Climate Finance
Is G7 Really Ambitious in Tackling Climate Change?
Exploring OECD DAC statistics after controversial G7 Summit from the perspective of climate finance
The 47th G7 summit, which was held on 11–13 June 2021 under the British presidency, was a summit with great hopes about what measures developed countries would take to find a solution to climate change. However, the result was the target of severe criticism from a vast majority of the public.
The G7 group, which consists of the seven largest economies in the world, in which the European Union is represented in addition to the US, Germany, the United Kingdom, France, Italy, Japan, and Canada, constitutes approximately 45% of the global nominal GDP as of today. Considering that this rate was around 70% about 30 years ago, the main reason behind this decline is that two major economies such as China and India were not included in the group. A similar pattern can be seen in global greenhouse gas emissions as well. By 2020, the G7 causes 24% of total greenhouse gas emissions, while this figure was 42% in 1990. However, it is estimated that this rate will decrease to 21% in 2030 in the projections.
With this background, the G7 was a meeting in which it was hoped that developed countries would make concrete commitments to find solutions to climate change before an important meeting such as the United Nations Framework Convention on Climate Change (UNFCCC) 26th Conference of Parties (COP26). However, the result was subjected to severe criticism from the public.
Before the meeting, the UK Presidency announced the following priority areas for the summit;
- leading the global recovery from coronavirus while strengthening resilience against future pandemics;
- promoting future prosperity by promoting free and fair trade;
- combating climate change and protecting biodiversity; and
- to defend global common values such as democracy.
What is the meaning of the Summit for Climate Finance?
The agenda that the G7 countries will take action on in the final declaration of the G7 consists of following subjects;
- End the pandemic and prepare for the future,
- Reinvigorate our economies,
- Secure our future prosperity,
- Protect our planet,
- Strengthen our partnerships,
- Embrace our values.
Under the Environment and Climate Change section of the declaration, it was stated that while the expressions about the necessity of increasing global financial flows were included, the avoidance of a concrete and detailed plan was noted. In this context, the commitment to provide $100 billion annually to developing countries to combat climate change by developed countries, using public and private sector resources, was reiterated until 2025. In addition, G7 countries indicated that they would increase their contribution to international climate finance resources and other developed countries were invited to participate in these efforts.
The importance of adaptation finance was also addressed in the communique. It is stated that “Recognizing the importance of adaptation in our national planning, we also commit to submitting adaptation communications as soon as possible, and if feasible by COP26”.
Another remarkable sentence in the declaration was that the G7 was aware of the difficulties in financing the transition to net-zero emission economies for developing countries, and in this context, it was emphasized that it would adhere to bilateral and multilateral commitments for meaningful and transparent decarbonization activities to be carried out in these countries. When we look between the lines, it would not be wrong to think that net zero-emission strategies or ambitious decarbonization plans are expected to be established in the access of developing countries to financial resources in the upcoming period. In this context, it is highly possible that international development finance institutions, in which developed countries have a say as donors, have such an expectation from developing countries, both in the framework of bilateral financing and in loan and grant agreements.
The target of $100 billion annually for developing countries in the scope of climate change was the focus of attention before and after the meeting. So much so that before COP26, various academics and researchers called on developing countries, especially the G77 and China, to lock the negotiations, as concrete plans for this goal were not announced.
Details of the annual target of 100 billion USD
The mobilization of an annual financing source $100 billion to combat climate change first came into our lives as a result of the famous UNFCCC COP15. When the countries could not reach an agreement at the end of long and contentious negotiations, a group of countries led by developed countries published a consensus text under the name of Copenhagen Accord (2/CP.15).
“…developed countries commit to a goal of mobilizing jointly USD 100 billion dollars a year by 2020 to address the needs of developing countries. This funding will come from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources of finance.”
The annual target of $100 billion, which was first set here, became recognized in the following year, with the 1/CP.16 para.98 as a result of the 16th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP 16) held in 2010.
With this decision developed country parties commit to the target of jointly mobilizing $100 billion per year by 2020 to meet the needs of developing countries, subject to meaningful emission action and transparency in implementation.
