Part IV - Climate Finance

9 Climate Finance Key Issues

Climate finance is a hotly disputed topic, the contestation over what it means adding to the controversy. While the term is sometimes used to refer to all financial flows that influence climate mitigation or adaptation/resilience, in the context of this book, I focus on financial flows from developed to developing countries ‘whose expected effect is to reduce net greenhouse gas emissions and/or to enhance resilience to the impacts of climate variability and the projected climate change’ (Gupta et al., 2014, p. 1212). Thus, flows within countries, to developed countries and among developing countries are not included in the discussion. Yet, public climate finance, which unlike fossil fuel subsidy reform constitutes fiscal expenditure, is included.

Climate finance has been addressed within and outside the climate regime complex since the 1992 Rio Conference on Environment and Development. Simultaneously, increasing amounts (though small compared to estimated needs) of climate finance have been delivered from developed countries. The governance of climate finance straddles the international and the domestic levels, the latter including the developed countries which are supposed to deliver it and the developing countries in which it is spent. Furthermore, as an issue that involves both climate change and economic issues, it also straddles economic and environmental (as well as development) institutions and actors at both the international and domestic levels. The name highlights this duality: the purpose is to address climate change (an environmental issue), but the way of achieving this purpose is to use finance (an economic instrument). Hence, it is unsurprising that climate finance is the issue in the United Nations Framework Convention on Climate Change (UNFCCC) climate negotiations that finance ministries are most involved with (Skovgaard, 2017b).

Although climate finance has been part of the climate regime complex since its inception (Pickering, Skovgaard, et al., 2015) in 1992, this book focuses on the discussions from the run-up to the 2009 Fifteenth Conference of the Parties to the UNFCCC (COP15) in Copenhagen to the 2015 Twenty-first Conference of the Parties in Paris. The UNFCCC, adopted at 1992 Rio Conference, stipulates how developed countries shall ‘provide new and additional financial resources’ to meet the ‘costs incurred by developing country Parties in complying with their obligations under the Convention’ (UNFCCC, 1992: 4(3)). It also requires that such finance shall be provided in accordance with the principle of ‘Common but Differentiated Responsibilities and Respective Capabilities’ (UNFCCC, 1992: 4(2)). A key dividing line in the negotiations and in the international debates about climate finance has been that between developed and developing countries. The UN Framework Convention on Climate Change’s Annex II stipulates which countries shall provide climate finance (essentially the countries which were OECD members in 1992), and within the UNFCCC negotiations these countries have been the ones defined as developed countries (UNFCCC, 1992). Developing countries are according to the Convention defined as non-Annex I countries; Annex I countries consisting of the Annex II countries plus economies in transition, i.e. post-communist countries.

The other Multilateral Environmental Agreements (MEAs) adopted in Rio (the Convention on Biological Diversity, the United Nations Convention to Combat Desertification) contain similar provisions, and in the decade following Rio, climate finance was mainly treated as a subtype of the ‘environmental finance’ provided under these MEAs (Keohane and Levy, 1996). Actual climate finance flows remained modest during this period (Michaelowa and Michaelowa, 2011b). Yet, developing countries progressively raised climate finance as an issue in the UNFCCC negotiations, and development finance institutions including the multilateral development banks (MDBs) and the OECD Development Assistance Committee increasingly addressed the provision of climate finance. Within the UNFCCC, the culmination came with the adoption of the USD 100 billion target at the 2009 Fifteenth Conference of the Parties in Copenhagen to the UNFCCC (COP15). The USD 100 billion target is often described as one of the few successes of COP15 (Gomez-Echeverri, 2013). Developed countries committed to ‘mobilizing jointly USD 100 billion dollars a year by 2020 … from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources of finance’ (UNFCCC, 1992: para 8). These provisions opened up for subsequent contestation regarding what sources should count towards the target and how (see Section 9.1). The Copenhagen Accord was also the first decision to mention the Green Climate Fund¹, which was formally established the following year at the Sixteenth Conference of the Parties to the UNFCCC in Cancún (COP16).

