22-November-2023-Special-Article

WHAT THE OECD REPORT SAYS OF CLIMATE FINANCE AHEAD OF COP 28

The recently published OECD report reveals significant shortfalls in climate finance commitments made by economically developed countries, bringing attention to their failure in meeting the $100 billion per year target for climate mitigation and adaptation in developing countries. This issue carries crucial implications, especially as the COP 28 climate talks approach.

OECD Overview:

Establishment: Founded in 1961, succeeding the Organisation for European Economic Co-operation (OEEC) established in 1948.

Members: Initially European-focused, now comprises 38 member countries, including advanced and emerging economies.

Purpose: A forum for governments to collaborate on economic progress, world trade stimulation, and problem-solving.

Key Functions: Facilitates policy comparison, problem-solving, and policy coordination among its members.

Major Publications: Notable publications include the OECD Economic Outlook and the Programme for International Student Assessment (PISA) report.

Key Findings of the OECD Report:

Shortfall in Climate Finance: Developed nations mobilized $89.6 billion in climate finance in 2021, falling short of the $100 billion target.

Decline in Adaptation Finance: A 14% decrease in climate adaptation financing in 2021 compared to the previous year.

Significance of the OECD Report:

Representation of Developed Nations: Comprising affluent countries like the U.S., U.K., Germany, and others, the OECD provides insights into their climate finance priorities before COP 28.

COP 26 Pledge: The report follows the COP 26 commitment to double adaptation finance, highlighting the failure to meet the $100 billion goal on time.

Climate Finance Accountability and Issues:

Composition of Climate Finance: The report raises concerns about debt stress in developing countries due to a significant portion of public climate financing coming in the form of loans.

Loan Classification: Treatment of loans without considering grant equivalents may burden poorer nations with repayment obligations and interest.

‘Additionality’: UNFCCC mandates “new and additional” financial resources for climate purposes to prevent diversion from essential sectors like healthcare.

Lack of Defined Criteria: Developed nations resisting a clear definition of climate finance creates ambiguity in classifying funding types.

Double-Counting: Accusations of double-counting development aid as climate finance lead to misallocation of resources.

Climate Finance Needs and Future Projections:

2022 Status: Preliminary data suggests the $100 billion goal was likely met in 2022, but verification is pending.

Future Projections: Developing countries are projected to require $1 trillion annually for climate investments by 2025, emphasizing the inadequacy of the $100 billion goal.

Role of the Private Sector:

Stagnant Private Financing: Private sector involvement in climate finance faces challenges, with the OECD report indicating stagnant private financing for climate action.

Adaptation Challenges: Climate adaptation struggles to attract private investment due to lower potential returns compared to mitigation projects.

Conclusion:

The OECD report highlights the divergence between commitments and contributions of developed nations in climate finance. Addressing issues of loan classification, additionality, and establishing clear criteria for climate finance is essential for transparency and accountability. As developing countries grapple with escalating climate challenges, continued public funding from governments and multilateral development banks remains crucial to meeting their needs.

Mains Question:

1. The OECD report on climate finance exposes significant disparities between commitments and contributions of economically developed countries. Discuss the key findings of the report and analyze the challenges outlined, including those related to loan classification, additionality, and the role of the private sector. Also, suggest measures for enhancing transparency and accountability in global climate finance. (250 Words) 10M