Loans, accounting tricks, private investment, and meager pledges undermine a key tool for addressing climate crisis.
David Goeßmann is a journalist based in Berlin/Germany. He has worked for several media outlets including Spiegel Online, ARD, and ZDF. His articles have appeared at Truthout, Common Dreams and The Progressive. His books analyze climate and foreign policies, global justice, and media bias.
Cross-posted from Truthout
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N climate conferences are primarily announcement summits. For 30 years, industrialized countries, which are primarily responsible for the climate crisis, have been promising that they will reduce greenhouse gas emissions consistent with the climate science, promote the energy transition, and combat the effects of climate change. Additional promises have also been made regarding climate financing at the UN Conference of the Parties (COP) climate summits in Copenhagen (2009) and Paris (2015). At COP30 in Brazil, governments have once again declared their intention to support developing countries with climate funding, repeating their promise at the COP29 in Baku, Azerbaijan, to increase climate financing to $300 billion annually from 2035. But promises are not yet actions.
At the Paris conference, for example, $100 billion dollars a year were pledged from 2020 onwards. This target was reached for the first time in 2022 but only on paper. The industrialized nations reported contributions of $116 billion, but according to the aid organization Oxfam, the actual value of the aid amounts to only $28 to 35 billion. This is because almost 70 percent of the aid is loans and not payments. But loans will only increase the debt burden of the already over-indebted countries of the Global South. In the last two decades the external debt of developing countries has quadrupled to a record $11.4 trillion in 2023, equivalent to 99% of their export earnings, according to the UN development agency UNCTAD. In addition, $24 billion of the climate amounts registered by the OECD are private investments. However, as NGOs have pointed out, these commercial, profit-oriented investments are difficult to trace and assess; can‘t substitute public funds as they are not payments; and just artificially inflate the amount which has to be paid by the governments of the industrialized countries.
In addition, a large part of climate funds from Organisation for Economic Co-operation and Development (OECD) countries are itemized as official development assistance (ODA), a type of foreign aid that is provided to developing countries by the industrialized states and reported to the Development Assistance Committee (DAC) of the OECD. The formalized aid emerged in the wake of decolonization in the late 1960s, when the issue of reparations for the Global South was put on the agenda. A quarter of ODA aid is now funded by climate money, which marginalizes other tasks such as poverty reduction. In response to an inquiry by the Green Party in the German parliament in December 2016 asking whether climate financing was provided in addition to development assistance, the German government stated that “German climate financing (…) is almost entirely ODA-eligible. … Climate and development policy” are “intrinsically intertwined.” Such entanglement only makes sense, of course, if one is not willing to pay extra. However, this conflation of climate and development policy contradicts the promise to provide public funds for the climate crisis beyond development aid.
But even with the included climate funds, OECD countries are still far from meeting the 0.7 percent of GDP target for development aid — a sum that has been promised for decades primarily by the United States and European countries and was firstly set as a goal in a 1970 UN General Assembly Resolution. The bottom line is that climate finance is providing virtually no additional funds to the Global South, leaving those countries to deal with the climate crisis on their own, while loans and private investments must be refinanced by poor countries.
Climate Financing Is Not Charity
Climate financing is supposed to bring nations into alignment with their fair share of the global greenhouse gas budget. It is not a voluntary act of charity on the part of industrialized countries, but originates from historical debt. Climate funds are compensation for the permanent overuse of the atmosphere through the burning of coal, gas, and oil for energy production by industrialized countries, which has made them “carbon insolvent.” In other words, rich nations have long since exhausted their emission rights and are living off the emission credits from poor countries, as studies show.
The fact of historical climate debt was already expressed in the 1992 UN Framework Convention on Climate Change (UNFCCC) on the principle of “Common But Differentiated Responsibilities” (CBDR) for climate change. Subsequently, it was declared that industrialized countries would provide “new and additional financial resources” to the extent that developing countries need them “to meet the agreed full incremental costs” of emission reduction and adaptation to climate damage.
The amount needed is no secret. The latest studies, supported by the UN, estimate total annual costs for developing countries (excluding China) at US$1 trillion from 2025 onwards, $2.3-2.5 trillion from 2030, and $3.1-3.5 trillion from 2035. The authors of the studies assume that developing countries could cover half of the costs themselves — an optimistic presupposition and by no means in accordance with climate justice.