Since 2009, climate finance flows have increased, although it is greatly disputed whether they are meeting the USD 100 billion target (OECD, 2019b; Roberts and Weikmans, 2017). At the 2015 Twenty-first Conference of the Parties to the UNFCCC in Paris (COP21), the Parties agreed to set a new, higher collective financing goal before 2025 (UNFCCC 2015: para. 53) and did not solve the definitional issues. Subsequent negotiations have focused on what flows of finance should count towards the USD 100 billion target, scaling up climate finance both before and after 2020, the balance between mitigation and adaptation finance and the role of public and private finance. At the same time, most climate finance has flowed outside the UNFCCC and the other UN institutions in which developing countries yield significant influence (CPI, 2019). Rather, most of the flows have been determined by public and private actors in developed countries and by MDBs. A persistent feature of climate finance flows has been that mitigation receives the bulk of (particularly private but also public) finance and that – depending on the definition – private finance is several times larger than public (CPI, 2019).

This chapter proceeds with an outline of the cognitive debate regarding what kinds of financial flows can be defined as climate finance, followed by a discussion of the key normative issues of contestation in climate finance discussions. The following section focuses on equity versus efficiency regarding the generation and allocation of climate finance. Finally, the most important groups of actors (beyond the three international economic institutions) and their roles in climate finance are discussed.

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 aid² 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 (Dasgupta 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.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 (Roberts 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 (Michaelowa and Michaelowa, 2011b; Weikmans 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 (Paul et al., 2017; Whitley 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.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, Scott, 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 (Dellink et al., 2009; Pickering et al., 2017; Skovgaard, 2017b). This includes purely legal norms such as ‘Common but Differentiated Responsibilities and Respective Capabilities’ (CBDR) that have drawn much attention (Brunnée and Streck, 2013; Jinnah, 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?

9.2.1 Generating Resources

Regarding the generation of resources, as mentioned at COP15, close to all countries agreed on a USD 100 billion target for 2020 as well as a fast-start finance target of USD 30 billion in 2010–12. Developing countries had in the preceding negotiations proposed a target of 1–1.5 per cent of developed countries’ GDP, while several developed countries were opposed to any targets at all, although not to providing climate finance in itself (Bailer and Weiler, 2015). Subsequently, in the Paris Agreement it was agreed that this goal shall continue through 2025 but that prior to 2025 a new goal shall be set from a floor of USD 100 billion (UNFCCC, 2015). Two kinds of normative ideas, focusing on equity and efficiency respectively, have been central to the discussions of the sources that may count towards the USD 100 billion target. On the one hand, equity-oriented normative ideas, among which CBDR (enshrined in the UNFCCC) constitutes an important norm, and implies that developed countries take on a greater burden than developing countries due to their higher level of development, and arguably provide all the climate finance. Another important equity norm, historical responsibility, recommends that countries contribute to the global effort against climate change, including climate finance, according to how much they have emitted historically, thus placing a significant burden on developed countries (Persson and Remling, 2014). On the other hand, efficiency (or cost-effectiveness) concerns generating climate finance in a way that provides the maximum benefit for a given level of climate finance resources (Stadelmann et al., 2014). Importantly, efficiency as a normative idea entails an emphasis on the economic costs and benefits of climate finance, which fits in with the worldviews of the economic institutions. Aiming to maximise benefits at the global level is a key tenet of much environmental economics literature, whereas national governments have often sought to maximise the national benefits from the climate finance they provide (Skovgaard, 2017b). A third notion, effectiveness or focusing on the degree to which a measure is effective in mitigating or adapting to climate change irrespective of economic costs or equity concerns, has been contested in international climate finance discussions, since all actors agree that climate finance should be effective.

These normative ideas have repercussions for how the USD 100 billion target should be met. First, regarding public finance, key issues have been whether to adopt a burden-sharing key based on GDP or emissions determining the individual country contributions and whether emerging economies are obliged to provide climate finance. Several developing countries and non-governmental organisations (NGOs) have used CBDR and historical responsibility to argue in favour of the former and (in the case of emerging economies) used CBDR to argue against the latter. Developing countries do not always agree on these issues, for instance China has been sceptical of historical responsibility, whereas Least Developed Countries advocated softening the sharp distinction between developed and developing countries regarding climate finance by encouraging the latter (especially emerging economies) to also contribute such finance (Least Developed Countries’ Group, 2014). The United States (including the Obama administration) has been against burden-sharing and strongly in favour of contributions from developing countries, while the EU has been in favour of both. In the end, no burden-sharing key has been adopted, while in the Paris Agreement, developing countries are encouraged to provide or continue to provide climate finance voluntarily (UNFCCC, 2015: Article 9.2).

