9.1 What Financial Flows Constitute Climate Finance?

The framing of particular flows of finance as climate finance constitutes an important cognitive aspect of climate finance. While other cognitive aspects may also be relevant, the question of what flows of finance count as climate finance is the single most important question involving cognitive ideas and climate finance. This question has been strongly contested even before the USD 100 billion target, including whether and under which conditions private finance and development aidFootnote ² can be considered climate finance. Defining the target as USD 100 billion mobilised by developed countries without specifying what ‘mobilised’ meant added to the uncertainty. To gain an understanding of the different kinds of finance that are sometimes framed as climate finance and sometimes not, the UNFCCC Standing Committee’s so-called ‘onion diagram’ is instructive (see Figure 9.1). This diagram places different kinds of climate finance in concentric circles: the more undisputed their character as climate finance is, the closer they are to the centre; the larger the flow, the larger the circle. At the very centre is the funding provided by designated multilateral climate funds. These include the UNFCCC climate funds (the Green Climate Fund and other Funds operating under the UNFCCC such as the Adaptation Fund), in 2015 and 2016 disbursing about USD 600–1,600 million annually, as well as other multilateral climate funds such as the Climate Investment Funds (anchored within the World Bank), funds which in 2015–16 amounted to USD 1,400–2,400 million annually (UNFCCC Standing Committee on Finance, 2018). Some observers argue that only such finance can be counted as climate finance (Reference DasguptaDasgupta and Climate Finance Unit, 2015).

Figure 9.1 The concentric circles of climate finance. All numbers refer to the size of flows measured in USD billions.

Source: UNFCCC Standing Committee on Finance (2018).

The second layer consists of public finance flowing through channels not designated as climate institutions: MDB climate finance not stemming from climate funds and public finance from developed countries flowing through bilateral, regional and other non-MDB channels.Footnote ³ According to the Standing Committee (2018), the former amounts to USD 17–20 billion annually, the latter to around USD 30 billion. Of these two kinds of finance, the latter has proven most controversial (Reference Roberts and WeikmansRoberts and Weikmans, 2017). It consists of bilateral Official Development Assistance (ODA), provided by developed countries marked as mitigation or adaptation-related by the country itself in its Bi-Annual Reports to the UNFCCC. Because it is up to the individual contributor country to identify its own projects as climate-related, climate-related ODA is often overcoded in the sense that the climate objectives are overstated (Reference Michaelowa and MichaelowaMichaelowa and Michaelowa, 2011b; Reference Weikmans, Roberts, Baum, Bustos and DurandWeikmans et al., 2017). Yet, the controversy regarding treating ODA as climate finance stems not only from overcoding but also from the provision already stipulated in the UNFCCC Convention that climate finance should be ‘new and additional’ to ODA (see discussion in Section 9.2.1).

The third layer consists of private finance for activities addressing climate change mobilised by the MDBs and by regional and bilateral institutions as well as renewable energy projects, in total amounting to around USD 15–17 billion annually in 2015–16, the bulk mobilised by MDBs. These flows differ from the inner layers in stemming from private sources, and from outer layers in being mobilised by public finance from developed countries, for example, an MDB providing guarantees or taking on parts of the risk associated with loans for climate projects.

The fourth layer covers all the flows that do not flow from developed to developing countries, including public and private finance spent within countries and between developed countries as well as between developing countries, so-called South–South finance (and are hence beyond the main focus of this part of the book). This layer was estimated at around USD 680 billion annually in 2015–16, although the difficulties in collecting reliable data are greater here than in the inner layers (UNFCCC SCF 2018). Some observers have argued that there de facto is a fifth layer of climate finance, namely the finance flowing to activities with a negative climate impact, such as fossil fuel extraction and consumption (e.g. coal-fired power plants, aviation), unsustainable logging, steel and cement production, and so forth (Reference Paul, Caroline, Joe, Laetitia and BiankaPaul et al., 2017; Reference Whitley, Thwaites, Wright and OttWhitley et al., 2018). Such finance is often referred to as brown finance as opposed to the green finance constituting the finance identified by the Standing Committee on Finance (SCF) (CPI 2018; Climate Transparency 2018), and also includes fossil fuel subsidies discussed in Part II of the book. While such brown flows are undisputedly several times greater than the green ones, they remain outside of the focus of this part of the book.

The preceding discussion concerns the question of the sources of finance that can be considered climate finance, yet the question of which kinds of finance (grants, guarantees, loans, equity) can be considered climate finance has also loomed large. While there is consensus that grants may count as climate finance, whether and how loans should be counted as climate finance is more disputed. Given that the vast majority of climate finance (including the two inner layers of the onion diagram) is provided as loans or equity, this is important (CPI, 2019). Even public finance constitutes predominantly loans, the MDBs almost solely providing loans. Many of the public loans are provided on more favourable terms than those that could finance a project if they were obtained in the financial market, for example, the interest rate is lower or the loan period longer (what is known as a concessional loan). Equity, where financing comes from ownership rather than loans, is mainly private finance.Footnote ⁴ A key issue is how to calculate the value of especially loans but also equity. As regards the USD 100 billion target, to many it seems counterproductive and unfair to equate USD 1 million provided as a grant with USD 1 million provided as a loan that has to be repaid with interest. One solution has been to calculate the ‘grant equivalent’ of a concessional loan, i.e. the difference between the value of a loan obtained in the market and the actual value of the loan (value calculated as the sum of future repayments and interests, Reference ScottScott, 2017). Likewise, there is consensus within the UNFCCC that only private finance caused or leveraged by public finance should count towards the USD 100 billion target. In both cases, there has been much technical debate regarding how to carry out the calculations.

9.2 Contested Issues in Climate Finance

Besides the cognitive dimension discussed earlier, contestation over important normative issues have also characterised climate finance (Reference Dellink, den Elzen, Aiking, Bergsma, Berkhout, Dekker and GuptaDellink et al., 2009; Reference Pickering, Betzold and SkovgaardPickering et al., 2017; Reference SkovgaardSkovgaard, 2017b). This includes purely legal norms such as ‘Common but Differentiated Responsibilities and Respective Capabilities’ (CBDR) that have drawn much attention (Reference Brunnée and StreckBrunnée and Streck, 2013; Reference JinnahJinnah, 2017), as well as less explicitly legally defined normative ideas such as efficiency and equity. Efficiency and equity have been key themes in international climate finance politics, as discussed in the two following subsections. This book will focus on two key issues regarding the different normative ideas that have emerged in climate finance governance, and which are particularly pertinent to international economic institutions:

1. 1. Generating resources: Which normative ideas should guide the generation of climate finance?

2. 2. Allocating resources: Which normative ideas should guide the allocation of climate finance?

9.3 The Climate Finance System and Its Main Components

At the international level, besides the normative fragmentation outlined earlier, the climate finance system is also characterised by considerable institutional fragmentation, with a range of institutions addressing the issue (Reference Pickering, Betzold and SkovgaardPickering et al., 2017). These institutions include UN and non-UN, environmental and non-environmental, public and private institutions.

9.4 Domestic Politics

The domestic level is arguably the most important for the actual flows of climate finance. The fragmented nature of the climate finance governance system leaves most of the decisions of how public climate finance should be allocated to the governments of developed countries (Reference Pickering, Betzold and SkovgaardPickering et al., 2017), which also hold considerable sway over MDBs. The decisions regarding how to allocate climate finance are mainly driven by domestic factors such as income, attention to environmental issues, responsibility and vulnerability to climate change, political orientation of government or the ministry that is responsible (Reference HalimanjayaHalimanjaya, 2015, Reference Halimanjaya2016; Reference Michaelowa and MichaelowaMichaelowa and Michaelowa, 2011b; Reference Peterson and SkovgaardPeterson and Skovgaard, 2019; Reference Pickering, Skovgaard, Kim, Roberts, Rossati, Stadelmann and ReichPickering et al., 2015b). Developing countries have less influence over the allocation, but develop climate finance projects within their borders, sometimes together with international funders and sometimes on their own with the intention of applying for funding. Nevertheless, there are crucial influences from the international level regarding all kinds of domestic climate finance decisions, in the shape of norms, targets and other commitments, the monitoring of climate finance, and knowledge about how to allocate and implement climate finance.