This commitment was also included in the historical Paris Agreement. With the first paragraph of Article 9 of the Paris Agreement, it is stated that “Developed country Parties shall provide financial resources to assist developing country Parties with respect to both mitigation and adaptation in continuation of their existing obligations under the Convention” and with paragraph 3 of Article 9 it is stated that, “…developed country Parties should continue to take the lead in mobilizing climate finance from a wide variety of sources, instruments and channels, noting the significant role of public funds…”
In addition, per paragraph 53 of the decision 1/CP.21 to which the Agreement is annexed; “…developed countries intend to continue their existing collective mobilization goal through 2025 in the context of meaningful mitigation actions and transparency on implementation; prior to 2025 the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement shall set a new collective quantified goal from a floor of $100 billion per year, taking into account the needs and priorities of developing countries”. All these decisions taken in the negotiations make us think that developed countries should take their annual commitment of $100 billion seriously.
In addition to these, we need to touch on the issue of adaptation which is also emphasized in the G7 summit communique. In article 9 paragraph 4 of the Paris Agreement, parties decided that “The provision of scaled-up financial resources should aim to achieve a balance between adaptation and mitigation…”. This expression leads to the so-called 50–50 distribution of funds between adaptation and mitigation. Thus it is also crucial to observe the development of finance flows with keeping this decision in mind.
As for the point we have reached, it is important to determine how we perform in reaching the mentioned goal. Several studies to understand where we stand today in annual funding commitments suggest that UNFCCC Parties’ reporting on climate finance under the Convention and established procedures for OECD Development Assistance Committee (DAC) members to report climate-related development finance to the DAC statistical system can provide a reasonable basis for reporting on international climate finance and $100 billion delivery.
In the context of climate finance pledges, methodologically, it requires coping with many problems, especially double counting. The reason behind it is, the methodology used to identify climate-specific financing when reporting under the UNFCCC is not consistently applied across reporting countries. Negotiations continue within the scope of UNFCCC to determine a common tabular format to address this issue but It’s still one of the most challenging negotiation items on the agenda. On the other hand, since with the current practice, official reporting is done retrospectively, it is therefore difficult to determine at the moment whether the 2020 target has been met. Reports by developed countries on climate finance for 2019 and 2020 will be submitted next year, so we will then know whether the 2020 target has been formally met.
For this reason, within the scope of the study, OECD DAC data, the details of which can be accessed from the link, will be used for the G7 countries, which are among the donor countries.
What OECD DAC data could tell us for the global climate finance architecture?
Before moving on to data analysis, it is useful to explain some definitions to make it easier to read the data. Firstly, the OECD DAC is an international forum for bilateral providers of development co-operation. This committee has created a definition of bilateral finance flows named Official development assistance (ODA) to measure these foreign aid flows. The data in our analysis compile ODA flows and information on other resource flows to developing countries from bilateral and multilateral development cooperation providers collected by DAC and all of that consolidated information is presented publicly on OECD’s Creditor Reporting System (CRS) database.
Our data for financial flows is retrieved for all sectors (OECD Sector Code:1000) and it is presented with 2019 constant prices in million US dollars.
In order to classify appropriately each finance flow regarding their aim, OECD uses Rio markers. According to these markers, a financial flow could be classified as climate change mitigation or climate change adaptation activity regarding the following conditions:
- For an activity to qualify as a “principal” activity, the purpose (mitigation or adaptation of climate change) must be clearly stated as the basis for the activity’s design or motivation. Supporting the objective will therefore be stated in the operating documents as one of the main reasons for achieving it. In other words, the activity will be financed solely for this purpose.
- The activity undertaken may be marked as “significant” if the objectives (climate change mitigation or adaptation) are clearly stated, but they are not the main/key driver or motivation. In other words, the activity has another main objective, but it also aims to assist mitigation or adaptation activities related to climate change.
- If an activity does not contain the targets listed above, it is examined and determined that it does not contain any targets (screened, not targeted). In addition, if there is no finding related to the targets, this activity is considered as not screened.
For more details about OECD markers for the environment, here is the link.
Although the global climate finance architecture is a subject that is quite comprehensive and requires many pages of explanation, it would be useful to see the place of the finance flow discussed in this study within the framework of this architecture. Global climate finance flow can be carried out bilaterally or multilaterally, as well as in a structure that includes international development institutions in addition to countries. In this context, G7 member countries can not only transfer finance directly to one or more countries, but also provide financial support to developing countries with their contributions to Multilateral Development Banks or Development Finance Institutions like World Bank or Green Climate Fund (GCF), etc. as donors.
