Abstract
The failure of the USD 100-billion climate finance pledge under the United Nations Framework Convention on Climate Change (UNFCCC) could be attributed to a series of reasons: the inconsistent rules, the ambiguity of accountability issues, the political and economic motivations of donor countries, the weak governance capability of developing countries, etc. In addition to the predicament of climate finance commitments made by industrialized nations, South-South cooperation is becoming an important supplemental approach and is acknowledged by the Paris Agreement as an essential means of support. Through studying a broad set of literature on climate finance governance, the study aims to provide a clear picture of the current muddle in climate finance and China’s new role in the architecture. We do this by first looking into the disjointed system of reporting and accounting standards for climate finance as well as what causes the international climate finance gap. On the one hand, the self-interests and geopolitical concerns of donor countries led to considerable challenges to distributive justice in climate finance allocation. On the other hand, climate finance from rich countries has yet to make a substantial dent in enhancing developing countries’ resilience to climate change. Finally, we argue that China-led climate-related development assistance and South-South cooperation on climate change has a tremendous potential for vulnerable countries to realize their climate action priorities and address the climate injustice.
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1 Introduction
Providing financial support to help vulnerable developing countries undertake climate actions is supposed to be both a moral responsibility and a legal obligation for developed countries. This is rooted in the fact that they are mainly responsible for the majority of cumulative emissions since industrialization and generally have greater capacity to provide support [103]. As part of the 2009 Copenhagen Accord, developed countries committed to supporting climate adaptation and mitigation activities in developing countries. It was agreed under the United Nations Framework Convention on Climate Change (UNFCCC) that they would provide scaled-up, new and additional finance, reaching USD 100 billion a year in 2020. This collective mobilization objective is being continued by the 2015 Paris Agreement through the year 2025 in the context of significant climate measures and open implementation.
However, the lack of consistent rules creates significant credibility issues for developed countries in meeting their climate finance commitments. Developed countries continue to avoid fundamental accountability issues by taking advantage of ambiguous technicalities in reporting standards. This suggests failings of procedural as well as distributive justice. Countries within the Sub-Saharan Africa and South Asia regions, despite their higher climatic vulnerabilities, were likely to receive significantly less adaptation and overlapping fundings. In the meantime, the efficient operation of climate finance remains a significant challenge that has not been resolved due to the inadequate and inaccurate amount of external financial support and the weak governance capacity of developing countries.
South-South cooperation is acknowledged by the Paris Agreement as an essential means of support in addition to the commitments made by industrialized nations. As the largest developing nation, China actively took the lead and contributed significantly to the Paris Agreement’s successful conclusion. China helped to bridge gaps and broaden consensus by urging developed and developing countries to come to an agreement on issues like nationally determined contributions, transparency, and climate finance. In the past decade, China has been using existing bilateral and multilateral channels to advance South-South Cooperation through climate change as well as new channels such as the creation of two China-initiated Multilateral Development Banks and South-South Cooperation Climate Fund (SSCCF). The intertwined development of globalization and multi-polarization provides an opportunity for China to advocate for a new type of global governance and to establish a new leadership mode that values extensive consultation, joint contribution, and shared benefits.
Utilizing the roadmap shown in Fig. 1, our review encompasses a broad set of recent studies of the climate finance governance and the new role of China in this architecture.
The research aims to provoke the discussion about the existing muddle of climate finance and the ever-increasing influencing power of emerging economies in climate change cooperation. Focusing on climate finance and the various actors, this paper aims to map and discuss the following research questions:
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RQ1. What led to the accounting muddle of international climate finance?
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RQ2. What are the key determinants of the allocation of climate finance from the donor’s perspective?
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RQ3. What are the important enablers of effective climate finance delivery and how was the real impact so far?
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RQ4. How is the China-led climate-related development assistance and South-South cooperation on climate change supplementing the climate finance system?
This study thus desires to have following contributions: First, this study reveals the most essential cause of the collective action problem, suggesting that the UNFCCC and the relevant institutions provide a standardized and comprehensive accounting rule to estimate the financial commitments. Second, by identifying the influencing factors of the shortage in climate finance, this study provides guidance for addressing climate injustice both from the donor and the recipient’s perspective. Third, this study recognizes the importance of South-South cooperation on climate change in supplementing the climate finance system, which further shows the unique path of China in enhancing its ability to participate in global governance.
The structure of the paper is as follows: Sect. 2 gives an overview of the main accounting results and institutions’ role in the architecture. Section 3 analyzes the allocation of climate finance regarding the donor self-interest and recipient needs. Section 4 explores the effectiveness of international climate finance through its delivery and the real impact. In the following section, the study provides in-depth interpretation in the rising role of South-South cooperation on climate change through the study of selected literature. Section 6 concludes the key findings of the study and suggests a future research path in the interest area.