9.5 Summary

Climate finance is a topic at the intersection of climate and economic politics, yet more anchored within the UNFCCC than fossil fuel subsidies. The issue is characterised by considerable contestation over what flows of finance can be defined as climate finance and which normative ideas (particularly equity or efficiency) should guide the allocation and generation of climate finance. Furthermore, the climate finance system is also characterised by institutional fragmentation. Much, but not all, of this contestation and fragmentation reflects a dividing line between, on the one hand, developed countries promoting broad definitions of climate finance, efficiency and maintaining control over climate finance and, on the other, developing countries promoting narrow definitions of climate finance, equity and influence over climate finance. How economisation has worked in the case of the institutions addressing climate finance, including the definitional issues and normative issues outlined above, within the climate finance system, is the topic I turn to next.

10.1 Output: Failure to Commit, Followed by Knowledge Production

In the spring of 2009, the UK Presidency played an active role in establishing an expert group on climate finance, with the purpose of delivering a report and the basis for a G20 finance ministers’ and central bank governors’Footnote ¹ statement outlining their position before COP15. This statement was intended as a formal output of the November 2009 G20 meeting of Finance Ministers and Central Bank Governors in St Andrews (the United Kingdom). Thus, an important objective of the expert group was to influence the UNFCCC output. In the UNFCCC negotiations leading to COP15, it had become evident that climate finance commitments would be an important part of an agreement, but also that the negotiators from Annex II countries could not make credible commitments before they had been given the green light from their finance ministries. Several actors thought that the best way to avoid finance ministries vetoing or weakening climate finance commitments was to involve them in the negotiations and thus ensure that they felt a sense of ownership for the agreement and that the agreement reflected their views (Interview with senior European Commission official, 28 June 2011). Interestingly, climate change was outsourced from the UNFCCC negotiations not because it was uncontroversial (as Reference ZelliZelli, 2011 argues has been the case with the topic of reducing emissions from deforestation), but precisely because it was controversial.

In terms of informal output, the expert group sought to establish common ground through writing papers on topics such as public finance, private finance and how the different kinds of finance should be accounted for (interview with senior European Commission official, 7 September 2011). The process pressured the finance ministries in question to define their position on climate finance through analysis, that is, a process that influenced their cognitive and normative ideas regarding climate finance. The different elements of those papers were brought together in early drafts of the St Andrews Communiqué. The process also established a common ground on several issues before going into the St Andrews meeting in early November 2009 although this did not translate into an actual agreement on climate finance including commitments (interview with senior European Commission official, 7 September 2011).

The first draft from St Andrews contained several provisions that were quite far-reaching at the time given that climate finance negotiations had come to a halt in the UNFCCC negotiations, and would have constituted important regulatory output if adopted. Firstly, regarding the generation of finance, it contained the first mention of the commitment of developed countries to the USD 100 billion target – part of the Copenhagen Accord agreed a few weeks later at COP15 (interview with senior European Commission official, 7 September 2011) as well as the recognition of the different sources (including private and carbon market sources), which remained in the final St Andrews Communiqué (G20, 2009; G20 Finance Ministers and Central Bank Governors, 2009). These provisions can be compared to the UNFCCC negotiation text that was discussed at that time, which contained numbers in sharp brackets ranging from the unspecified to 5.5 per cent of developed countries’ GDPFootnote ², and sources ranging from purely public to a combination of public, private and carbon market resources (UNFCCC, 2009b). Thus, the 100 billion target was a rejection of the demand of most UNFCCC negotiators from developing countries that only public financing should count against the target, but it also meant that finance ministries in developed countries accepted the climate finance target (an idea which many of them initially opposed).

Second, the Communiqué emphasised efficiency, an approach that was more widespread among developed than developing countries but resonated better among finance ministers from developing countries than UNFCCC negotiators from the same countries. In this way, the first aspect of economisation (placing climate finance on the agenda of an economic institution) led to the second aspect of economisation (an economic framing of climate finance).

Yet, at the St Andrews meeting, the ministers were unable to agree on the draft joint statement on the table because of the United States insisting that the World Bank should be the trustee of the Green Climate Fund, and China and India opposing this (interview with senior UK Treasury official, 30 June 2011). China also insisted on references to Common but Differentiated Responsibilities and Respective Capabilities (CBDR) which made a compromise more difficult to achieve (interview with senior UK Treasury official, 30 June 2011). Thus, CBDR was much more controversial than efficiency. As a consequence of these disagreements, the climate finance provisions of the official Communiqué of the meeting did not contain any significant commitments or agreements on disputed issues (Reference Vorobyova and WillardVorobyova and Willard, 2009).

Following 2009, climate finance continued to be addressed by experts under the G20 finance ministers and central bank governors, and these meetings became institutionalised with the establishment of the G20 Climate Finance Study Group (until 2013 named the Study Group on Climate Finance) during the 2012 Mexican Presidency (G20 Heads of State and Government, 2012). The Climate Finance Study Group reported to G20 Leaders on how to mobilise climate finance to meet the USD 100 billion target for climate finance agreed at COP15. The Study Group was discontinued after 2016, with the Green Finance Study Group (in 2018 renamed the Sustainable Finance Study Group) continuing some of its efforts and addressing environmental and sustainable finance from a perspective mainly focusing on private finance (Reference Hansen, Eckstein, Weischer and BalsHansen et al., 2017). These discussions were rather technical, and although the G20 finance ministers and central bank governors discussed climate finance provisions in a Paris Agreement in the run-up to the Twenty-first Conference of the Parties to the UNFCCC (COP21), the level of ambition for G20 involvement was much lower than at St Andrews (IISD, 2015a, 2015b).Footnote ³ The G20 expert groups stand out from other climate finance expert groups in terms of mainly reporting to finance ministers and because their members come predominantly from finance ministries (in the case of the Green/Sustainable Finance Study Group also central banks). While finance ministries had discussed climate change in several forums, the G20 was the forum in which this involvement was most institutionalised.

G20 study groups are seldom permanent fixtures and can be discontinued after a period of time, depending on the priorities and preferences of each new incoming Presidency (interview with former chair of G20 Study Group, 30 April 2020) or if the work set out in the Terms of Reference have been completed. The purpose of both post-2009 working groups was to provide knowledge aimed at forming the basis for discussions, rather than significant commitments similar to those the G20 aimed to provide at St Andrews. The Climate Finance Study Group was tasked with considering ‘ways to effectively mobilize resources taking into account the objectives, provisions and principles of the UNFCCC’ (G20 Heads of State and Government, 2012, para. 71).

More specifically, in 2011, the G20 finance ministers and central bank governors had requested a report on the mobilisation of climate finance from a group of International Organisations (IOs) led by the World Bank and including the IMF and the OECD (discussed in detail in Chapters 11 and 12). This report provided a basis for subsequent discussions in the Climate Finance Study Group. In 2012 and 2013, the Climate Finance Study Group delivered reports on focusing on the mobilisation of climate finance, and defining the issue in terms of meeting the USD 100 billion target without specifying any kind of burden-sharing, except that the funds should be mobilised by developed countries (G20 Climate Finance Study Group, 2012, 2013). In this way, it was up to the individual countries to decide how much public climate finance they wanted to provide, reflecting an approach to climate finance that was very much driven by individual national decisions. In terms of the question of what kind of finance counts as climate finance, private climate funding was framed as constituting an important source of climate finance, and carbon pricing policies were highlighted as a potential source of climate finance but also one which it was up to the individual state to decide whether it wanted to adopt. Carbon pricing was recommended with reference to its efficiency (G20 Climate Finance Study Group, 2012, 2013). Linking climate finance to carbon pricing is an ideal-typical case of economisation, since it links climate finance with the instrument for addressing climate change favoured by most mainstream economists (see also discussion of carbon pricing in Chapter 1 and 7).

