Central Idea

A recent report published by the OECD reveals that economically developed countries failed to fulfill their commitment to jointly mobilize $100 billion per year for climate mitigation and adaptation in developing countries in 2021, missing the 2020 deadline.
The report’s findings have significant implications for the upcoming COP 28 climate talks in the United Arab Emirates, where climate finance is expected to be a contentious issue.

Organisation for Economic Cooperation and Development (OECD)

Establishment: Founded in 1961, succeeding the Organisation for European Economic Co-operation (OEEC) which was established in 1948 to help administer the Marshall Plan for the reconstruction of Europe after World War II.
Members: Initially European-focused, it now includes 38 member countries from across the globe, including many of the world’s most advanced economies and some emerging economies.
Purpose: To stimulate economic progress and world trade. It’s a forum where governments can work together to share experiences and seek solutions to common problems.
Key Functions: Provides a platform for comparing policy experiences, seeking answers to common problems, identifying good practices, and coordinating domestic and international policies of its members.
Major Publications: Includes the OECD Economic Outlook, the OECD Employment Outlook, and the Programme for International Student Assessment (PISA) report.

Shortfall in Climate Finance: Developed countries mobilized $89.6 billion in climate finance in 2021, falling short of the $100 billion target.
Decline in Adaptation Finance: The report highlights a 14% decrease in financing for climate adaptation in 2021 compared to the previous year.

Representation of Developed Nations: The OECD consists of affluent countries such as the U.S., the U.K., Germany, France, Switzerland, and Canada, providing insights into their climate finance priorities before the COP 28 talks.
COP 26 Pledge: The report follows a commitment by developed nations at COP 26 in 2020 to double adaptation finance and acknowledges their failure to meet the $100 billion goal on time.

Composition of Climate Finance: The report reveals that a significant portion of public climate financing comes in the form of loans, raising concerns about debt stress in developing countries.
Loan Classification: The report’s treatment of loans without considering grant equivalents can exacerbate the burden on poorer nations, as loans may require repayment with interest.
‘Additionality’: The UNFCCC mandates that developed countries provide “new and additional” financial resources for climate purposes, preventing the diversion of funds from other essential sectors like healthcare.
Lack of Defined Criteria: Developed countries have resisted efforts to establish a clear definition of climate finance, allowing ambiguity in classifying various types of funding.
Double-Counting: Some developed countries have been accused of double-counting development aid as climate finance, leading to the misallocation of resources.

The OECD report suggests that $100 billion was likely met in 2022, but this data remains preliminary and unverified.
Developing countries are projected to require approximately $1 trillion annually for climate investments by 2025, escalating to $2.4 trillion per year from 2026 to 2030, highlighting the inadequacy of the $100 billion goal.

The OECD report on climate finance underscores the gap between promises made by developed nations and their actual contributions.
Issues of loan classification, additionality, and a lack of clear criteria for climate finance need to be addressed for greater transparency and accountability.
As developing countries face growing climate-related challenges, public funding from governments and multilateral development banks remains crucial to meeting their needs.