Climate Finance: More Money Than Ever Invested in Climate Action, but is It Enough?
Climate finance is a central issue in how the global community proposes to follow through with implementation of the Paris Agreement. A new study, however, shows that while investment in climate action has been steadily increasing, it falls short in key areas.
Climate Policy Initiative, which has tracked climate finance since 2011 in the Global Landscape of Climate Finance, shows that global climate finance flows for 2015 amounted to $472 billion and $455 billion for 2016. Taking account annual fluctuations, average investment across 2015/2016 was 27% higher than during 2013/2014, although this is partially due to the availability of new data.
There is also evidence this overall increase will continue. CPI’s preliminary estimates for global climate finance flows in 2017 range from approximately $510 billion to $530 billion based on early data showing steady renewable energy investment, rising electric vehicle investment, and rising investment from development banks. This range represents a 12-16% increase from 2016.
Overall, though, CPI notes these figures represent a small share of the overall economic transition required to address climate change. The last Intergovernmental Panel on Climate Change report showed a $1.6-3.8 trillion energy system annual investment requirement from 2016-2050 to keep global warming within a 1.5 degree scenario and avoid the most harmful effects of climate change.
In terms of specific sectors, CPI’s report shows that renewable energy investment, traditionally the largest sector in the climate finance landscape, fell by 16% from 2015 to 2016. Falling renewable energy technology costs mean these investments continue to get more deployment for each dollar, but in 2016, the drop was equally due to fewer projects financed. Preliminary estimates for 2017 show renewable energy investment holding steady. Sustainable transport, on the other hand, may be a bright spot.
Investment in electric vehicles shows a year-on-year growth rate of 54% on a compound basis since 2012.
When looking at investment in activities to increase resilience to climate change, the picture is darker. CPI estimates total adaptation finance – all from public sources – at $22 billion per year with significant challenges to comparability over the years due to variations in reporting. While the report points out that private investment, which is difficult to track, could be much higher than this initial total suggests, adaptation finance is still extremely low compared to the need, which UNEP estimates at between $56 billion and $73 billion per year, globally, with even higher costs possible under higher emissions scenarios (UNEP, 2016).
“Given the scale of the challenge, it is good news to see overall investment in climate action rising,” said Dr. Barbara Buchner, Executive Director, Climate Finance of Climate Policy Initiative. “Unfortunately, we still have far to go. Leaders need to urgently continue and ramp up the progress toward the economy-wide transition needed to address climate change.”
As leaders gathered for the 24th Conference of the Parties to the UNFCCC in December 2018, the report points to a few clues for scaling up investment further.
First, it shows the importance of domestic policy frameworks to attract investment. Eighty one percent of climate finance was raised and spent within the same country in 2015/2016. National Development Finance Institutions (DFIs) reported almost double climate finance commitments in 2015/2016 over the 2013/2014 period, mostly spent domestically.
Second, it shows the role of the private sector. At 54% annually for 2015/2016, private finance actors such as project developers, corporations and commercial banks account for most climate finance flows despite challenges in tracking private finance for many sectors.
And finally, it gives an indication that East Asia and the Pacific may be a bright spot from which to learn. Developing countries were the dominant destination for climate investment. Taking both domestic and international sources of finance, 58% of total climate finance, or $270 billion, was invested in developing countries. In terms of regions, much of this was in the East Asia and Pacific region (non-OECD countries) which received 39% of flows over 2015/2016, followed by Western Europe at 23% and Americas (OECD countries only) at 12%.
About the Climate Policy Initiative
Climate Policy Initiative (https://climatepolicyinitiative.org) works to improve the most important energy and land use policies around the world, with a particular focus on finance. An independent analytical and advisory organization, CPI has offices and programs in Brazil, China, Europe, India, Indonesia, and the United States.
Contact: Caroline Dreyer, Communications Associate
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