After 2013, other issues than mobilising climate finance were included on the agenda, such as improving adaptation finance and collaboration between climate funds as well as leveraging private finance (G20 Climate Finance Study Group, 2014, 2015, 2016a). These issues were treated as being as important as the mobilisation of climate finance and reflected an emphasis on the efficiency of the climate finance mobilised. The approach to these issues was rather technical and avoided references to equity-oriented norms such as CBDR except for generic references to respecting the ‘principles, provisions and objectives’ of the UNFCCC (G20 Climate Finance Study Group, 2015). The stated objectives of the Study Groups’ reports were to share experiences and best practices, reflecting a country-driven approach in which it was up to the individual state to choose the approach that best suited its national circumstances and preferences.

Adaptation finance was addressed in the 2014 and 2015 reports with an emphasis on removing barriers to effective adaptation finance (G20 Climate Finance Study Group, 2014, 2015, 2016a). In general, the importance of private finance and development aid to climate finance was emphasised, as was the use of financial instruments to mobilise climate finance, leverage private finance and reduce investment and climate risks. This emphasis reflects the G20’s character as a forum for economic policy. The G20 experts did not (either before or after 2013) provide output explicitly addressing the issue of what constitutes climate finance, but only underscored the importance of tracking climate finance. The 2012 and 2014 reports underscored the divergence of opinions among the member states, particularly regarding the role of public finance vis-à-vis private finance and development aid, including whether public finance should be new and additional to Official Development Assistance (ODA; G20 Climate Finance Study Group, 2012, 2014). Particularly China and India stressed the importance of public finance and additionality as well as of private finance not undermining Annex II countries’ obligation to provide public climate finance (G20 Climate Finance Study Group, 2012, 2014). On the other hand, developed countries focused more on leveraging private finance and improving efficiency.

The Green/Sustainable Finance Study Group had the broader purpose of exploring how to scale up green financing, understood as the ‘financing of investments that provide environmental benefits in the broader context of environmentally sustainable development’ (G20 Green Finance Study Group, 2016), p. 5) Consequently, it did not focus on the USD 100 billion target or other contested issues during the UNFCCC negotiations, but rather on private finance and issues such as greening the banking system, the bond market and institutional investors, as well as the role of risk and sustainable private equity and venture capital (G20 Green Finance Study Group, 2016, 2017; G20 Sustainable Finance Study Group, 2018). As such, it adopted an economic framing of sustainability, but one which was less focused on externalities and more on overcoming barriers to green investment such as risks. Arguably, this approach was less about textbook environmental economics targeting the nature of the problem (an externality), and more about providing economic, financial solutions to the problem. Furthermore, the focus on sustainability meant that climate change was no longer the only environmental issue addressed, although it still took up considerable space.

10.2 Causes

Regarding the first aspect of economisation, in 2009, the member states and especially the UK Presidency played an important role in ensuring that climate finance was included on the agenda, thus intentionally economising the issue. The entrepreneurship of the UK Presidency was important in shaping the level of G20 efforts regarding climate finance (interview with former senior UK Treasury official, 30 June 2011), and subsequent Presidencies were also influential in shaping the activities of the study groups, for example, the 2012 Mexican Presidency establishing the Climate Finance Study Group and the 2016 Chinese Presidency establishing the Green Finance Study Group. Later Presidencies have been less ambitious in their entrepreneurial roles than the UK, as the deadlock in St Andrews killed off the idea that the G20 could be a major game changer as regards climate finance.

In 2009, there was a general agreement among the finance ministers that the G20 could influence the UNFCCC climate finance negotiations by establishing a common understanding and agreement among the G20 members, who represent the majority of the most important states in the UNFCCC process. The membership circle was also important when the G20 was not able to reach an agreement on the more far-reaching provisions of the draft of the St Andrews Communiqué due to differences between the United States and China (and to a large degree India) regarding World Bank trusteeship of the Green Climate Fund and CBDR. Similar divisions between, on the one hand, China and India and, on the other, developed countries also characterised early discussions of tracking climate finance in the Climate Finance Study Group. These disagreements demonstrate the limits of the influence of economisation: it was impossible to overcome the deep-rooted differences between, on the one hand, China and India and, on the other, developed countries, the United States in particular. In the Green/Sustainable Finance Study Group these divisions were less pronounced as the Study Group was asked to look at mobilising private capital unlike in the climate finance groups that were focused on public sector transfers related to the UNFCCC negotiations (interview with former chair of G20 Study Group, 30 April 2020).

Furthermore, regarding the membership circle, the G20 does not include lower-income countries. Nonetheless, the G20 have addressed the issue of adaptation finance, which is primarily a concern of lower-income countries since they are the main per capita recipients of such finance, while the emerging economies are the main recipients of mitigation finance (Reference HalimanjayaHalimanjaya, 2015; Reference Weiler, Kloeck and DornanWeiler et al., 2018). In conclusion, while the membership circle mattered especially in terms of limiting how far the G20 was able to go, it cannot explain neither the emphasis on adaptation finance nor on efficiency and economic framings in G20 output compared to the positions of the G20 members in the UNFCCC.

A major factor in the way in which the G20 has addressed climate finance (the second aspect of economisation) has been its economic worldview. This worldview is evident in the general emphasis on efficiency, and the specific emphasis on the importance of private finance and development aid to climate finance, and on the use of financial instruments to mobilise climate finance, leverage private finance and reduce investment and climate risks. Climate finance is economised by treating it as an economic issue to be addressed with financial instruments (leverage, de-risking). While these trends are also evident in the climate finance output from other institutions, e.g. the UNFCCC Standing Committee on Finance (2016, 2018), the G20 has to a larger degree singled them out as key issues. In this respect, the fact that most representatives of member states come from finance ministries or central banks has been an important aspect of this worldview.

Regarding the interaction with other institutions, the UNFCCC in particular played an important role. Not only was the G20 involvement in climate finance driven by the desire to influence the UNFCCC negotiations, but norms from the UNFCCC also shaped the discussions within the G20, most notably the controversy over references to CBDR. The relationship between the G20 and the UNFCCC gradually became more synergistic, going from the G20 being seen as an alternative forum to the UNFCCC for key climate finance discussions to the G20 study groups providing knowledge about how to meet UNFCCC obligations, although with a clear economic framing. The more synergistic relationship between the two institutions should also be seen in the light of the UNFCCC, especially the Standing Committee on Finance (SCF), moving in a more technical direction and leaving more discretion to the states. The move to more technical discussions in both institutions also reflects that with the adoption of the USD 100 billion target, the most important political decision had been reached, and the remaining topics were more technical. As mentioned earlier, as the G20 output became less focused on the UNFCCC’s USD 100 billion target with the Green/Sustainable Finance Group taking over, divisions among member states became less salient. This shows that (cognitive and normative) interaction with the UNFCCC regarding what counts towards the USD 100 billion target meant that divisions over this issue spilled over from the UNFCCC to the G20, although it was ameliorated by the economic worldview of the institution.

Besides the UNFCCC, the Climate Finance Study Group interacted continuously with other institutions, particularly development banks, the OECD and the Global Environment Facility and the think tank the Climate Policy Initiative, which were tasked with providing reports and other input to the Study Group (G20 Climate Finance Study Group, 2015, 2016b). This technical and cognitive input provided the basis for parts of the Study Group’s report.

10.3 Consequences

10.4 Summary

The case of the G20 addressing climate finance demonstrates both the potential of economisation and its limitations. On the one hand, it constitutes a clear-cut case of an economic institution framing a climate issue in economic terms that differed from how the non-economic institution (the UNFCCC) had framed it. This is evident in the emphasis on efficiency, reducing costs, leveraging private finance and other economic instruments. On the other hand, this economisation had a limited influence: the St Andrews meeting failed to overcome the fundamental fault lines between developed and developing countries, although it did create consensus on key issues that later appeared in the Copenhagen Accord. After 2009, its less ambitious knowledge output had an impact on a set of international institutions (mainly in terms of moving climate finance up their agendas) and domestically (mainly in terms of influencing cognitive ideas). More recently, the G20 interest in climate finance has been replaced by an interest in sustainable (private) finance, underscoring that economisation does not entail one given set of output. Interaction with other institutions, particularly the desire to influence the UNFCCC, was a major factor in inducing the G20 to address climate finance, as was entrepreneurship from the Mexican and especially UK Presidencies. The institutional worldview, interaction with other (mainly economic) institutions and to some degree also the membership circle have shaped the G20’s economic approach to climate finance.