2 The accounting muddle of international climate finance
Meeting the climate finance target will be critical to unlocking more ambitious climate commitments from developing countries and ensuring progress in international climate negotiations. Climate Policy Initiative (CPI) calculates the overall climate-related primary investment every two years: the flow has steadily increased over the last decade but has slowed in the past few years (shown in Fig. 2). But the climate finance flows are nowhere near estimated needs, requiring all public and private actors to align their investments with Paris goals and net zero, sustainable pathways.
According to the original pledge, funding will come from a variety of sources, including public and private, bilateral and multilateral, as well as alternative sources of finance. However, neither the UNFCCC nor its Paris Agreement specify what should be counted in those categories. The Standing Committee on Finance (SCF), which was established as the UNFCCC’s constituted body, acts as a data and reference compiler rather than providing an authoritative dataset on climate finance and judging actual progress made. The UNFCCC guidelines give developed countries broad leeway in accounting for climate finance. Each developed country has been able to decide what it reports as “climate finance” and why its climate finance can be considered “new and additional”, further complicating the accounting process.
The lack of consistent rules makes it difficult for developed countries to meet their climate finance commitments. The most serious issue, however, is that most developed countries have failed to ensure transparency and completeness in their reporting to the Secretariat [84]. Because each Party can be held individually responsible for failing to provide transparency in the Convention’s reporting procedure, the current general lack of transparency in climate finance is clearly determined to be a collective failure. It leads to contradictory statements about the fulfillment of financial promises made by developed countries. And this, in turn, undermines developing countries’ trust in the UNFCCC political process, as they are increasingly called upon to implement the Paris Agreement [105].
Key decisions surrounding the USD 100 billion goal made it clear that additional funding was required to supplement existing efforts to support development in developing economies. Additionality as a precondition for climate finance recognized that shifting resources from addressing inequality to addressing the climate emergency would increase a population’s vulnerability to climate shocks. However, efforts to ensure that finance is new and additional have been lacking over the last decade, and concerns about additionality remain [41]. According to CARE [11], from 2011 to 2018, a decreasing share of climate finance reported by rich countries was new and additional to development finance. According to a recently released Oxfam report, donor countries are repurposing up to one-third of official aid contributions as climate finance rather than committing new funds [75]. When combined with countries’ efforts to mainstream climate change into development cooperation, this raises the possibility of development assistance being diverted to climate finance. For example, reallocating previously allocated support for education and health to areas that count as climate finance would reallocate rather than increase funding [85].
2.1 Distinct accounting results
Organizations have tracked progress toward the joint mobilization goal, with estimates varying widely. Estimates of total public climate finance provided by developed countries to developing countries in 2019–2020 range from USD 83.8 to USD 21–24.5 billion, according to the Organisation for Economic Co-operation and Development (OECD) and Oxfam reports [70, 75]. In the meantime, several approaches have been made to estimate the value of the reported numbers in the academia Toetzke and his co-authors (2022) developed a machine learning classifier to identify the projects of international climate finance reported in ODA to Rio markers, presenting a much lower estimate made by OECD. The analysis of climate finance is fraught with methodological issues concerning various providers, as well as the proliferation of various bilateral and multilateral channels for allocating finance. Table 1 summarizes the various climate finance estimation results from institutions and scholars, and Fig. 3 illustrates the differences of estimated annual public climate finance from major institutions and scholars.
On the one hand, self-reported climate finance frequently overestimates funds’ climate relevance when mitigation or adaptation are not the primary goals of the reported project. On the other hand, most developed countries report to the UNFCCC at face value for all financial instruments, with reporting in grant-equivalent values being voluntary only. The latter can be prohibitively complex when multiple financial instruments and financiers are combined, but reporting at face value does not differentiate between an investment financed entirely by a grant and one financed entirely by a concessional loan [77]. This face value accounting practice is a poor proxy for the distributional aspect of instruments like loans. This explains Oxfam’s [74] much lower estimates of aggregate climate finance, which focused on net financial transfers to developing countries by counting only grant equivalents of loans. By making loans rather than grants, the funds may end up harming rather than helping local communities by adding to the debt burdens of already overburdened countries.
2.2 Institutional capacity
Different institutions employ diverse methodologies for climate finance accounting. Comprehending the variances in these accounting mechanisms is also instrumental in summarizing the respective roles of different institutions at this stage. Table 2 displays the characteristics of accounting methodology by the main institutions and publication.
The OECD plays a unique role in the institutional architecture of international climate finance accounting. The Rio markers data, which have been published since 1998, provide an important and widely used method of counting international public climate finance, in which all bilateral official development assistance projects are marked as targeting climate change mitigation as their ‘principal’ or ‘significant’ objective, or as not targeting the goal. While the OECD accounting framework’s goal is to track progress toward the USD 100 billion international climate finance goal. The first publication of results and underlying accounting methodology was done in 2015, following a request from Parties to the OECD ahead of the 21st Conference of Parties (COP) in Paris, with subsequent updates in 2019, 2020, and 2021 [64, 67,68,69].The flows include bilateral and multilateral public finance, officially supported climate-related export credits, and private climate finance mobilized from developed countries (including UNFCCC Annex II Parties, all EU member states, as well as Liechtenstein and Monaco).
