By Aidy Halimanjaya and Elissaois Papyrakis

Summary

In the past decade, there has been a significant increase in bilateral official development assistance (ODA) aimed at funding activities that tackle climate change or known as mitigation finance. What actually the drivers behind this phenomenon? This research paper answers this overarching question and describes

the state of mitigation financing of 22 donor countries from 1998 to 2009. The study use a panel dataset from the Organisation for Economic Co-operation and Development (OECD) to examine the links between donor characteristics and the share of ODA allocated to climate mitigation finance when they made their commitment and when they actually disbursed it. The findings are summarised below.

1. A large but narrowing gap between donors’ commitment and disbursement

Donors’ disbursement of mitigation finance falls short and is consistently lower than their commitment. On the whole, mitigation finance disbursement grew faster than mitigation finance commitment which indicates that there has been a modest effort to narrow the gap; in general, it takes several years for donors to reach the amount of mitigation finance they have committed to provide.

2. Only a handful donors are green

A comparison across the 22 donors shows that Japan is the donor with the largest share of ODA allocated to mitigation finance followed by Germany, Denmark and Finland. Japan is also the largest mitigation finance donor in term of volume followed by Germany, France and the Netherlands. As the largest donors in absolute values and as a proportion of total ODA Japan allocated 12.5% of its total ODA to mitigation finance from 2002 to 2009 with a cumulative value close to US$20 billion.

3. There is a competition between financing green projects at home and overseas

This study finds that when a donor is green at home it does not mean that it can also afford to be green overseas. We find that donors with a larger green domestic budget tend to allocate a smaller portion of overseas aid to mitigation finance (possibly as a result of a competing interest between spending on domestic environmental projects and international climate projects).

4. Donors’ effective administration and an international climate agreement do matter.

This study includes a measure of governance (govern) that aims to capture a donor government’s institutional capacity for effective administration and policy formulation. The finding shows that donors who have an effective and transparent public administration are more likely to display a stronger commitment towards climate change mitigation.

5.  Allocation of ODA to mitigation finance might fall without any binding international climate change agreement

Larger donors seem to take the lead in mitigation finance provision (this might reflect an acknowledgment of their relative larger historical responsibility towards the climate change problem or perhaps an easier capacity to raise funds for international environmental projects. This is in line with earlier evidence linking the ratification of the Kyoto Protocol with pro- environmental behaviour.

 

To date, the drivers of donors’ allocation to mitigation finance remain unclear. Identifying these drivers is important to support the global climate agenda, particularly in view of the relative slow growth in global ODA and the pressurising development priorities as listed in the post-2015 United Nations Development Agenda. An improved understanding of these drivers is key to a more effective fundraising strategy of the UNFCCC’s Standing Committee of Finance (with a target of 100 billion US$ per year by 2020).

Access the full text here: Donor characteristics and the allocation of aid to climate mitigation finance

This journal article is published in Climate Change Economics in 2015 and it was written as part of Doctoral Research Project