11.1 Output: The Investment and Development Strands

The OECD has addressed climate finance since the 1990s. Notably, in 1998 the DAC introduced the so-called Rio Markers for reporting aid projects related to biodiversity, desertification and climate change mitigation. In 2007, Rio Marker reporting became mandatory for member states and an adaptation marker became mandatory in 2010. The OECD involvement with climate finance can be divided into two strands: one based on the OECD’s established expertise regarding development aid and one based more on its expertise on investment. Within both of these, formal OECD output is knowledge based, and includes both formal (numerous reports, climate finance statistics and reporting with the DAC as well as panel discussions) and informal (workshops and seminars) types.

In the development strand, the DAC monitors and provides statistics on the Official Development Aid (ODA) of member states based on reviews of their reports, and consists of representatives of the member states (mainly development and foreign ministries) as well as of OECD staff, particularly from the Development Co-operation Directorate. Not all OECD members are DAC members. At the time of writing, Chile, Colombia, Estonia, Israel, Latvia, Lithuania, Mexico and Turkey were OECD but not DAC members. Subsidiary bodies under the DAC such as the Network on Environment and Development Co-operation discuss issues relating to environmental protection and development aid, particularly issues concerning tracking development aid with an environmental objective and the difficulties with such tracking. The meetings of the DAC and its subsidiary bodies mainly serve to develop and disseminate knowledge, including best practices.

Concerning the cognitive issue of defining climate finance, the development strand has framed climate finance primarily as a subtype of development finance, and bilateral climate finance as a subtype of ODA. Given that the OECD does not address the issue of whether climate finance is new and additional to development aid, and the countries’ reporting of their climate finance is very prone to over-coding (Reference Michaelowa and MichaelowaMichaelowa and Michaelowa, 2011a), the OECD figures of bilateral climate finance have been criticised for being too high (Reference Roberts and WeikmansRoberts and Weikmans, 2017). This is true concerning figures for individual countries as well as for the OECD estimates of total amounts of climate finance provided by the OECD countries. Developed countries often base their individual biannual climate finance reports to the UNFCCC on the data reported to the DAC, and these reports have often been criticised for exaggerating the amounts provided, particularly regarding adaptation (Reference Donner, Kandlikar and WebberDonner et al., 2016; Reference Roberts and WeikmansRoberts and Weikmans, 2017; Reference Weikmans, Roberts, Baum, Bustos and DurandWeikmans et al., 2017). The OECD has cautioned that its DAC figures were intended to provide descriptive statistics to track the mainstreaming of the objectives of the MEAs adopted at the Rio Convention, not to measure progress concerning pledges or to compare countries (OECD, 2012a, 2018a; Reference Weikmans and RobertsWeikmans and Roberts, 2018).

As a key example of the estimates of total flows, the OECD and the Climate Policy Initiative (2015a) estimated that total climate finance in 2014 amounted to USD 61.8 billion. Of this total, public climate finance amounted to USD 43.5 billion, and public bilateral climate finance to USD 23.1 billion, consisting mainly of climate-related ODA reported to the UNFCCC but also of ‘Other Official Flows’ (public finance not classified as ODA because it is not primarily aimed at development or because the grant component is less than 25 per cent). The OECD was tasked with providing this report by the Presidencies of UNFCCC Twentieth and Twenty-first Conference of the Parties (COP20 and 21, Peru and France) in order to provide an up-to-date aggregate estimate of mobilised climate finance and an indication of the progress made towards the UNFCCC climate finance goal (OECD, 2015a). The report’s finding that the USD 61.8 billion constituted the developed/Annex II countries’ progress towards mobilising the USD 100 billion caused much criticism especially from UNFCCC negotiators from developing countries (Reference SethiSethi, 2015). The negotiators argued that the actual figure was much lower, even as low as USD 2.2 billion USD (Reference DasguptaDasgupta and Climate Finance Unit, 2015). In a 2016 report, the OECD Secretariat projected that public climate finance would reach USD 67 billion by 2020, and argued that the USD 100 billion target being met depended on whether the amount of private finance leveraged per unit of public finance increased from current levels (OECD, 2016).

In terms of generating climate finance and the normative ideas regarding this generation, treating climate finance as a type of development aid meant that the OECD helped maintain the current climate finance system in which developed countries determine their contributions individually. Thus, developed countries de facto determine how much they should provide individually and consequently also in total, and there is little scope for individual or collective targets for public climate finance. Although the OECD did not explicitly endorse this system, it participated in constructing it. The ‘climate finance as ODA’ framing was particularly pronounced in reports from the DAC and the Development Co-operation Directorate (but also involved other Directorates, especially the Environment Directorate) and reflected the preferences of the member states. In this respect, the OECD’s avoidance of assessing whether climate finance was new and additional, both in the reports from the DAC and the OECD Secretariat’s estimate of overall climate finance, is an example of output reflecting such preferences (Reference Weikmans and RobertsWeikmans and Roberts, 2018). It also de facto framed development aid as a source of climate finance and implicitly defined the norm of new and additional climate finance as peripheral to the generation and estimates of climate finance.

The second strand – the ‘investment strand’ – frames climate finance as an instrument in the transition to low-carbon societies and as a way of redirecting investments from ‘brown’ to ‘green’ (Reference Kaminker, Kawanishi, Stewart, Caldecott and HowarthKaminker et al., 2013; Reference Kato, Ellis and ClappKato et al., 2014b; OECD et al., 2018; OECD Secretariat, 2013) and thus does not focus on the size of individual or combined climate finance contributions. The strand is based mainly in the Environment (particularly the Climate Change Expert Group) and the Financial and Enterprise Affairs Directorates. These directorates work closely with the environment and the finance and economics ministries in the member states respectively. Importantly, this strand links climate finance to two key climate issues for the OECD, viz. fossil fuel subsidy reform and carbon pricing (Reference Corfee-Morlot, Marchal, Kauffmann, Kennedy, Stewart, Kaminker and AngCorfee-Morlot et al., 2012; Reference Kato, Ellis and ClappKato et al., 2014a), as well as OECD institutional investment policy (OECD Secretariat, 2010b). More recently, and in line with the G20 and the IMF (see Chapters 10 and 12), the OECD has also focused on making financial flows more green or climate friendly (Reference Jachnik, Mirabile and DobrinevskiJachnik et al., 2019; OECD et al., 2018). Fossil fuel subsidy reform, carbon pricing and institutional investment are issues that speak more directly to the powerful OECD directorates that deal with economic issues and to the parts of the OECD governmental constituencies that come from finance and economics ministries. In this way, this is a rather clear-cut case of economisation in terms of the involvement of parts of the OECD Secretariat working solely on economic issues and the link to issues with strong economic dimensions. As mentioned in Chapters 1 and 7, carbon pricing is a textbook (mainstream) environmental economics solution to climate change, while institutional investment is an inherently economic issue. Even if fossil fuel subsidies can be framed in different ways with varying emphasis on their economic aspects, no framing ignores the economic aspects completely (see Chapter 4).

An important institutionalised forum within this strand is the Research Collaborative on Tracking Finance for Climate Action that constitutes a research network of representatives of OECD Directorates (Development Co-operation, Environment, Statistics and Financial and Enterprise Affairs), international and local research institutes and think tanks, multi- and bilateral as well as national development banks, private investors and financial institutions and government representatives (OECD, 2020c). The Research Collaborative organises formal and informal events as well as published publications (Reference Jachnik, Mirabile and DobrinevskiJachnik et al., 2019), focusing on analysing how private finance can be mobilised by public finance and how to track such private finance. In this way, the Research Collaborative has worked to make it possible to include private finance towards the USD 100 billion target, without explicitly saying what its share should be vis-à-vis public finance.