For several years, efforts to change the Rio marker methodology from a descriptive to a quantitative approach have been underway, but with few tangible results to date. These efforts are influenced, among other things, by the efforts of several MDBs, which have developed their own methodology for tracking climate finance. Since 2011, major MDBs have been developing and gradually updating a joint international climate finance tracking methodology based on their annual reports. The International Development Finance Club (IDFC) collaborated with national development banks to develop the Common Principles for Climate Change Mitigation Finance Tracking and significantly contributed to methodological streamlining in inter-organizational working groups such as the SCF and the OECD [27, 95]. The adaptation finance methodology is an intention-based and context-specific approach, whereas the mitigation finance methodology is primarily based on a list of eligible activities agreed upon by major MDBs and IDFC members [27]. In contrast to the Rio marker methodology, the MDBs methodology allows only project components, sub-components, elements, or proportions to be reported as climate finance [113]. However, there is limited transparency in the data provided by MDBs at the project level [120]. A joint working group of MDBs is currently working on an approach to determine the alignment of its portfolio with the Paris Agreement into their operations, in addition to adaptation and mitigation finance [91].
2.3 Private finance mobilization
Another pressing issue is the mobilization of private finance. According to UNCTAD [106], the volume of private finance addressing climate change is gradually increasing in aggregate, particularly at the subnational level and by non-state actors, but there still exists a significant financing gap. This issue has spawned a large body of work debating the merits of blended finance and climate-congruent activities of non-state actors in meeting the financing challenge in a multi-scalar climate crisis [71].
The Cancun Agreements were the first international environmental treaties whose implementation explicitly relied on private finance mobilization [77]. Officials and experts from donor countries have repeatedly emphasized the importance of private finance, as mobilizing private finance has the potential to significantly increase the total impact of climate finance. The World Bank Group defines mobilisation in three conceptual categories: mobilisation, co-financing and catalytic effect [65]. Both the OECD DAC and MDBs have made approaches in measuring the mobilized private finance, but their standards of accounting vary. Notably, the OECD-DAC approach only measures the direct mobilisation effect, while the MDBs also aim to capture more indirect mobilization, namely the catalytic effect of public interventions. Nevertheless, they both rely on validating evidence of the public institutions’ mobilisation and are upgrading their statistical systems.
While rigorous methodologies for measuring mobilized private finance are being developed, data remains incomplete and contested [68, 74]. A variety of carbon markets operating at the national, regional as well as international levels have been established, but the complex network perplexed the accounting of private climate flows [15, 98]. Climate-friendly private flows are claimed to already exceed USD 100 billion if all private finance that flows North–South, or all that is invested in developing countries as a result of incentives or actions taken by industrialized countries, is included [98]. However, the data quality is poor given that most estimates are based on unverified information. Numbers are incomparable due to disagreements over the definition of ‘climate finance’ and the types of ‘private finance’ to be included in the USD 100 billion goal. Since few private actors are willing to reveal their investments, other actors are also sceptical of total flows and their additionality [9].
Therefore, similar to public finance, policymakers will have to speed up their efforts on tracking private finance by clearly defining what it is, deciding on the types of flow to be included in the USD 100 billion figure, and developing more reliable systems for the measurement, reporting, and verification, particularly for investments mobilized by bilateral and multilateral agencies. Since climate-related development assistance can provide carbon price signal that drives private investment, the close tie of public and private climate and need to be anchored in the following negotiations of climate finance accounting mechanism [61].
3 Allocation of climate finance: the underlying motivations
Aside from the aforementioned challenges in accounting mechanism, international climate finance progress is dependent on several key questions: What criteria should be used to allocate funding? What factors have influenced the funding provided to recipient countries thus far? Climate justice is increasingly being used to frame debates and discussions on these issues. Scholars predicted that a justice-based approach would increase the legitimacy of the international climate finance regime, allowing the funding to function properly [21, 23, 42, 49]. The justice revolves around two main issues: raising and allocating climate finance.
To date, climate finance has been viewed in part as a means of increasing justice by redistributing resources from countries that have dominated in the production of greenhouse gas emissions that drive global warming to countries that are experiencing or are expected to experience the most severe effects. Developed countries that have historically benefited from a high-carbon economy now bear the burden of assisting developing countries in financing adaptation [49]. Furthermore, the USD 100 billion target, which was agreed upon and emphasized in several climate agreements, was acknowledged as a key mark of the obligation. Even by their own generous accounting standards, developed countries are three years late in mobilizing USD 100 billion per year [75]. The prioritization of donors’ self-interests over the needs of the recipient country has been described as a concern for donor-recipient relations [78].
