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2013

The Landscape of Climate Finance

The most comprehensive inventory of climate change investment available.

A project of Climate Policy Initiative.

2011
2012
2020
$364 bn
2011
$359 bn
2012
$5 trillion
additional investment for clean energy alone, up to 2020 *Source: IEA
How does that compare to what's needed? Click to find out. Click here

Climate change investment totaled $359 Billion worldwide in 2012.

That’s roughly the same as the year before and not nearly enough.

We’re falling further and further behind the globally agreed upon goals for safe emissions levels.

If we are going to close the gap, we've got to know how finance is flowing now.

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Where is climate finance going?

76% of climate finance is spent domestically.

The majority of global climate finance originated in the country in which it was used.

$359 bn
2012
Click here
$273 bn
76%
$86 bn
24%

24% of climate flows between countries.

Much of the international money flowing between developed countries is private.

The vast majority of money flowing from developed to developing countries is public.

This highlights investors' preference for familiar environments perceived to be lower risk.

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Who are the important actors in climate finance?

The private sector provides the lion’s share of finance.

The public sector plays a central role.

Providing incentives, low-cost loans, risk coverage mechanisims, direct project investment, and technical support.



$224 bn
PRIVATE Click here
$359 bn
2012
$135 bn
PUBLIC Click here

These public measures for climate change are significant, but remain dwarfed by government support to fossil fuel consumption.

$523 bn
FOSSIL FUELS*developing and emerging economies alone, source OECD
vs
$135 bn
CLIMATE ACTIVITIES
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Develop well-articulated domestic enabling environments to encourage further private investment.

76% of global climate finance originated in the same country it was spent (this was true for 72% of investments in developing countries, and 81% in developed countries). The striking domestic preference of climate finance emphasizes the potential influence of appropriate domestic incentives and regulatory frameworks in unlocking further private investment.

Recognize that private actors prefer familiar policy environments where the perception of risk is lower.

The importance of well-articulated policy environments is bolstered by the finding that the 24% of climate finance that flowed between countries in 2012 was dominated by mostly publicly funded North-South flows. Of private flows, the vast proportion was invested in developed countries. This highlights a key opportunity for policymakers to encourage more international investment by tackling the perception of risk for overseas investors, particularly in developing countries where the perception of risk is higher.

Continue to invest in, and ensure effective use of, international public resources.

International public resources play a critical role in facilitating low-carbon and climate-resilient investments, particularly in developing countries. Based on available data, the vast majority of the USD 39-62 billion in North-South flows originated from public sources. Of the adaptation flows captured in this Landscape, 100% were publicly funded (20-24 billion) and mostly invested in developing countries (around 65% of the total). These resources are subject to some of the most political public policy debates, in both the domestic and international context. Ensuring that policymakers understand how these resources are being used to underpin sustainable transitions to self-reliant, low-carbon and climate-resilient economies in the long-term, will help to ensure they are delivered through appropriate instruments and targeted in line with national development priorities.

Encourage demand for and assess the effectiveness of international financing instruments.

Domestic and international public intermediaries such as Multilateral, Bilateral, and National Finance Institutions offer a range of financing instruments. Development Finance Institutions channeled about one third of total climate finance flows. Their investments can be both public and private in nature, and their tool box of instruments blending loans and grants can cover risks and lower incremental costs. Work to prioritize the creation of stronger domestic enabling environments in developing countries and emerging markets could help unlock further demand for these instruments. Additionally, while Development Finance Institutions occupy a central role in the landscape, more harmonized reporting and tracking of climate finance would improve the ability to evaluate the true volume, nature, and impact of their resources.

Address risk, which lies at the heart of private investment decisions.

Risk coverage instruments and guarantees can help to unlock finance, including from new classes of investors, such as institutional investors. However, important risk coverage gaps remain, particularly for policy and financing risks, and key investors remain on the sidelines. See Risk Gaps for more details.

Close important knowledge gaps.

Knowledge gaps continue to impede our ability to track or evaluate climate finance flows. In particular, there are large knowledge gaps about adaptation finance, private sector finance, and the role of the private sector in financing adaptation, energy efficiency and REDD+. There is also insufficient knowledge about flows between and within countries, public support for incremental investment costs and revenue support, and the comparability of data between current finance and the global need. On the private finance tracking side, for example, policymakers could develop methods to require the disclosure of project details, without impairing confidential or commercially sensitive information. In terms of adaptation, agreement on the sectoral boundaries for defining adaptation would improve the ability to mark, track, and monitor the effectiveness of these flows.

How can the public sector incentivize private investment?

Further, globally, in the absence of a level playing field for climate investments the role of public finance is all the more important. We offer the following findings as action points for policymakers.

  • Develop well-articulated domestic enabling environments to encourage further private investment.
  • Recognize that private actors prefer familiar policy environments where the perception of risk is lower.
  • Continue to invest in, and ensure effective use of, international public resources.
  • Encourage demand for and assess the effectiveness of international financing instruments.
  • Address risk, which lies at the heart of private investment decisions.
  • Close important knowledge gaps.
(*) Click on each finding to view more information.
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