At this point, it would be useful to look back at the UNFCCC COP16 decision once again. Because, with the 1/CP.16 decision taken as a result of this session, while the GCF is being established, it is foreseen that most of the climate finance flows will be distributed through this newly established body. On the other hand, it is subject to criticism that the promised resource is insufficient. Information on how much funds GCF currently is accessible from the link.
Due to the subject of our study, since it cannot be determined from which country the financial flows carried out through multilateral development banks and to which country this source is allocated, we will analyze bilateral financial flows which are reported by G7 countries to the OECD. Undoubtedly, these flows will constitute a relatively small part of such a large global architecture. In this respect, it would be useful to approach the study in terms of trends and the reflection of these countries’ policies on these trends, rather than their quantitative nature.
Obviously the latest G7 communique was announced in 2021 and our data is limited with 2010–2019. Our aim in this analysis is to get an insight into how G7 countries performed until today in terms of achieving the $100 billion target and also shedding light on their approach towards climate finance supports.
G7's Performance in Climate Finance Flows
In this section, we will analyze the OECD DAC statistics of the G7 countries within the framework of financing flows in the fields of climate change mitigation and adaptation. Based on principal and significant flows in our analysis, we will try to make inferences about the ambition levels of countries to commit to providing $100 billion annually in funding. All figures subject to analysis are 2019 US Dollar constant prices and are expressed in million USD.
As a result of our analysis, we couldn’t observe a clear trend for both principal mitigation and adaptation flows. We could be a little optimistic about the positive adaptation trend but it is not a dramatic change. The important takeaway from this graph is the large difference between principal mitigation and adaptation flows which demonstrates G7 countries prefer making their principal investments on mitigation rather than adaptation.
With statistics, between 2010 and 2019, while the maximum level of principal mitigation flow is $10.7 billion and the minimum level is $5.6 billion, even the max level in the principal adaptation which is $3.6 billion is below the lowest mitigation flow.
With another saying, principal adaptation finance flows to total principal flows ratio is well below %50 for all period. Since 2015, we are seeing an upward pattern but it is still missing the commitment of balanced distribution of funds among adaptation and mitigation.
Despite the downbeat outlook of principal flows, this is not the case for finance flows categorized as significant. We are able to mention about a positive tend both adaptation and mitigation flows by and largely especially after 2015, we notice a significant increase in both flows.
As it can be seen in the graph above the ratio of significant adaptation flows to total significant flows was exceeding 50% levels before 2015, this ratio decreased in the Paris Agreement period to this level and even lower.
Another catchy result coming from our analysis is that after 2015, mitigation finance flow categorized as significant has exceeded drastically the principal ones as it can be seen above.
For the adaptation side, we can see that the more dominant flows are always the ones that are classified as significant but the crucial point is after 2015 we observe a significant rise in significant adaptation flows. Another important point to be emphasized is the difference between maximum levels of finance flows in both categories. There is a huge finance gap among principal and significant adaptation categories in funds provided by G7 countries.
In our country-based evaluation, it would not be wrong to say that France has a more assertive performance in the period of 2010–2019 compared to other G7 countries in terms of principal adaptation financing. We see that Germany, another country known for its pioneering role in the fight against climate change, has recently increased the amount allocated to principal adaptation financing, although not as much as France. On the other hand, it is possible to see that Japan has gradually reduced its financial contribution in this area since 2010.
In the context of principal mitigation, Germany again ranks high in terms of contribution, while France accompanies it. Japan, on the other hand, is significantly reducing its high contribution until 2015. Italy, Canada and the United Kingdom are the G7 members that contribute the least in this area, followed by the US.
When we look at the funds provided in the Significant adaptation category, we see the high contribution of Germany in this field. The country that follows him in this category is Japan. Although France seems to have given some importance to financial flows in this area recently, it will be necessary to follow the coming years closely for its continuity.
When we look at the mitigation flows, which are classified as Significant, we see that Japan is in the first place, while the other G7 countries in this field provide funds far behind the investments made by Japan after 2015. It is a remarkable finding. Germany follows Japan in this area, while all other countries have a similarly low profile of funders.
In the principal mitigation classification, Japan was the largest funder between 2010 and 2015, while Germany ranked first in 2016, 2018 and 2019 after 2015, and France in 2017.