The investment strand has increasingly overlapped with the development strand, especially when the Research Collaborative has analysed how to assess the amounts of private finance mobilised by public finance, and relies heavily on DAC methods for estimating private climate finance directly mobilised by development aid (OECD, 2017). The interaction with finance ministries and institutional investors has allowed the OECD to teach actors not traditionally interested in climate issues about their importance, and generally to ‘push the envelope’ within the scope of the OECD mandate (interview with senior OECD official, 30 April 2015). Thus, this strand has addressed climate finance in a very broad sense, at times also including finance with a negative or no impact on climate change (Reference Jachnik, Mirabile and DobrinevskiJachnik et al., 2019).

On a related note, in 2016 the OECD established its Centre on Green Finance and Investment, which institutionalised many of the OECD efforts in such investment, and which has a strong focus on a ‘green, low-emissions and climate-resilient economy’, thus emphasising climate mitigation and adaptation within wider environmental issues (OECD, 2019a). The Centre also organises the annual Forum on Green Finance and Investment, a key event in the field.

The OECD output in the investment strand originally framed the question of how climate finance should be generated as an issue of addressing climate change as efficiently and effectively as possible. Thus, it highlighted the need for maximising flows, which de facto meant maximising private flows. Normative ideas of equity, such as Common but Differentiated Responsibilities and Respective Capabilities (CBDR) and historical responsibility, were rarely mentioned, and only as part of descriptions of the UNFCCC commitments and principles (Reference Corfee-Morlot, Marchal, Kauffmann, Kennedy, Stewart, Kaminker and AngCorfee-Morlot et al., 2012; Reference Jachnik, Mirabile and DobrinevskiJachnik et al., 2019).

Regarding the principles that should determine the allocation of climate finance, the OECD has mainly emphasised efficiency in its publications, devoting most of its attention to how climate finance might be mitigated most effectively at the lowest cost. Private mitigation finance has been heavily emphasised in this respect (OECD, 2014). Equity has been emphasised in relation to securing an even geographical distribution that guarantees different regions and kinds of developing countries (particularly Least Developed Countries, Land-Locked Countries and Small Island Developing States) their share of climate finance (Reference Haščič, Rodríguez, Jachnik, Silva and JohnstoneHaščič et al., 2015). While the Environment and particularly the Financial and Enterprise Affairs Directorates may have been focused predominantly on mitigation (Reference Kato, Ellis and ClappKato et al., 2014a), the Development Co-operation Directorate has paid more or less equal attention to adaptation, especially as regards the development of the adaptation Rio Marker. However, altogether the development strand has de facto supported the climate finance system in which the decisions about the principles that should guide climate finance has been left to developed countries, while the investment strand has pushed in the direction of a more efficient use of finance for mitigation. Efficiency in the latter case implies spending money where investors obtain most value for money, that is, often emerging economies rather than Least Developed Countries or Small Island Developing States.

11.2 Causes

The initial causes of the OECD addressing climate finance (the first aspect of economisation) originated in different places: while its existing (intra-institutional) experience of development has played an important role, member states have also been a key driving factor (interview with senior OECD official, 25 May 2015). During the UNFCCC negotiations, most OECD member states have actively promoted a role for the OECD in monitoring climate finance, whereas most developing countries preferred institutions established in the UNFCCC. Developing countries have feared that the preferences of the OECD would be close to those of its member states and have been in favour of monitoring conducted by institutions in which they were represented such as the Standing Committee on Finance (SCF). Developed states, on the other hand, wanted to involve the OECD, since this would link development aid and climate finance – effectively designating climate finance as a type of development aid – within an institution which they controlled.

Furthermore, institutional interaction has induced the OECD to address climate finance. The OECD has been commissioned by other international institutions – including the G20 – to undertake research on the mobilisation and delivery of climate finance (G20 Study Group on Climate Finance, 2016a; Reference Röttgers, Tandon and KaminkerRöttgers et al., 2018; World Bank Group et al., 2011). In the run-up to COP21, the Presidencies of COP20 and 21 (Peru and France) also tasked the OECD with providing an up-to-date aggregate estimate of mobilised climate finance and an indication of the progress made towards the USD 100 billion target. Through more indirect pathways, the UNFCCC process – both in preparation for COP21 and the efforts to implement the resulting Paris Agreement – also induced the OECD Secretariat to produce a range of reports and events on their own initiative (e.g. Reference Jachnik, Mirabile and DobrinevskiJachnik et al., 2019; Reference Kato, Ellis and ClappKato et al., 2014a,Reference Kato, Ellis, Pauw and Carusob). Likewise, the OECD Secretariat has, especially as regards the investment strand, produced output addressing the Sustainable Development Goals (SDGs).

In terms of factors shaping the OECD output, the institutional worldview played a more significant role, particularly as regards defining climate finance in economic and development terms. The overarching worldview of the OECD is one framing issues in economic terms and highlighting economic instruments (Reference Carroll and KellowCarroll and Kellow, 2011; Reference RuffingRuffing, 2010), which is evident in the OECD climate finance output. In the case of climate finance, the influence of the worldview included the emphasis on efficiency and the link with fossil fuel subsidy reform, carbon pricing and institutional investment, as well as the development strand’s framing of public climate finance as a subtype of development aid. The differences between the two strands are rooted not only in the worldviews of the different directorates, rather than the worldview of the OECD as a whole, but also in the worldview of the representatives of the ministries that each directorate interacts with. One example of such representatives are development ministry officials in the case of the DAC. There are also framings specific to each strand, that is, public climate finance as development aid and the link to economic instruments respectively. Due to the link to economic instruments, economisation was more pronounced in the case of the investment strand.

Although member state officials were involved in drafting much of the output, staff of the Secretariat attempted to push the envelope and as far as possible act independently of the member states. Nonetheless, the OECD bureaucracy had to ensure that the organisational output was acceptable to its principal. A key element of this is that the OECD is heavily involved in the day-to-day governance of climate finance (unlike the IMF and the G20); thus any figures published by the DAC would be used in discussions of whether developed countries are living up to their commitments. Hence, OECD output could have substantial consequences for its member states, and therefore the OECD member circle of developed countries are sceptical of output that goes against their preferences. Even though the output stemming solely from the OECD Secretariat is more independent of member states than that of the OECD as a whole, member state representatives are allowed to comment on it. Furthermore, the OECD Secretariat’s budget is determined by member states, giving them the discretion to allocate funds between activities and parts of the Secretariat depending on how beneficial or counterproductive they think they are (Reference Carroll and KellowCarroll and Kellow, 2011). All things considered, the autonomy of the OECD bureaucracy constitutes an important scope condition for the influence of its bureaucracy.

Finally, institutional interaction has been more influential in terms of inducing the OECD to address climate finance than regarding how it is has addressed it. The G20 has told the OECD Secretariat to analyse particular issues but has not said how the OECD should address the issue. The UNFCCC has been more influential in this respect, as the OECD output has addressed UNFCCC commitments (most notably the USD 100 billion target) and principles (e.g. CBDR). The former has played a much more central role in the OECD output, as is evident from the publications addressing how to reach the USD 100 billion target. Yet, the principles have often only been addressed in brief paragraphs or text boxes, which have acknowledged their importance without granting them a central place. Finally, the institutions that the OECD has interacted with in terms of producing joint publications or through workshops and seminars have also shaped the OECD output, inter alia through cognitive interaction. These institutions include (in the cases of both strands) multilateral development banks (MDBs), private research institutions and think tanks (most notably the Climate Policy Initiative [CPI]), and International Organisations such as the International Energy Agency (IEA) or United Nations Environment Programme (UNEP). In the case of the development strand, it also involves national development agencies, and in the investment strand, private actors such as banks and institutional investors. This interaction has mainly been cognitive in terms of shaping how the OECD defines what key concepts are. As an important example of this, the OECD revised its guidelines for using the Rio adaptation marker so that they now are more similar to the guidelines used by the MDBs (UNFCCC Standing Committee on Finance, 2018).