3.1 Donor self-interests
Donor self-interest generally refers to the donor country’s selfish intentions. According to the donor interest model, donors use aid instrumentally to promote their own political, economic or other concerns. Geopolitical considerations are regarded as one of the significant contributors to donor countries’ climate action. Michaelowa and Michaelowa [60] carefully examine the project descriptions of DAC donors and discover that the reported project coding is quite consistent with donor governments’ ideologies as well as national voters’ environmental preferences. Scholars also examined other donor-cantered indicators: Halimanjaya [33] discovered that recipients geographically closer to donors were more likely to receive mitigation funding, whereas Weiler et al. [115] discovered that former donor colonies were significantly more likely to receive adaptation funding.
Since the UNFCCC principle of “common but differentiated responsibilities and respective capabilities” indicates that polluters should ideally pay more, richer countries are also proved to contribute more in climate aid [50, 83]. However, existing literature suggest that climate finance provision to developing countries can bring positive economic externalities to other countries, which facilitate the funding of the donors. Globally, it is estimated that transnational climate finance will have economic spill-over effects, with donor and third-country economies receiving 11 to 61% of the economic benefits [87, 88]. The trade benefits and long-term trade partnerships can be attributed to the motivation for providing climate finance [4, 5]. The existence of tied aid effects demonstrated that advances in energy technologies and gross exports are also contributing to increased climate finance provision [83]. This also reveals the long-term path dependence of donors in providing aid. A Pareto-improving result for developing countries can be achieved, and most donor countries will gain net welfare benefit, as empirically demonstrated [115]. As a result, donor countries are more likely to provide climate finance in their own self-interest.
Furthermore, current researches regarding the donor’s domestic political context have distinct conclusions, albeit that some findings are worth discussing. Despite previous research finding that left-wing governments increase development aid to low-income countries [10], the relationship between domestic political tendency and climate finance disbursement has not reached a consensus in the literature [50]. Nevertheless, donor countries’ proclivity for various types of climate finance will be influenced by domestic inter-agency dynamics. According to Pickering et al. [81], aid ministries are more likely to provide adaptation finance, whereas environment ministries are more likely to provide mitigation finance. Meanwhile, Peterson and Skovgaard [78] demonstrated that the involvement of the Ministry of Environment increased donor countries’ willingness to provide aid to UNFCCC allies.
Peer pressure from other donor countries to support climate finance may also encourage donor countries to provide more climate finance [80]. It is more likely for the donor to support adaptation in a similar set of recipients as the other donors [114]. According to Halimanjaya and Papyrakis [34], donor countries that ratified the Kyoto Protocol have higher proportions of mitigation finance due to higher climate mitigation commitments. Owing to the strong convening power, multilateral institutions and international agreements tend to play a catalytic role in fostering global climate finance [35, 78]. Since the Paris Agreement, the international community has gradually shifted away from the burden-sharing principle and toward Nationally Determined Contributions (NDCs), putting significant international political pressure on donor countries. Several key Paris Agreement features, such as the enhanced transparency framework and the measurement, reporting, and verification mechanism, are beneficial to global climate finance [113, 124]. Figure 4 displays the road map of the donor interests literature, with the possible impact on the amount of climate finance summarized.
3.2 Recipient needs
In the meantime, the allocation of climate finance based on the recipient country's humanitarian and economic needs, which is now codified in various agreements, is thought to be fraught with difficulties [42]. Since international climate finance provides global public goods, the issue of recipient needs is the most prominent issue in relation to climate finance’s development objectives [89]. Undetermined and absent definitive parameters for mitigation and adaptation finance necessitate the academic community’s identification of its determinants. Yohe’s [126] study kicks off an early discussion about mitigation finance allocation criteria. As key determinants under consideration, he proposes technological options, policy instruments, institutional structure, resource distribution channels, and human and social capital. Furthermore, scholars have investigated the impact of recipient country characteristics on the amount of climate finance a country receives, specifically the effects of CO2 emissions, carbon sinks, deforestation, governance quality, GDP per capita, vulnerability, infant mortality, imports from specific donor countries, colonial ties, and UN voting patterns on the likelihood that a developing country will receive mitigation and adaptation finance per capita [32, 115].
Previous studies have yielded mixed results in terms of adaptation finance provision: Betzold and Weiler [5] identify vulnerability as an important indicator for the allocation of adaptation finance at the aggregate level, whereas Islam [42] recognizes a ‘low funding trap’ in adaptation and overlapping finance for the world’s most vulnerable countries. Donors have been found to provide more adaptation aid to well-governed countries [35, 115]. In this regard, Roberts et al. [85] argue that the fragmented institutional architectures of recipient countries will have a significant impact on the transparency, accountability, and effectiveness of climate finance, reducing donor countries’ willingness to provide adequate climate finance.
