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This article was originally posted by Chatham House.

The pledge to mobilize $100bn a year in climate finance remains a central pillar of negotiations but developed nations are still falling short on both quantity and quality.

International climate finance is key to managing overall climate risk and many developing countries' climate plans are conditional on getting the necessary financial support, making it unsurprising that the ongoing failure to achieve $100bn a year in climate finance saw the 46 least developed countries express disappointment at COP26, while China’s G20 statement urged developed countries to ‘earnestly fulfil’ commitments.

New OECD projections suggest climate finance will reach $100bn in 2023 but, as so often with climate finance, details are opaque. Country-by-country figures are not set out and nor is it clear which international organizations will increase finance so, even alongside country pledges, it provides only limited reassurance to developing countries.

During COP26, countries such as Italy, the Netherlands, Norway, Spain, and Sweden have all made new pledges each worth more than $500m per year by 2025. US Climate envoy John Kerry has suggested that a further announcement by Japan this week could even mean the $100bn target is met next year though this appears to rely on an unrealistic assumption about Japan’s money leveraging other funds. Even so, if current pledges are fulfilled, it appears that the $100bn target – first set in 2009 and then endorsed by the 2015 Paris Agreement – will indeed be reached, but when is unclear.

The OECD assessment is also the most generous interpretation of the finance target possible because it counts any and all public developed finance badged as climate, whereas in reality almost half of the efforts to date are redirected or rebadged as aid, and much remains ‘committed’ but not yet disbursed. Oxfam have been vocal about this and critical of counting the face value of loans and private finance rather than the much lower cost of providing them.

In advance of COP26, the US twice doubled its climate finance commitment so it is now $11.4bn per year but this falls well short of reflecting a fair share based on US emissions, population, or economic output, let alone correcting for its historic under-provision of finance.

The UK has also undermined efforts to make climate finance additional by maintaining its climate finance commitments while halving bilateral aid to most of its partners, including climate-vulnerable countries such as the DRC, Ethiopia, Malawi, and Sudan. Germany is emerging as the real leader with a €6bn per year commitment delivered alongside real increases in concessional finance over the past decade.

So not only have rich countries missed  the 2020 target even on the most-favourable-possible interpretation, it is also difficult to be confident in the projections and recipients have doubts about whether the finance will actually reach them or be added to existing levels of support.

Positive signs on access and focus

Despite the gloomy outlook, there are positive developments, particularly the commitments—from the US at least—which appear to be additional to existing development finance rather than just reallocation. And several countries such as Canada, Denmark, and Finland are also increasing support towards adaptation in response to calls from developing countries to change the focus from mitigation which does little for the most vulnerable in the short to medium term.

The Climate Finance Access Taskforce—coalition of provider and recipient countries—published a set of principles and five new country pilots to improve access to finance. The least developed countries (LDCs) have said access is a huge problem and the taskforce aims to tackle the convoluted and inconsistent requirements among major funders with a new harmonized approach, although the final principles and recommendations are far from binding.

With foreign direct investment largely absent in the poorest countries, the $100bn is a crucial but tiny part of total global finance. COP26 also welcomes a consortium of investors’ pledges to ‘align’ $130 trillion of private finance assets—40 percent of the total—to net zero. Although the group is still substantially invested in fossil fuels companies, the agreement is a further part of the overall finance jigsaw but much will depend on its implementation.

Where next on climate finance?

The priority is to follow through on the pledges made and, for the US as the largest provider of new funds, this means getting congressional approval – which does appear likely.  Canada and Germany have urged providers to make up the shortfall in finance so that climate finance totals $500bn over 2020-24, and India’s president Narendra Modi connected his new pledge on emissions reductions to an expectation of $1trillion in climate finance, albeit with an unclear timeframe

There is also a need for a new post-2025 target which the Paris Agreement specified has to be ‘a new collective quantified goal from a floor of $100 billion per year taking into account the needs and priorities of developing countries’. At COP26, the aim is only to agree on a process which concludes before 2025.

But that process must tackle two main major challenges. First, on the level of ambition, balancing assessments of need with political realism. Second, on learning lessons from the current goal—in particular ensuring clarity on additionality of funds as well as on measurement of progress as the lack of these has undermined trust in the current target.

Developing countries also want to see further progress on transparency, on commitments becoming disbursements, and a new focus on adaptation and genuine improvements in access.

With ambitions still falling short of limiting climate change to 1.5 degrees and the UN Secretary General calling for updated commitments every year rather than every five years, climate finance will remain a key sticking point in the coming years. And if developed economies cannot coordinate and fulfil the international agreements on climate, it undermines not only climate finance and the Paris Agreement, but also the functioning of the entire international system.

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CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.