11.3 Consequences

11.4 Summary

The OECD’s output on climate finance is mainly knowledge-based and can be divided into two strands addressing public climate finance framed as a subtype of development aid and as an investment issue respectively. In both strands, the OECD has emphasised economic normative ideas, particularly the importance of efficiency, and de facto, especially in the development strand, contributed to the current climate finance system in which the important decisions regarding allocation are reached by developed contributor countries. Since investment is more of an economic issue than development, it is unsurprising that economisation (in terms of framing) was more pronounced within the investment strand. In both strands, the OECD has played a role as a key (in the development strand the key) knowledge provider. Institutional interaction, especially with the UNFCCC, and member states has been an important factor in inducing the OECD to address climate finance, whereas member states and the institutional worldview have been important in shaping how the institution has addressed it. The OECD member states and the OECD bureaucracy’s autonomy vis-à-vis them have acted as a scope condition for how far the OECD bureaucracy has been able to go. Importantly, the institutional worldview has differed to some degree between the directorates responsible for the two strands, as the directorates as well as the member state officials they have interacted with have differed and had different worldviews. Specifically, the development strand has mainly involved the Development Co-operation Directorate and development ministries, and the investment strand the Environment and the Financial and Enterprise Affairs Directorates and the environment and the finance (and economics) ministries. The OECD output has mainly been influential via cognitive mechanisms, and more pronounced at the international than the domestic levels. The UNFCCC has most notably been influenced by OECD reporting on the total and country contributions of climate finance (from the development strand), whereas the investment strand has influenced cognitive ideas about the role of investment at the domestic level as well as in international institutions including the G20, MDBs and the UNFCCC. Yet, the OECD’s quasi-monopoly on public climate finance statistics has also led to important cognitive influences at the domestic level, which is evident in how their data have been used both by the government and by NGOs seeking to shame developed country governments for providing insufficient amounts of climate finance. The influence on the public agenda was most pronounced in connection with COP21 in 2015.

12.1 Output: Linking Carbon Pricing and Climate Finance

The IMF output on climate finance consists mainly of knowledge output in the shape of publications analysing climate finance and providing policy recommendations. Importantly, the IMF has not used its considerable arsenal of incentive-based instruments in the context of climate finance the way it has done with fossil fuel subsidies. The first publication was a staff position note published in 2010 advocating the establishment of a Green Fund (different from the Green Climate Fund established in 2010) which would use some of the Special Drawing RightsFootnote ¹ (SDRs) of IMF member states as capital on its balance sheet, thus allowing the Green Fund to issue green bonds with SDRs as security (Reference Bredenkamp and PattilloBredenkamp and Pattillo, 2010). An IMF staff position note is an example of a working paper that has not been through the internal IMF approval procedure and thus does not constitute the official IMF position, but which nevertheless is often indicative of the perspective of IMF staff in general. A position note advocating a position conflicting with the official IMF line would not be published by the IMF. Had the IMF adopted the proposal, it would have constituted a radical break with the previous use of SDRs but also meant that the IMF would have had a very significant incentive-based instrument in its hands.

In June 2011, the Fund was one of the international institutions requested by the G20 to provide an analysis of climate finance. The request resulted in the IMF publishing two background papers on domestic sources of climate finance and international aviation and shipping as sources of climate finance (IMF, 2011a, 2011b) and a chapter in the report requested by the G20 (World Bank Group et al., 2011). The domestic sources included carbon taxes, emissions trading systems with auctioning, levies on electricity or petrol, as well as taxes on income, property, consumption or financial transactions (IMF, 2011b). Climate finance from these sources would be clearly distinct from development aid. The IMF argued in favour of carbon taxes as they, unlike non-carbon sources, would mitigate climate change besides providing revenue. The report on pricing emissions from shipping and aviation also highlighted the mitigation benefits of such pricing, especially as the emissions from international aviation and shipping were not subject to any regulation in 2011. The joint report to the G20 was drafted by the World Bank, the IMF, the OECD and a group of multilateral development banks (MDBs), with the IMF leading the drafting of the chapter on sources of public finance on the basis of its two background papers. In 2012, IMF staff wrote a chapter on how to best use using fiscal instruments to generate climate finance counting towards the USD 100 billion target climate finance (Reference Mooij, Keen, Mooij and KeenMooij and Keen, 2012), published in an IMF report on the fiscal responses to climate change (Reference Mooij, Keen and ParryMooij et al., 2012).

Following a brief hiatus, the Fund again started paying attention to climate change beyond fossil fuel subsidies in 2015, mainly through knowledge but also declaratory output. Regarding the latter, Managing Director Christine Lagarde published a statement on the Fund’s role in addressing climate change that repeated the earlier message that carbon pricing could generate climate finance (Reference LagardeLagarde, 2015). Furthermore, a report on policies supporting the Sustainable Development Goals (SDGs) highlighted the importance of financial instruments in shifting investment from ‘brown’ to ‘green’ sectors and in improving macroeconomic resilience to natural disasters – including climate related ones (IMF, 2019h). The latter topic was again addressed in 2016 in a report on how the IMF could enhance the resilience of small developing states and a chapter in the IMF’s flagship publication, the World Economic Outlook, on how resilience could be improved in sub-Saharan Africa (IMF, 2016a, 2016b). The focus on shifting investment and improving resilience reflects a wider trend also evident in the G20, the OECD and UN institutions such as UNEP (see Chapters 11 and 12). None of these publications focused specifically on climate change but dedicated considerable space to climate change as a factor exacerbating natural disasters. The IMF’s role regarding such countries is particularly relevant as many of these countries are already heavily indebted (often to the IMF) and may need major financial support if natural disasters destroy large parts of society and the economy. Many of these tenets were repeated in the 2019 report on fiscal policies for meeting the objectives of the Paris Agreement (IMF, 2019c). While mainly focused on carbon pricing, this report stressed the importance of the USD 100 billion target, the importance of financial instruments and private finance for improving resilience, and the possibility of using the pricing of shipping and aviation emissions as a source of climate finance (se also Reference Parry, Heine, Kizzier and SmithParry et al., 2018).

Since 2017, the IMF has published so-called Climate Change Policy Assessments of individual countries, and at the time of writing, Belize, Grenada and Saint Lucia have been the subject of such assessments (IMF, 2017a, 2017c, 2018b, 2019b, IMF, 2019d). One objective of these Policy Assessments is to enhance the countries’ chances of attracting finance (IMF, 2019c). All five are countries vulnerable to climate change, and the Fund recommended mitigation policies – including carbon pricing – and adaptation policies – including risk management. Furthermore, the IMF stressed the importance of receiving external climate finance from private and public sources. Interestingly, most of the IMF publications issued on climate change in 2019, including opinion pieces by Managing Directors Lagarde and GeorgievaFootnote ² and a special issue of the IMF journal Finance and Development paid only limited attention to climate finance. Instead they focused on carbon pricing, financial markets and the risks associated with climate change (Reference GeorgievaGeorgieva, 2019; IMF, 2019a; Reference Lagarde and GasparLagarde and Gaspar, 2019).

Fundamental to the IMF’s approach has been the notion of pricing emissions, making it an ideal-typical example of economisation. Climate change has been defined as an externality which is best corrected through pricing either through carbon taxes or emissions trading systems chapter (World Bank Group et al., 2011). The primary objective of carbon pricing is, according to the IMF, not to raise revenue but to mitigate climate change. This framing of climate change is also evident in its output on fossil fuel subsidies (Reference Coady, Parry, Sears and ShangCoady et al., 2015, Reference Coady, Parry, Le and Shang2019; IMF, 2011b; World Bank Group et al., 2011, Chapter 2; see also Chapter 7 of this book). Defining climate change as an externality to be corrected by pricing the externality is a core tenet of neoclassical environmental economics, which defines environmental problems as economic problems – typically externalities – and pricing as the solution to such problems (Reference Clements, Coady, Fabrizio, Gupta, Alleyne and SdralevichClements et al., 2013; Reference Coady, Parry, Sears and ShangCoady et al., 2015; see also Chapter 1 and 7). Fiscal policies rather than regulatory or industrial policies are defined as the instrument needed to mitigate climate change.