In terms of mitigation funding, countries with higher CO2 intensity, larger carbon sinks, lower per capita GDP, and better governance are more likely to be selected as recipients [32]. This selection is driven by the donors’ inclination to allocate mitigation funding towards countries that possess greater capacity for emissions reduction and deforestation control. It is worth noting that the influence of per capita GDP on mitigation funding can be intricate and contingent upon donor rationale. Xie and her co-authors (2023) found that MDB climate finance on mitigation is positively correlated with the recipients’ carbon emissions rather than their vulnerability to climate risks. Donors driven by efficiency are more inclined to allocate mitigation funding to countries with higher GDPs, as they offer greater opportunities for emissions reduction [2]. As a matter of fact, it has been demonstrated that governance and institutional weaknesses significantly impact the allocation of both adaptation and mitigation funding [2, 29, 33, 35, 115, 116]. Figure 5 displays the road map of the existing literature in the realm of recipient needs.
In short, the distinction between donor countries’ strategic economic and political considerations and recipient needs is less clear in climate finance because it provides global public goods, particularly mitigation finance [89]. According to the literature currently available on climate finance allocation, donor interests rather than recipient needs are typically the main factors influencing aid decisions [116]. Climate finance, as opposed to development finance, is motivated by the developed world and benefits a broader population through a variety of policy approaches [47]. As a result, this section offers a financial provider’s point of view, painting a contrasting picture of donor-recipient relationships in climate finance allocation. This has significant implications for allocation-based justice as well as future evaluation of climate finance in recipient countries.
4 Exploring the effectiveness of international climate finance
Over the last decade, systemic accountability in addressing the climate crisis has been extremely difficult. Even the allocations of international climate finance against the 2020 USD 100 billion commitment are highly contested, as illustrated above. There has also been little official evaluation of this finance in terms of its potential effectiveness as a development resource [105]. To date, significant gaps in climate finance exist, limiting what can be done to address issues and advance in the developing world. According to Climate Policy Initiative (CPI) calculations, the African continent will require USD 277 billion per year to implement its NDCs and meet the 2030 climate targets [24]. However, Africa’s annual climate funding flows are only USD 30 billion. This gap is likely to widen as countries frequently underestimate their budgetary needs, particularly for adaptation [108].
4.1 Factors in effective delivery
Studies on climate finance have long focused on issues such as sufficiency and additionality, but it is critical to consider what is required for effective systems that support the delivery of climate finance. Existing research indicates that international, national, and local factors influence local delivery of climate finance in recipient countries. Only a small portion of global adaptation finance is earmarked for the local level and improving the agency of these local actors [73, 97]. Recipient countries that are more vulnerable to climate change risks receive disproportionately less adaptation finance than those that are less vulnerable [3, 82]. Local climate finance delivery is dependent on socio-political factors other than vulnerability, such as national political commitment and the types of finance instruments used to deliver climate finance [59].
International institutions are critical contributors to the Paris Agreement’s success, as they are required to support the entire process, from raising climate finance to delivering it. However, it is estimated that the amount of money flowing to developing countries is far less than what has been committed [96]. Despite increased policy support, inadequate public financing remains a major barrier to combating climate change at the local level [93]. A review of Green Climate Fund documents reveals that the Fund has low transparency and accountability in relation to its financing, which affects the transparency of local level financing for mitigation or adaptation [73]. Furthermore, the Fund’s Direct Access Entities’ ability to engage local actors suffers from significant capacity gaps. This means that key Paris Agreement principles and Green Climate Fund (GCF) investment criteria, such as country ownership, recipient needs, efficiency, and effectiveness, are evaluated solely on whether there is national level actor buy-in rather than whether investments contribute to the needs of local actors [72].
Aside from the international institutions’ inadequate operationalization, understanding the recipients’ local political context is critical in making a sound contribution to climate finance. Political considerations heavily influence public sector management, which can undermine the concept of the budget as a neutral and credible instrument of government policy. Bird et al. [8] develop an explicit framework that focuses on institutional and governance processes and includes standards in the overall policy environment, institutional architecture, and the financial system. In some cases, a strong political commitment to mitigating the effects of climate change may compensate for flaws in a less than ideal public financial management system. Chelminski’s [14] empirical research confirmed that political willingness to prioritize renewable energy development is a necessary condition for climate finance effectiveness.
Several barriers to local delivery mitigation and adaptation finance are also identified. First, local actors lack the capacity and readiness to comply with financial access regulations [19]. Meanwhile, the access requirements of finance institutions are too complex for local actors to obtain direct access to finance [82]. Many recipient countries also lack an overall understanding of the climate finance landscape, particularly where to access finance for local adaptation or the capacity to meet the fiduciary requirements for accessing finance [23]. Second, structural mismatches between available climate finance packages and local actors’ needs create barriers to effective finance delivery [96]. The preferred mechanisms for financing climate change activities for climate finance mechanisms are less suitable for some recipient countries, as loans would impose heavier burdens on the indebted countries [9, 23].