While it is possible to talk about the leadership of Japan and France in the financial flows in the Principal adaptation category until 2014, France was the country that provided the most funds in this field from 2014 to 2017. In 2018 and 2019, Germany took the lead in this field.
In the domain of significant mitigation, between 2010 and 2014, Germany was the largest funder, while Japan took first place in 2015. When we look at the financial flows provided within the scope of Significant adaptation, it is possible to note that Germany and Japan shared the title of being the highest funder between 2010–2019.
In the principal mitigation area, we can see that Italy is the G7 member country with the lowest amount, except for 2015. For principal adaptation, it was found that Italy provided the lowest funding until 2015, and in 2016 and 2017, while Canada provided the lowest amount in 2015, France in 2018 and Japan in 2019.
In the field of “significant” mitigation, we see that Italy and France compete with each other to be the country that provides the lowest amount, while the United Kingdom and Canada accompany these two countries.
In terms of “significant” adaptation, it is possible to say that France was the country with the lowest figure in 6 years of the 10-year period, and Italy provided the lowest amount since 2018. In 2016, it is remarkable that the US, which was at the forefront in climate change diplomacy at that time, provided the lowest amount.
Finally, in our analysis, we will look at how much financial contribution countries have made in total in each area over a 10-year period. In this direction, France provides the highest contribution in the field of “principal” adaptation, while Italy is by far the country with the lowest amount of finance. In terms of “principal” mitigation, Japan and Germany provide the highest amount, followed by France by a small margin. In terms of “significant” adaptation, the highest amount of funds was transferred from Germany, followed by Japan. And finally, the first place in the funds in the “significant” mitigation category is Japan by far, followed by Germany. Italy is the lowest funder in all categories, followed steadily by Canada. Although the US and the United Kingdom do not come to the fore in any category, they contribute significantly below the winners of their categories.
Key Takeaways and Final Words
As the result of Carbis Bay Summit, G7 reiterates that the importance of $100 billion climate finance yearly and a balanced distribution of funds among However, G7 members faced serious criticism because there was no concrete explanation on how to resolve these issues or how to move forward in the presented summit declaration.
Therefore, within the scope of this study, it tries not to reveal the approaches of G7 countries in the context of climate finance since the target of 100 billion dollars was first determined. The data in the OECD DAC report on climate change mitigation and adaptation, which remains relatively a small piece in the gigantic climate finance architecture and is the subject of our research, reveals how ambitious they have been in this target so far, and determines which areas are preferred by G7 and countries.
In this direction, considering the principal investments, the gap between mitigation and adaptation is far from closing. As a result of our analysis, it seems that the G7 countries are not doing enough in this direction. Although financing flows for adaptation in “significant” investments have increased considerably, it has always lagged behind mitigation investments since 2015 and this makes it impossible to reach the balanced distribution of financial resources.
Especially in the period after the Paris Agreement, it is seen that “principal” mitigation investments began to be replaced by “significant” mitigation with a serious change. Investments in “significant” adaptation, on the other hand, are almost 3 times higher than the 2010 figures, despite this pessimistic picture. “Significant” adaptation investments, which previously accounted for more than 50% of total “significant” investments, have now regressed below this level.
Japan is reducing its principal adaptation and mitigation investments while increasing its significant investments in both areas. Italy reflects the adverse effects of the debt crisis on this field as well and is the least contributor in the G7, while Germany and France lead the way in financial contributions. On the other hand, although the United Kingdom and the USA contribute in terms of climate finance, they are far behind France and Germany. Despite its ambitious national climate policies, Canada does not carry it to international financing.
Despite the fact that the countries stated in the final declaration of the G7 summit that they would fulfill their commitment to the 100 billion target, it is difficult to mention that a determined stance has been taken towards the target set 10 years ago during this period. With current investment trends, it seems very difficult for investments made in the adaptation field to reach the framework of the balanced approach set forth in the Paris Agreement. When we look at all investment flows, it is possible to say that the burden is largely divided between Germany, France and Japan, and that the other four countries cannot adapt to these countries in terms of investment with climate change and do not show a similar willingness.
Regarding the $100 billion target, countries will undoubtedly do this with the support of not only public sources but also the private sector. However, based on the findings of our analysis, it seems possible to predict that much more contributions will be requested from the private sector in the upcoming period as of today.
For the detailed data importing, cleaning and exploratory data analysis of this study, please visit my Github page.