More recently, the Fund has also attended to adaptation, and argued in favour of addressing climate change impact through financial instruments such as disaster insurance (IMF, 2016a, 2016b). The inclusion of adaptation and the risks associated with climate change constitutes a widening of the economisation of climate change beyond ‘just’ correcting the externality. A similar development can be witnessed in the output of the G20 and the OECD (see Chapters 9 and 10), and reflects a wider development towards a focus on the risk associated with climate change in the literature on the economic dimensions of climate change (for an overview, see Reference Krogstrup and OmanKrogstrup and Oman, 2019). Altogether, climate finance has been defined in a broad sense as encompassing private finance as well as public.

Regarding the issue of generating resources, at the beginning of the period studied, the IMF provided suggestions of how different sources – particularly carbon pricing – could be used to reach the USD 100 billion target (Reference Mooij, Keen, Mooij and KeenMooij and Keen, 2012). The IMF operated with an estimate that if 10 per cent of the revenue from a USD 25 per ton carbon price (compared to the carbon prices of USD 35, 40 or 75 that the IMF would later use in its analyses; see Chapter 7) in developed countries was used for international climate finance, it would generate USD 25 billion towards the USD 100 billion target chapter (World Bank Group et al., 2011).

The estimate stemmed from the 2010 Report from the UN Secretary General’s High-level Advisory Group on Climate Change Financing. The amount of USD 25 billion would constitute public finance provided according to an emissions-based burden-sharing key by developed countries. On a similar note, the IMF also proposed placing a price of USD 25 per ton on the emissions from international aviation and shipping, two sectors hitherto exempted from public regulation (and pricing) of their emissions (IMF, 2011b). If developing countries were compensated for the burden that would fall on themFootnote ³, such a price would generate an estimated USD 22 billion from developed countries towards the target. Finally, the IMF also specified the fiscal savings from phasing out fossil fuel subsidies (using the OECD data and thus not including externalities in the definition of fossil fuel subsidies) as a source of climate finance and estimated on the basis of OECD figures that if 10–20 per cent of the expenditure saved was designated as climate finance, it would could yield USD 4–12 billion dollars annually (IMF, 2011a). Altogether these estimates would add a little more than USD 50 billion, leaving the rest of the USD 100 billion to be covered by voluntary contributions from developed countries and private finance.

Common but Differentiated Responsibilities and Respective Capabilities (CBDR) has been explicitly stressed when it comes to the importance of the incidence of global pricing of aviation and shipping emissions and to the earmarking of revenue from domestic carbon pricing (IMF, 2011b). Regarding emissions from shipping and aviation, CBDR has been a key issue in the global discussions of reducing these emissions. Such emissions cannot be allocated clearly between Annex II and non-Annex II countries, and consequently the non-Annex II countries objected to the regulation of these emissions that would subject them to the same rules as Annex II countries, hence contravening CBDR (Reference Bows-LarkinBows-Larkin, 2015; Reference Romera and van AsseltRomera and van Asselt, 2015). Given this context, not mentioning CBDR would have been controversial, and the IMF’s solution was to stress that developing countries, particularly those with low incomes and high levels of vulnerability, should not take on a share of the burden of providing climate finance. In this way, the Fund addressed CBDR by calibrating the economic instrument of carbon pricing to avoid the burden falling on the poorest and most vulnerable, rather than saying that only developed countries should be subject to the regulation of aviation and shipping emissions.

Concerning allocations, the IMF has not focused as much on how climate finance should be allocated as on how it should be mobilised. The Fund’s key objective has been to mitigate climate change while keeping costs low, and hence carbon pricing has been advocated with reference to its efficiency (IMF, 2011b; World Bank Group et al., 2011) . While efficiency has been the main priority, as mentioned earlier, the equity principle of CBDR has also been stressed (IMF, 2011a; Reference LagardeLagarde, 2015). The key priority regarding the use of climate finance has been mitigation, although recent publications have addressed adaptation (IMF, 2016a, 2016b, 2017a, 2017c, 2018b, 2019b, 2019d), and the staff position note proposing a Green Fund has operated with the notion of an even split between mitigation and adaptation finance (Reference Bredenkamp and PattilloBredenkamp and Pattillo, 2010). The IMF has not directly addressed the allocation between states, but has dedicated considerable attention to vulnerable states, both in its publications on improving resilience among small developing and states in sub-Saharan Africa (IMF, 2016a, 2016b), and its Climate Change Policy Assessments, which have only focused on highly vulnerable countries, particularly small island developing states (IMF, 2017a, 2017c, 2018b, 2019b, 2019d). On a couple of occasions, IMF staff have proposed channelling revenue from the issuing of SDR-backed green bonds or from the pricing of maritime emissions to the Green Climate Fund or a proposed Green Fund (Reference Bredenkamp and PattilloBredenkamp and Pattillo, 2010; Reference Parry, Heine, Kizzier and SmithParry et al., 2018). These proposals have not been adopted but would have granted developing countries considerable influence over the allocation of climate finance compared to the current system.

12.2 Causes

The initial cause of the IMF addressing climate finance (the first aspect of economisation) have mainly stemmed from institutional interaction, specifically the G20 requesting that the IMF and other International Organisations provide such analysis. It was in this context that the IMF produced most of its official publications (on domestic sources of climate finance, international aviation and shipping and public finance) focusing solely on climate finance. Once the task was completed, the IMF output on climate finance decreased in volume. Output from before and after 2011 was instead drawn up on the initiative of IMF officials acting as policy entrepreneurs (interview with senior IMF official, 25 March 2015). When IMF management, in the context of COP21 in Paris and the Paris Agreement, increased their attention to climate change beyond fossil fuel subsidies, the Fund’s attention to climate finance also increased, constituting a less direct case of institutional interaction, this time from the UNFCCC (IMF, 2019c, 2019h). The UNFCCC also mattered indirectly in terms of setting the USD 100 billion target, thus providing the G20 with the impetus to task IMF and other institutions with analysing sources that could count towards this target. Furthermore, the climate finance chapter in the fiscal responses to climate change book (Reference Mooij, Keen, Mooij and KeenMooij and Keen, 2012) were also explicitly written to address the USD 100 billion target.

Importantly, the member states of the IMF have not played an important role in getting the IMF to address climate finance, except for the fact that the G20 member states that requested the IMF to address the issue were also key IMF member states. Thus, they would know that the IMF would not turn down the G20 request, since the G20 members had a majority of the votes and 16 out of 24 Executive Directors. The level of IMF involvement has been circumscribed by the IMF’s mandate, which does not include development finance the way, for example, the World Bank’s does (interview with senior IMF official, 25 March 2015). In 2019, the IMF Executive Directors (representing the member states) agreed to increase IMF activities supporting countries’ fiscal policies for mitigation and adaptation, yet with a number of Directors cautioning against moving beyond the Fund’s mandate (IMF, 2019c). Rather, the IMF has been involved in aspects of climate finance that have touched upon its core area of fiscal policy, especially fossil fuel subsidy reform and taxation (domestic or on international shipping and aviation). In this way, relations with member states have been important in delineating IMF involvement in climate finance, since they have interpreted to which extent climate finance falls within the mandate of the IMF. Although the IMF bureaucracy has often pushed the limits of its mandate, it has not attempted to do so in the case of climate finance, reflecting the belief among the Management that other institutions, especially the World Bank, are better suited to address the issue (interview with senior IMF official, 25 March 2015).