4.2 The actual impact
A growing number of studies have looked into the impact of climate finance on recipient countries’ adaptive capacity, environmental performance, economic targets and development outcomes in the face of climate change [20, 51, 79, 92, 129]. Figure 6 summarizes the potential impact exerted by the climate finance which has been examined by the current research. These studies focused on the effectiveness of climate finance, investigating the conditions required for climate finance to be more effective. In particular, some studies discovered that climate finance helps to reduce carbon emissions, and that mitigation finance has a greater impact on emissions than adaptation finance [1, 52, 56, 122, 127]. Furthermore, the reduction effect appears to be more promising in small island developing states and countries with higher economic development [52]. However, this was not agreed by all the scholars: Bhattacharyya analysed the data of 128 countries from AidData database and claimed that there is no evidence of a systematic effect of energy-related aid on emissions in recipients.
While it appears that climate finance has been dedicated to promoting clean energy transition and improving energy structure [12, 122]. Haque and Rashid [37] discovered that renewable energy aid projects could increase energy sector generation capacity in recipients by creating an enabling environment for technology and knowledge diffusion. Public climate finance grants are frequently linked to increased investments in complementary social services, indicating higher levels of energy justice and equality during the energy transition [20]. Chapel's study [13] supported this notion by looking into communities in Sub-Saharan Africa and discovering that energy aid projects have a positive and significant impact on electrification in local communities. This further stimulates the energy justice and generates positive social outcomes.
Another line of research looked into the economic impact of climate finance in recipients. Román and his co-authors (2018) discovered that countries with well-developed and connected industries that offer competitive products and services with a high content of value-added climate actions deliver greater benefits to the local economy. While evidence suggested that climate finance is likely to exacerbate the economic status when the recipient has poor political and economic stability [129]. The aggravated economic risk can be attributed to the agent and corruption issues that are embedded in the domestic context.
Furthermore, researchers investigated the local development outcomes that climate finance can contribute to and discovered some findings. There is a growing body of evidence in specific domains focusing on how the Paris Agreement commitments and those of the 2030 Agenda for Sustainable Development are empirically interconnected. Climate change mitigation and adaptation actions can have direct interactions with development goals, resulting in both positive synergies and negative trade-offs [28]. Climate finance, for example, has the potential to increase the resources and rights of previously disadvantaged women and men, resulting in gender equity gains [110, 118]. Similarly, climate finance grants have been linked to increased levels of energy justice and equality during the energy transition [20]. Other research looked into the synergy effect of climate finance and peacebuilding, the integration of climate funding sources and food security through climate-smart agriculture, and the improved human health benefit from climate finance [38, 45, 48, 117]. These studies investigated the effects of climate finance on local sustainable development from a single issue. However, due to the relatively limited research scope, it is difficult to eliminate the interference of other factors.
After all, little is known about the impact of climate finance on environmental performance as well as recipient countries’ development goals, and the relationship between climate finance and sustainable development remains ambiguous. Despite the fact that some countries conducted timely assessments of their national climate finance flows to recipients, the extent to which target groups were reached remains moderate or uncertain [40]. Governance, institutional issues, and fragmented finance will continue to pose significant challenges for policymakers in the effective delivery of climate finance.
5 New development assistance vs. Official development assistance: a rising role of South-South cooperation on climate change
Historically, developed countries (Global North countries) have primarily assisted developing countries with climate change mitigation, adaptation, financing, research and development, and capacity building efforts [18]. However, as discussed in the previous sections, global collaboration on climate change responses has been hampered by additional hurdles since the approval of the collective quantified goal in climate finance. The withdrawal of the United States from the Paris Agreement, along with insufficient implementation by developed countries, resulted in obvious gaps in emissions, climate funding, and technology transfer. While international climate governance has been severely weakened as a result of the United States and the United Kingdom’s de-globalization, a new landscape of interconnected globalization and multi-polarization has emerged [102]. This is featured by the rise of the South-South Cooperation on Climate Change (SSCCC) and emerging economies like China.
While the Global South is facing injustice within global climate initiatives and climate negotiations with the Global North, South countries strive to address the injustice through, including but not limited to, South-South Climate Finance modalities and SSCCC [86]. SSCCC is viewed as a partnering framework that incorporates emerging economies’ activities to assist and promote international climate action among developing nations of the Global South. The core of China’s vision for development cooperation is also included in the new SSCCC approach, which emphasizes comprehensive consultation, collaborative contribution, and reciprocal advantages [43, 102]. The partnership facilitated China to establish a comprehensive framework for climate assistance and to enhance the model and essence of China’s foreign aid. China tends to strengthen SSCCC and fully exploits technological strengths in the field of new energy and low-carbon infrastructure, as embodied by the main strategic move Belt and Road Initiative. Meanwhile, China has actively participated in international development mechanisms through newly established institutions, as well as providing direct climate-related assistance to other developing nations through China’s South-South Cooperation Climate Fund (SSCCF). China’s International NDCs include a pledge to provide USD 3.1 billion to establish China’s SSCCF, in addition to more than USD 2 billion already pledged for South-South Cooperation and climate-related activities prior to 2015 [18, 111].
