Billions of dollars of foreign aid have been reclassified as “climate finance”, thereby helping rich countries to meet a long-overdue target, according to new analysis.

Newly released figures suggest that developed nations achieved their goal of raising $100bn in climate aid for developing countries in 2022 – two years after the deadline.

The Organisation for Economic Co-operation and Development (OECD) says these countries raised $115.9bn for climate-related projects, following a record surge in spending.

However, analysis conducted by the Center for Global Development (CGD) and shared with Carbon Brief suggests that around $27bn of the $94.2bn increase in public climate funds over the past two decades came from existing development aid.

Specifically, the CGD identified at least $6.5bn of climate aid within the record 2022 increase that was diverted from other aid programmes. This is despite pledges by wealthy countries to provide climate finance that is “new and additional”. 

Such accounting changes could allow some developed countries to reach their climate targets, even while slashing their wider aid budgets. 

Meanwhile, wealthy nations are under pressure to rapidly increase climate spending in the global south. At COP29 this year, all parties must agree on a new climate target that will help raise the trillions of dollars these nations say they need to address climate change. 

‘Largest increase’

The $100bn target was set in 2009 at COP15 in Copenhagen to help developing countries cut their emissions and protect themselves from climate change.

A group of “developed” countries, including many European nations, the US, Canada, Japan, Australia and New Zealand, agreed to “mobilise” this amount by 2020 and then each year through to 2025.

This money largely comes from countries’ foreign-aid budgets, which finance climate-related development projects. A smaller proportion is also raised from the private sector.

Crucially, countries have determined during UN climate negotiations that climate finance should be “new and additional”. This is generally interpreted as meaning it should be supplied on top of existing aid.

Developed countries failed to hit the $100bn goal by 2020, raising just $83.3bn that year. This was poorly received by developing country governments, who view this money as essential to meet their climate targets under the Paris Agreement. 

Last year, the OECD, which tracks international climate finance, announced that developed countries had “likely” met the target in 2022 – two years late. It did not release the data underpinning this estimate at the time.

The OECD has now published a report confirming that the $100bn goal was met. In fact, the organisation says climate finance underwent its “largest year-on-year increase observed to date” in 2022 – reaching $115.9bn. This $26.3bn increase can be seen in the chart below.

This uptick in climate finance was driven by record increases in spending both bilaterally – directly from country-to-country – and via multilateral development banks and funds.

There was also an unprecedented $7.5bn increase in private finance, which was mobilised by developed country investment. This comes after years of private investment remaining essentially unchanged each year.

The OECD notes that the “lion’s share” of public climate finance was provided as loans – around 69% of the total. This has raised concerns, given the number of global south countries that are already struggling with debt. 

‘New and additional’

Countries are set to decide on a new climate-finance goal – known as the “new collective quantified goal” – at COP29 in Baku, Azerbaijan, later this year. This target is expected to go beyond the $100bn goal and be based on an assessment of countries’ real-world needs.

Meanwhile, some wealthy countries have announced major cuts to their foreign-aid budgets. Many nations have also decided to channel large amounts of aid to Ukraine, following Russia’s invasion in 2022, while also diverting funds to accommodate refugees on their own soil. 

All of this could squeeze the wider development-aid budget and, in theory, make achieving climate finance goals more challenging.

Some countries, including the UK, have opted to meet their climate finance targets by “redirecting” or “relabelling” existing funds as “climate finance”, while failing to commit new money in sufficient volumes.

According to analysis by the CGD – released one week ahead of the OECD’s assessment – this is largely what enabled developed countries to meet the $100bn target in 2022.

It concluded that, when considering public climate finance, the goal was “partly achieved by adding climate objectives to existing development finance flows”. (The CGD analysis did not attempt to estimate the increase in private finance, assuming it would remain stable as it had in previous years.)

Applying the CGD analysis to the public portion of the OECD’s $115.9bn climate finance figure – which amounted to $94.2bn – shows that around $27bn comes from existing development aid.

This is based on overall aid only increasing $67.2bn between 2009 and 2022, meaning the remaining increase in climate aid must have come from existing sources.

Ian Mitchell, the CGD senior policy fellow who led the analysis, tells Carbon Brief:

“The intention was to provide ‘new and additional’ finance and I think the very lowest bar for that is that the face value of [total] finance would have gone up $100bn.”

As the chart below shows, while the overall aid budget grew in 2022, due partly to new aid for Ukraine and more spending on housing refugees, existing bilateral development aid fell in 2022.

Given this, the CGD says the $6.5bn increase in climate finance that year can definitively be attributed to countries’ existing foreign-aid budgets, rather than an increase in spending.

Diverting funds

Mitchell highlights the key issue with hitting climate finance targets without committing enough new resources:

“The problem with meeting that $100bn from existing resources is that it’s either rebadging it, which is not providing climate finance, or it’s diverting it from other development objectives…reducing spend on health or education.”

However, Joe Thwaites, senior international climate finance advocate at the Natural Resources Defense Council (NRDC), tells Carbon Brief that not all diversions are “bad diversions”.  

A report by the thinktank ODI last year found that much of the funding being reclassified came from sectors such as energy and transport. Thwaites points out that this could mean cutting back on support for fossil fuels and targeting clean energy instead:

“Given the massive development and climate needs, we need to be growing the overall international public-finance pie. But shifting finance from one area to another isn’t necessarily a bad thing, it all depends what it’s being taken from and going to.”

More broadly, Harjeet Singh, global climate lead at Climate Action Network (CAN) International, tells Carbon Brief that developed countries are taking advantage of “creative accounting” and “fiscal loopholes” to meet their targets. 

He warns that, as nations prepare to negotiate a new climate finance target at COP29, there is a need for a clear definition of what counts as “climate finance” to avoid such behaviour:

“The absence of a unified definition of climate finance is not a mere oversight; it mirrors historical patterns of power…Developed countries have aimed to keep their financial responsibilities ambiguous.”

The post Rich countries met $100bn climate-finance goal by ‘relabelling existing aid’ appeared first on Carbon Brief.

Rich countries met $100bn climate-finance goal by ‘relabelling existing aid’