As regards the second aspect of economisation, how the Fund has addressed climate finance, the IMF worldview has been the most important factor. Not only has climate finance been framed in economic terms, rather than environmental or equity terms, it has also consistently been linked to IMF core tenets such as the need for carbon pricing and fossil fuel subsidy reform (two sides of the same coin to the IMF, as discussed in Chapter 7). Importantly, in its reports to the G20, the IMF recommendations were based on the notions that all public funds would stem from developed countries, and the revenue from carbon pricing would de facto be provided according to an emissions-based burden-sharing key. Both notions, especially the emissions-based burden-sharing have been highly unpopular with the IMF’s most powerful member state, the United States. Other influential member states are also sceptical of solely placing the burden on developed countries (the EU, Japan), emissions-based burden-sharing (China) or both (Australia, Canada). Hence, the IMF bureaucracy has had a degree of autonomy that has allowed it to adopt positions that run against the preferences of key member states. This autonomy could be utilised to an even greater extent as regards reports and working papers published on behalf of the IMF staff rather than the IMF as an institution, as seen in the staff working paper advocating a Green Fund using the Special Drawing Rights (Reference Bredenkamp and PattilloBredenkamp and Pattillo, 2010). The use of SDRs as a source of climate finance was initially proposed by billionaire George Reference SorosSoros (2009). Importantly, the Fund’s output on climate finance has constituted relatively free (and often low-key) exercises in how climate finance ideally should be addressed, rather than an aspect of its core output on financial stability. Institutional interaction has had less influence on how the IMF has addressed climate finance than on inducing it to address it. Yet, drafting reports together with World Bank officials and relying on OECD data and analysis have both shaped the IMF output on climate finance as has CBDR, a normative idea that the IMF was obliged to address because of the UNFCCC.

All things considered, member state relations have constituted a scope condition for the IMF worldview and for entrepreneurship from the IMF officials: the more autonomy the bureaucracy has enjoyed regarding a policy issue, the more influential these factors have been. The IMF has been able to go further concerning the aspects of climate finance related to its core area of expertise, fiscal policy, than to other aspects of climate finance (e.g. allocations between countries or the implementation of climate finance projects).

12.3 Consequences

12.4 Summary

The IMF output on climate finance has been knowledge-oriented and relatively limited, underscoring that it has not been a key part of the IMF’s portfolio. While the early reports from 2010–12 focused on generating climate finance, particularly through domestic and international (on aviation and shipping) carbon pricing, later output has also stressed shifting investment and improving climate resilience. The economisation of climate finance has been pronounced through all of this, with the Fund proposing economic instruments such as carbon pricing and insurance mechanisms, and emphasising efficiency as an objective. The IMF output has mainly been the result of institutional interaction with the G20 and officials acting as policy entrepreneurs, and has been shaped by its institutional worldview, which has been more limited by member state relations than has been the case regarding fossil fuel subsidies. Perhaps unsurprisingly, the low-key output of the IMF has only had limited consequences at the international level, and the analysis has not been able to identify any consequences at the domestic level thus far, although the integration of mitigation concerns into Article IV consultations and other bilateral interaction may change this.

13.1 How They Align

13.2 Causes of Alignment

The institutions’ economic framing of climate finance (the second aspect of economisation) can to a large degree be ascribed to their worldviews. This has been particularly evident in the case of the IMF, which has linked climate finance to carbon pricing because of IMF staff’s fundamental understanding of climate change as an externality to be corrected (see also Chapters 7 and 12). It is also evident in the OECD’s development strand, within which the Development Cooperation Directorate and the members of the DAC and its working groups defined climate aid as a type of development aid. In the OECD’s investment strand, the Environment as well as the Financial and Enterprise Affairs Directorates, working with the environment and the finance (and economics) ministries respectively, framed climate finance as an investment issue in line with their worldviews. Even the G20, with its rotating secretariat and lower degree of institutionalisation has framed climate finance in economic terms in line with the institutionalised worldview of being an economic institution and of the finance ministry officials constituting the largest group of participants at its expert meetings. The OECD’s greater experience in dealing with development aid compared to the G20 and the IMF, has shaped its worldview and hence its framing of climate finance as a development issue. The other two institutions had less experience of closely related issues but have relied on their past experience of dealing with economic issues, and both have addressed climate finance as an economic issue to be dealt with using economic instruments.

Policy entrepreneurs have been important in the case of the G20, in which the United Kingdom has been essential in ensuring that the forum has addressed climate finance. Subsequent Presidencies, including the 2012 Mexican and 2016 Chinese Presidencies, were also important in setting up expert working groups and in shaping their agenda. Entrepreneurship has played a less important role in inducing the IMF and the OECD to address climate finance, although IMF officials have independently chosen to address climate finance in a number of IMF publications (e.g. Reference Bredenkamp and PattilloBredenkamp and Pattillo, 2010; Reference Grippa, Schmittmann and SuntheimGrippa et al., 2019). More importantly, as concerns how climate finance has been addressed, staff of both bureaucracies have attempted to forge ahead and have acted independently of the member states.

Relations with member states have been most important in terms of autonomy from the principals acting as a scope condition for International Organisation (IO) bureaucracies. The IMF bureaucracy has operated rather independently of the member states and has not been influenced by them, while the different OECD directorates have interacted closely with member state representatives (interview with senior OECD official, 30 April 2015). Hence, the IMF has had more autonomy than the OECD, and used this autonomy to adopt positions that has run against the preferences of key principals, including the United States and Japan, particularly by advocating a global burden-sharing of the provision of climate finance. Yet, the IMF staff has not gone as far as it did regarding fossil fuel subsidies, rather it has accepted that some aspects of climate finance have been beyond their mandate. Unlike the IMF, the OECD bureaucracy has been obliged to make sure all its output has been acceptable to its principal (the member states), which is a key reason for why the OECD’s organisational output has been largely aligned with the member states. Differences in membership circles, how member state representatives arrive at decisions (voting or consensus) and which ministries represent the states have played less significant roles. Although the G20 has reflected the preferences of major emerging economies to a greater degree than the other institutions, the OECD has not to a larger extent reflected the interests of smaller developed countries, compared to the G20. Thus, the ‘purer’ economisation of climate change in the IMF output compared to the G20 and OECD output is due mainly to the greater autonomy of the IMF bureaucracy allowing for intra-institutional factors to play a role, not to the aggregated preferences of its member states.

The interaction with other institutions has played a more important role. This interaction, especially between the three institutions has led to more synergistic relations. The G20 has influenced the IMF in particular to address climate finance (the first aspect of economisation), yet not how the IMF should address it (the second aspect of economisation). While the OECD agenda has also been influenced by interaction with the G20, particularly being commissioned to analyse climate finance, this influence has been less decisive: the OECD has published many reports on climate finance which were not commissioned by the G20 and these reports are not significantly different to those commissioned by the G20. In return, the input from the IMF and especially the OECD has constituted an ideational influence on G20 output, especially its more technical dimensions. As regards other institutions, the three institutions have interacted to a large degree with the same institutions, particularly the World Bank and other development banks, but also the United Nations Development Programme (UNDP) and United Nations Environment Programme (UNEP). Arguably, the interaction with a similar set of institutions has pulled in the direction of ideational convergence among the institutions regarding how climate finance was addressed. This dynamic is particularly evident in more recent developments towards focusing on sustainable investment broadly speaking, an issue on which the three institutions adopt very similar positions. While the differences in autonomy of the IMF and the OECD have led to diverging positions, the institutions have not been in conflict, but rather occupied different positions within the climate finance complex (i.e. co-existence), the IMF playing a much less active role than the OECD.

13.3 Consequences of Alignment

The output of the three institutions has had a more easily discernible impact at the international level compared to the domestic level.

13.4 Summary

The mainly knowledge-based output of the three institutions has involved economic framings of climate finance. These framings emphasise the economic consequences of climate change and economic instruments such as carbon pricing, fossil fuel subsidy reform, investment and risk, and in normative terms prioritise efficiency over equity. The G20 and the OECD have been closely aligned with the IMF occupying a more distinct space. The differences between the institutions have mainly concerned normative issues such as the role of carbon pricing and burden-sharing among developed countries, supported by the IMF but not the other institutions. In spite of this divergence, the overall relationship among the institutions has been mainly synergistic. The economic framings have been driven by their economic worldviews, and also to some degree by policy entrepreneurs within the institutions and interaction with other institutions. Interaction with other institutions, especially the UNFCCC, has also been instrumental in inducing the institutions to address climate finance. Relations with member states have been important mostly in terms of acting as a scope condition for IO bureaucracies. The influence of this output has been most pronounced in the case of the OECD DAC, which has produced data on public climate finance that have constituted a cognitive influence on the international (including the UNFCCC) level and on the domestic level, as well as incentive-based influence on the latter. Other kinds of influence have been mainly cognitive and normative and easier to discern at the international level compared to the domestic.