In the past decade, studies have emerged to recognize the importance of South-South Cooperation to combat climate change. Scholars reviewed the major forms of this cooperation and distinguish the new landscape from the classic North–South scheme [31, 99]. China is frequently portrayed as a rival to the DAC donors and an alternative model in the large literature on development cooperation [119, 130]. Discussions of Chinese development cooperation also frequently involve contrasts between established OECD DAC contributors and new donors like Brazil, India, South Africa, and China [17]. Emerging donors differ noticeably from traditional donors in their modes of assistance provision, specifically in cooperation mode, aid strategy, and financial instruments, allowing the establishment of the New Development Assistance regime [44]. Specifically, China’s position and strategies in global climate governance have been discussed prominently [102, 125]. According to Weigel and Demissie [112], China’s approach to SSCCC is classified as a contested cooperation matrix, which has grown not only through established bilateral and multilateral channels, but also through China’s creation of new bilateral and multilateral mechanisms. This is based on the concept of regime shifting that Morse and Keohane [63] put forth as part of global collaboration on climate change through the modification of current approaches and the introduction of new ones.
China has pioneered a slew of specific bilateral and regional initiatives to provide financial and technological assistance in SSCCC. Previous research has emphasized the provision of technology, goods and equipment, technology transfer, and training as the primary tools of China’s climate financing efforts [76]. The rise of South-South renewable energy technology transfer also represents a significant departure from the traditional South-North paradigm. Chinese involvement in renewable development projects was particularly appealing to recipient governments from the Global South [6]. According to recent research, Chinese actors are more risk-taking than traditional international financial institutions. Morck et al. [62] contend that Chinese actors are willing to enter politically risky markets because they have experience dealing with complex bureaucracies in their home countries. Furthermore, traditional North–South aid divides the world into developed, innovative countries and developing, thus non-innovative countries. The growth of South-South renewable energy technology transfer has blurred this distinction. According to Lema and Lema [54], large developing countries such as China and India became innovative through technology diffusion, which is more suitable for countries that cannot afford large amounts of R&D and human capital to build up their technological capabilities [46]. Furthermore, it is argued that technological innovations from the South, which are typically adapted using the lean production paradigm, will produce better results in the South [36].
In the meantime, Chinese policy banks and MDBs have a number of complementary strengths. In a case study of Cameroon, the authors discovered that a project funded by the Chinese Export–Import Bank trained engineers and provided technical skills, whereas the World Bank focused on institutional capacity building [16]. China has also been active in regional climate change cooperation with developing-region MDBs. In Latin America, for example, China established a USD 2 billion co-financing fund with the Inter-American Development Bank (IDB) for various projects such as poverty reduction and climate change mitigation. China’s membership coincides with the IDB’s strategic shift to promote climate-related goals, which require 25 percent of the bank’s lending portfolio to support climate change mitigation by 2015 [26].
Additionally, developing countries value China’s bundled nature of finance, technology, and construction services, as well as the timeliness of construction [6]. This turn-key approach has the potential to simplify and accelerate the process of obtaining financing for recipient countries. The World Resources Institute stated in the paper that large overseas wind and solar projects are driven by excess manufacturing capabilities, China’s top-down ‘going out’ strategy, and recipient countries’ policies [100, 30]. Through overseas renewable energy projects, China not only strengthens its influence in developing countries, but also gains recognition from developed countries as a contributor to climate change mitigation and builds its reputation as a global leader in green energy technology. Rüffin [90] defined ‘science diplomacy’ as a country’s participation in international activities such as science and technology to combat global climate change and exert soft power.
Moving forward, researchers probed into the specific approach with Chinese characteristics in combatting global climate change in recent years. The Belt and Road Initiative (BRI) is defined as South-South Cooperation with Chinese characteristics [94]. Politicians, policy analysts, and academics regard the BRI as a chance to support the Paris Agreement and sustainable development [25, 107]. Green trade, finance, and investment as well as green technology and innovation may be used to achieve this. Observers are worried about the BRI’s potential environmental concerns from another angle. It was determined that the BRI was a net exporter of trade-embodied emissions and that the detrimental environmental effects caused by the BRI’s investments might outweigh its positive economic effects [57, 58]. Upgraded environmental governance laws under the ‘green BRI’ may require agreements between China and BRI partners [22]. However, relevant research revealed that the BRI has improved geographical integration and cross-country collaboration for climate action [55]. And it has been proved that renewable energy investments from China is essential and effective for carbon emission reduction in BRI countries [101]. As a result, it is still full of prospects that China can encourage green collaboration through the regional interconnection made possible by the BRI [102, 128].
