

Box 1.3. Focus on climate finance in the energy sector

The energy sector represented 34% of total climate finance provided and mobilised by developed countries over 2016-18, the highest share among all sectors. This represented USD 23.8 billion per year on average, out of which:

• USD 12.5 billion (53%) targeted projects for energy generation from renewable sources, particularly solar, wind, and hydropower;

• USD 1.2 billion (5%), targeted energy generation from selected non-renewable sources, mainly including natural gas-fired, hybrid, and waste-fired electric power plants. Coal-related finance is excluded altogether from these and earlier volumes;

• USD 2.2 billion (9%) was allocated to energy distribution (both electricity and gas);

• USD 7.8 billion (33%) related to energy policy, efficiency, or unspecified activities in the energy sector (referred to as ‘energy, general’).

Figure 1.10. Breakdown of climate finance provided and mobilised in the energy sector (2016‑2018, %)

Source: based on Biennial Reports to the UNFCCC, OECD Development Assistance Committee statistics, OECD Export Credit Group statistics, as well as complementary reporting to the OECD.

Out of the USD 23.8 billion per year on average, 61% consisted of public climate finance from bilateral and multilateral providers, mostly in the form of loans (84% of public finance provided) and to a lesser extent grants (13%) and equity investments (2%). A further 33% of total energy-related climate finance was mobilised from the private sector and the remaining 6% related to officially supported export credits. Overall, 96% of energy-related climate finance targeted climate change mitigation. The shares of loans, mobilised private finance and mitigation in the energy sector are significantly higher than for all sectors.

Asia benefitted from the highest portion (46%) of energy-related climate finance. This is mainly driven by large sums allocated to South Asia and East Asia. Africa and the Americas represented approximately a quarter each (26% and 22% respectively).