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EU received the lion's share of climate financing dollars in 2020: report

01 July 2021 Amena Saiyid

The EU as a region received the lion's share of climate financing from multilateral development banks (MDBs) in 2020, followed by Sub-Saharan Africa and South Asia, according to a report released June 30.

Coordinated by the European Bank for Reconstruction and Development (EBRD), the 2020 Joint Report on Multilateral Development Banks' Climate Finance said the high-income economies of the EU received $26.6 billion out of a total of $66 billion the MDBs doled out, mostly in the form of investment loans, rather than as grants, bonds, or equity investments.

Funds secured through these means are largely used to mitigate the present and future impacts of climate change through shifting energy generation and consumption to low-carbon sources. Sub-Saharan Africa was the next largest recipient at $9.06 billion, and South Asia was in third place with $8.03 billion.

"Accelerating the transition to low-carbon and climate-resilient economies through climate financing. is a key element of the MDBs' effort to align their activities with the objectives of the 2015 Paris Agreement," the MDBs said in a 30 June announcement, following the report's release.

The report combined data obtained from African Development Bank, the Asian Development Bank, the EBRD, the European Investment Bank (EIB), the Inter-American Development Bank Group, the Islamic Development Bank, the World Bank Group (WBG), and, for the first time, the Asian Infrastructure Investment Bank.

A day after the report's release, the EBRB announced that its Board of Governors has voted to align its activities with the Paris Agreement, starting with the end of 2022. This would include shoring up its proportion of green financing to more than 50% by 2025 and intensifying support for where fossil fuel reliance remains heavy.

The EBRD, which began 30 years ago to help formerly communist countries adapt to market conditions, said its member countries are 35% more carbon-intensive than the world average, and highly polluting coal accounts for more than 40% of primary energy supply in seven EBRD countries.

The ERBD itself provided $3.8 billion in climate financing in 2020, according to the report.

However, it wasn't the leading climate financier. The EIB led the pack, followed by the World Bank Group.

Most of EIB's total financing of $27.8 billion went towards high-income economies in the EU region, and about 11% to low- and middle-income economies. In contrast, nearly 4% of the World Group's $22 billion in financing was directed to high-income economies, while the rest went to helping low- and middle-income economies transition to a low-carbon future.

Financing through debt

Overall, more than half of the $50.4 billion in loans were given to low- and middle-income economies, rather than as grants or other forms of financing, which drew criticism from the global nonprofit Friends of the Earth (FOE).

"We are concerned about the amount of climate finance being given through debt-based instruments," Luisa Abbot Galvao, FOE international policy campaigner, told Net-Zero Business Daily in a 1 July email. "Countries shouldn't have to go into further debt to take climate action, especially those countries that did the least to contribute to it and are already being the most impacted."

However, $38 billiion in total loans, loan guarantees, equity, bonds, and other forms of financial assistance were directed to low- and middle-income economies, according to the report.

A week earlier UN Secretary General António Guterres repeated his call that 50% of total climate finance should be spent on building resilience and adaptation, up from 20% now. "We must ensure that this finance goes to those most in need, particularly small island developing states and least developed countries," Guterres said at the UN Special Thematic Session on Water and Disasters on 25 June in Brussels.

The report pointed out that small island states received less than one-eighth of total climate financing, or $8.1 billion, in 2020 for both adaptation and mitigation activities.

Mitigating climate impacts

Most of the MDBs' financing, or $49.9 billion, was directed towards mitigating climate change effects by shifting toward practices that release fewer GHGs, such as clean energy generation, using lower-emitting vehicles, and improving energy efficiency of buildings and manufacturing processes.

About half of the mitigation financing, or $24.2 billion, was directed to the EU, with about $5.7 billion going to South Asia, and roughly $4.3 billion each to Sub-Saharan Africa and the Latin America and Caribbean regions.

The EU spent most of its mitigation financing on transitioning its transport sector ($8 billion), investing in renewables ($5 billion) and low carbon-technologies ($3.1 billion), and improving energy efficiency ($6.7 billion).

South Asia spent more than half of its mitigation financing in the renewables and transport sectors and to a lesser extent on water and wastewater systems.

Adapting to floods, storms

The MDBs directed $16.1 billion toward climate adaptation activities to build resilience to the mounting impacts of climate change, including worsening droughts and more extreme weather events, from flooding to rising sea levels.

This included $4.2 billion in financing to shore up existing energy, transportation, and other infrastructure, and $2.3 billion for boosting water and wastewater treatment systems to deal with flooding caused by more frequent storms and sea-level rise.

Under adaptation financing, South Asia received $1.5 billion, while Sub-Saharan Africa received $1.8 billion to shore up its energy, transportation, and wastewater infrastructure. The EU received a similar amount as South Asia, though it spent its money equally between the water and wastewater sector and the energy, transport, and other environmental sector.

Environmentalists remain skeptical

Galvao and others in the environmental nonprofit community remain skeptical of any climate financing claims by the MDBs, notably the World Bank Group, because they continue to fund fossil fuel projects.

The MDB report lists the World Bank Group, followed by the European Investment Bank, as the leading financiers in 2020.

"So while MDBs should get credit for increasing climate finance to renewables and climate adaptation over the years, their continued support for fossil fuel projects and for policies that create an enabling environment for fossil fuel expansion ultimately undermine and even contradict their climate-positive actions," Galvao said.

It's not enough

The funding levels, even when aimed at clean energy and climate mitigation, fall far short of the amount identified by the International Energy Agency and the World Bank in a report released in June.

In particular, more investment needs to be directed at the developing world, the groups said in their report, "Financing Clean Energy Transitions in Emerging and Developing Economies." Annual clean energy investment in emerging and developing economies needs to increase by more than seven times, from less than $150 billion in recent years to over $1 trillion by 2030, for the world to be on a path to reach net-zero emissions by 2050.

Posted 01 July 2021 by Amena Saiyid, Senior Climate & Energy Research Analyst, IHS Markit

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