India and Brazil are also emerging as international providers of climate finance [31]. Despite the fact that these countries do not have a formal international climate finance program like China, they have provided loans, grants, and technical assistance to other developing countries. For example, between 2006 and 2014, India provided approximately US$1.5 billion in grants and loans to other developing countries, with over 35% going to the energy sector, owing to India’s expertise in hydropower plants, low-cost solar units, and power transmission systems [39]. While Brazil has included environmental issues in its technical cooperation section of total foreign aid expenditure [53].
Finally, recognizing SSCCC can help to bridge the North–South finance divide, which threatens to poison other aspects of the climate negotiations. A more fruitful financial discussion would be a significant boost. The main challenge for future climate agreements will be to find ways to raise the ambitions of national actions to a sufficiently high level in the coming years. This necessitates a finance system capable of mobilizing and strategically aligning resources from as many actors as possible.
6 Conclusion: what is next for the global landscape of climate finance
The international community has spent the last ten years outlining the problems and carrying out urgently required work on the accountability and transparency of climate finance flows. Now is the time to focus on the urgently required solutions. Investing in both development and climate mitigation and adaptation while paying for loss and damage is a double challenge for developing nations. The following step of the goal must be rigorously quantified and tracked based on an agreed-upon methodology in order to avoid the double-counting and significant overestimations of the past, rather than being based on arbitrary targets. To meaningfully contribute to the realization of low-emission, climate-resilient, and socially inclusive development pathways, we need to find ways to make climate finance focused on recipients’ needs and reality.
The latest round of climate pledges moves the world a little bit closer to the goals of the Paris Agreement, but without the funding required to support climate action, challenges with implementation will continue, more ambitious climate action won’t be possible, and the majority of the world will be doomed to ongoing crisis due to a catastrophe they didn’t cause. The New Collective Quantified Goal, which will be pursued after 2025, is the subject of current negotiations. In order to mobilize and deliver the funds, developed and developing nations may collaborate together to achieve this goal. Additionally, assessments of the needs and priorities of developing nations based on science will determine it. At COP26, discussions got underway, and Parties to the UNFCCC established a work schedule for technical expert dialogues, yearly reports, and routine consultations with Party and non-Party stakeholders on the NCQG. By COP29 in 2024, this new objective is intended to be set.
New channels for development assistance have also been continuously developing. The scale of foreign investment has significantly increased as a result of the significant efforts emerging markets have made to promote financing. The OECD-led assistance is supplemented and encouraged by the financial assistance provided by emerging economies, which has a significant impact on international and regional cooperation. It is anticipated that the process of globalization will coincide with the rise of new financing mechanisms and the development of global fund transfer mechanisms and tools as global climate governance shifts from a top-down to a bottom-up model. The SSCCC can also be seen as a chance to close the financial gap in the fight against global warming and to exchange knowledge about how developing nations have dealt with regional problems. In light of the new circumstances, China is strongly encouraged to collaborate with other developing nations to promote the implementation of the Paris Agreement’s outcomes, develop a unified stance on funding needs and gaps, and set up cooperation mechanisms and platforms.
Since the climate finance regime is still in the evolving process, the room for further research is large indeed. To modify the current system, more research is needed to provide empirical data and systematic normative evaluation of the various climate finance governance modes and products. There is an urgent need to evaluate the specific contribution of existing global climate finance. Besides, it is still challenging to fit China’s existing route into the global climate finance governance system so far. How to make up the huge discrepancy between the two systems can be a pressing issue that is worth further investigation.
Availability of data and materials
Data used in this paper are all public available and all data sources are provided in the paper.
Abbreviations
- UNFCCC:
-
United Nations Framework Convention on Climate Change
- SCF:
-
Standing Committee on Finance
- OECD:
-
Organisation for Economic Co-operation and Development
- COP:
-
Conference of Parties
- DAC:
-
Development Assistance Committee
- MDB:
-
Multilateral Development Bank
- IDFC:
-
International Development Finance Club
- NDC:
-
Nationally Determined Contributions
- GDP:
-
Gross Domestic Product
- CPI:
-
Climate Policy Initiative
- GCF:
-
Green Climate Fund
- SSCCC:
-
South-South Cooperation on Climate Change
- SSCCF:
-
South-South Cooperation Climate Fund
- R&D:
-
Research and Development
- IDB:
-
Inter-American Development Bank
- BRI:
-
Belt and Road Initiative
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Open access funding provided by Shanghai Jiao Tong University. This work was supported by the National Natural Science Foundation of China (72322013,72234001,72234002,72121002), the National Key Research and Development Program of China (2020YFA0608600) and the Shanghai Talent Development Fund (2021098).
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Qi, J., Qian, H. Climate finance at a crossroads: it is high time to use the global solution for global problems. Carb Neutrality 2, 31 (2023). https://doi.org/10.1007/s43979-023-00071-7
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DOI: https://doi.org/10.1007/s43979-023-00071-7