The normative ideas have also been salient regarding the relationship between public climate finance and development aid, particularly the norm that climate finance should be new and additional to ODA. Already before Rio, developing countries worried that environmental finance would be taken from existing ODA. Accordingly they (successfully) insisted on provisions that environmental finance should be new and additional to the existing commitment of developed countries to provide 0.7 per cent of Gross National Income in development aid, a commitment few of them have met (Roberts and Weikmans, 2017; Stadelmann et al., 2011). According to several developing countries, only when a country has met its target of 0.7 per cent ODA can finance above that level be considered climate finance. Yet, the Paris Agreement does not entail the provision that climate finance should be new and additional (UNFCCC, 2015), and in general the post-Paris UNFCCC climate finance discussions have focused more on other issues than whether climate finance is additional to the 0.7 per cent ODA target.

Efficiency, more specifically the complementarities between addressing climate change and promoting development, has been key to the arguments of developed countries and development banks for an integrated approach to climate finance and development aid (Bailer and Weiler, 2015). Yet, developing countries and NGOs argue that the two kinds of finance are fundamentally different since public climate finance is based on developed countries’ historical responsibility and CBDR, whereas development aid is based on the responsibility of the wealthy to assist the poor (Michaelowa and Michaelowa, 2011b). Consequently, climate finance should be delivered in a way that reflects developing countries’ ‘entitlement’ to funds, that is, with minimal conditions attached and as grants rather than loans (Ciplet et al., 2013; Moore, 2012). This discussion of the relationship between public climate finance and development aid also concerns the fundamental question of who gets to decide the allocation of climate finance (see Section 9.2.2), since treating it as development aid means that the decisions over how climate finance is spent are de facto left to the individual contributor countries (and to multilateral development institutions such as the MDBs).

Regarding private finance, developed countries as well as development banks have argued that private finance is key to an efficient response to climate change. Most developing countries do not disagree with the importance of private finance, but prefer targets solely for public finance to keep developed countries to their (equity-based) obligations, and fear that including private finance under targets will erode the obligations of developed countries. Other sources discussed include so-called innovative or alternative sources (e.g. levies on international aviation), which have been less popular among states due to concerns over relinquishing sovereign control over taxation, but popular among non-state actors for both equity and efficiency-based reasons (see inter alia Stadelmann et al., 2013).

More recently, the discussions of climate finance have become intertwined with discussions of investment and greening private financial flows (Campiglio et al., 2018; Hong et al., 2020). In this way, the emphasis is shifting towards making financial flows consistent with climate (and other sustainability) objectives, including ensuring that there is sufficient private investment in renewable energy, energy efficiency, the building of infrastructure that is resilient to climate change and so forth. These more technical discussions rarely address equity issues.

9.2.2 Allocating Climate Finance

The normative ideas guiding the allocation of climate finance concern principles for allocating climate finance between countries as well as between mitigation and adaptation and involve efficiency and equity-oriented normative ideas such as vulnerability. The principle of vulnerability entails prioritising adaptation finance over mitigation finance and the most vulnerable countries over the ones that provide most adaptation for the money (Moore, 2012). Efficiency in the context of climate finance allocation refers to the ‘allocation of public resources such that net social benefits are maximised’ (Persson and Remling, 2014, p. 489; see also Grasso, 2007; Stadelmann et al., 2014). Thus, efficient climate finance is spent where it provides most mitigation or adaption for the money, which at least in the case of mitigation means emerging economies rather than Least Developed Countries (Fridahl et al., 2015).

Adaptation and mitigation finance differ in that mitigation constitutes a global public good which it is in the interest of developed countries to contribute to independently of where it takes place, whereas adaptation in developing countries only has indirect benefits to developed countries⁵ (Ciplet et al., 2013; Persson and Remling, 2014). Adopting a global efficiency perspective, mitigation finance is Pareto-improving due to the lower mitigation costs in developing countries, while adaptation finance is not (Rübbelke, 2011). Consequently, arguments in favour of adaptation are based on vulnerability and historical responsibility norms, unlike mitigation which can be argued for in terms of efficiency and effectiveness. Several developing countries – particularly Least Developed Countries and Small Island Developing States – have called for an even split between mitigation and adaptation finance, while developed countries generally have been more interested in contributing mitigation finance (Rübbelke, 2011).