Even if all loans, ODA aid, and private investments are included, the gap between what has been offered so far and the financing needs is enormous. The current sum (on paper) would have to be immediately increased many times over in order to cover even half of the costs for poor countries, and then rise steadily to $1.75 trillion in 10 years — which would meet the minimum obligation. Also, as non-governmental organizations have long demanded, only genuine payments made in addition to development aid should be counted — no more loans, private investments, or ODA funds.
Headed in the Wrong Direction
However, the trend around the climate summit in Brazil is negative, despite the vague new promise by industrialized countries to mobilize $300 billion by 2035. Oxfam explains that climate funds have been declining parallel to development aid since 2022. In addition, the accounting practices by industrialized countries remain opaque, while private investments are increasingly being included in climate finance sums in a non-transparent manner.
Above all, very little money is being made available for adaptation measures, while climate finance is not reaching the countries that need it the most. The least developed countries and vulnerable island states receive less than a quarter of climate finance, with more than half of it in the form of loans. A recently published study by ActionAid on the COP30 climate summit also shows that less than three percent of international aid for CO2 emission reduction goes toward a “fair transition” for workers and communities away from polluting industries. The report warns that this will further exacerbate inequality and sabotage climate protection.
It is often large-scale projects in middle-income countries that attract climate funds from rich countries, although the investments are often not transformative in nature, which is supposed to be the case according to the Green Climate Fund (GCF). The GCF states that financed projects should stimulate a paradigm shift towards low-carbon, sustainable development for the whole economy, which includes covering different sectors, enforcing state ownership, and knowledge sharing. But this is seldom the case. For example, instead of diversifying energy sources, the expansion of a large dam in Tajikistan was supported with $50 million. Critics argue that this makes the country dependent on hydropower in a problematic way, as snow and ice that feed the dam’s turbines are likely to decrease significantly in the region due to climate change. Even the first director of the GCF, Héla Cheikhrouhou, notes that all in all the fund does not support “groundbreaking projects.” Joe Thwaites, former climate finance analyst at the World Resources Institute, presumes that political pressure is often too great to fund better alternatives.
Making Climate Finance Work
Climate finance today resembles a jumble of numbers that is sold to the public with glittering facades. This applies not only to the insufficient sums, the misguided crediting practices, and deceitful accounting methods, but also to the fact that donor countries and their institutions mostly control the flow of funds with assistance from Western banks like Deutsche Bank, which are still heavily financing fossil fuels. As with development aid, climate finance tends to be misused as export promotion for Western companies and geostrategic purposes. In the worst case, funds are wasted on individual projects instead of stimulating a self-sustaining energy transition. Additionally, the rights of Indigenous peoples and the needs of local populations are often disregarded.
For example, consider the Turkana wind farm in Kenya. The project was completed in 2018 and has a financing volume of almost $700 million. Backed by European banks, development funds, and private investors, the park with almost 400 wind turbines is the largest investment project since Kenya gained independence and can produce up to 300 megawatts of renewable energy for the national grid. But on closer inspection, things don’t look quite so rosy. The Kenyan government has had to keep the wind farm alive with financial guarantees, high fixed electricity prices, compensation payments, and infrastructure construction. The Indigenous people were displaced from their land for the project. The population was generally excluded from the planning process, while conflicts between local communities flared up in the course of construction activities.
Such grievances are not isolated cases when it comes to green investments. One study recorded over 200 allegations of adverse human rights impacts linked to renewable energy projects between 2010 and 2020. Indigenous people have been on the frontline of these abuses, from Latin America to African countries to Asia. The land they live on is repeatedly taken from them without proper consultation or consent, while green investors benefit from historically weak legislation protecting communal land in many developing countries. Ultimately, this leads to increased rejection of green, climate-related projects by local people in poor countries. Giving recipient countries control over climate funds is therefore not only a question of justice, but also of effectiveness.
Civil society groups worldwide have been calling for fundamental changes to climate finance for a long time. Above all, the sums made available as public payments must be increased rapidly. There is enough money in the Global North available among those who are primarily responsible for the climate crisis: the fossil fuel industries and high emitting social classes. Oil Change International notes that industrialized countries could fairly redirect around $270 billion annually in direct subsidies for fossil fuels into climate protection measures, and much more. OCI has calculated how various taxes on polluting corporate activities, extreme wealth, and emission-intensive consumption, as well as debt relief for developing countries, could mobilize around $5.3 trillion per year. There is also considerable public support for such climate financing.
What is lacking is not the money or the consent of citizens in rich countries, but the political will of governments to mobilize the financial resources for climate protection in the Global South. Whether the climate conference in Belém can make a difference depends on whether pressure is exerted on those in the industrialized world with the political power to change course.
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