Table 9.1 Overview of key climate finance norms and the resulting positions on issues (in brackets)

	Generation	Allocation
Equity	CBDR; historical responsibility (public finance from developed countries crucial; climate finance distinct from development aid)	Vulnerability (prioritise vulnerable and poor countries; adaptation); historical responsibility (those affected should be involved in decisions regarding allocation)
Efficiency	Maximising global benefit (private finance crucial; utilise synergies with development aid)	Maximise global benefits (prioritise emerging economies; mitigation)

On a more overarching level, equity and efficiency in the allocation of climate finance also concerns the question of who determines the allocation (Duus-Otterström, 2016). If public climate finance is treated in equity terms as constituting a solution to developed countries’ historical responsibility, those affected, particularly developing countries, should have a say in how it is allocated. If it is treated as a subtype of development aid, decisions regarding its allocation are de facto left to the contributors (see Section 9.2.1). Hence, efficiency in itself does not lead to specific conclusions regarding who should determine the allocation of climate finance, but may lend itself to arguments for utilising synergies with development aid and economies of scale and avoid building costly new governance structures, de facto favouring developed countries.

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 (Pickering et al., 2017). These institutions include UN and non-UN, environmental and non-environmental, public and private institutions.

9.3.1 The UNFCCC

The most important international institution for the governance of climate finance is the UNFCCC (Pickering et al., 2017). As discussed earlier, it was the origin of the USD 100 billion target and has been instrumental in institutionalising norms such as CBDR. Yet, the vast majority of the decisions regarding how much to contribute and how to allocate climate finance are reached outside the UNFCCC, in governments of developed countries, MDB headquarters and as regards private finance, corporate headquarters (Pickering, Jotzo, et al., 2015). Hence, the UNFCCC institutions have not played the role that most developing countries would have liked it to play, and often argued in favour of in the climate finance negotiations. The Green Climate Fund (GCF), Adaptation Fund, Least Developed Countries Fund, the Strategic Climate Change Fund and to some degree the Global Environment Facility (GEF)⁶ operate under the UNFCCC, and allocated USD 0.6–1.6 billion during the period 2015–16 (the vast majority by the GCF). These funds have their own boards, but the UNFCCC Conference of the Parties provides them with guidance and directions. Despite the GCF increasing its volume of finance, the UNFCCC funds only disburse a small share of the total of public climate finance and have been plagued by internal disagreement and by the Trump administration’s unwillingness to contribute to them. The UNFCCC’s most important role has been to guide climate finance through the introduction and institutionalisation of norms (e.g. CBDR), targets (the USD 100 billion target). The SCF, a climate finance institution under the UNFCCC, has also played an important role in providing knowledge about climate finance, especially estimates of flows, as well as guidance to the Funds under the UNFCCC.

Decision-making within the UNFCCC takes place on the basis of consensus, which de facto grants developing countries considerable leverage compared to the institutions studied here or the MDBs, in which developed countries have the greatest influence. Unsurprisingly, developing countries have often pushed to have the majority or at least a larger share of climate finance flowing through UNFCCC funds, and greater UNFCCC influence over non-UNFCCC climate finance. Such influence has taken the shape of clearly defined guidelines concerning what constitutes climate finance and how it should be allocated, for instance prioritising Least Developed Countries, adaptation and other priorities that may be downplayed by developed countries (UNFCCC, 2015).

9.3.2 Other UN Institutions

UN institutions beyond the UNFCCC have mainly been important as implementers of climate finance projects, for example, the United Nations Development Programme (UNDP) and Environment Programme (UNEP). Similarly to the UNFCCC, developing countries have significant influence within these institutions. Among the non-UNFCCC UN initiatives, the most important one has been the High-level Advisory Group on Climate Change Financing (AGF), which was established in 2010 by UN Secretary Ban Ki-Moon to draft a report on the sources of climate finance, including various public, private and so-called innovative or alternative sources, for example, levies on international aviation (United Nations, 2010). This report provided a range of different ideas and possible solutions, which were utilised in climate finance discussions during the subsequent years. More recently, several other UN institutions have also been active in producing knowledge, notably the UNEP Finance Initiative, a partnership between UNEP and the global financial sector. This partnership aims to create principles for what qualifies as sustainable investment and to disseminate knowledge about such investment among public and private stakeholders (United Nations Environment Programme Finance Initiative, 2020).

9.3.3 The World Bank

The World Bank is another central institution in the governance of climate finance. Developed countries have been more in favour of granting the Bank a more important role than developing countries have been, because of the former group’s significant influence within the Bank (votes are allocated on the basis of financial contributions and GDP) and its worldview being closer to the positions of developed countries than to developing ones (Schalatek, 2012). The World Bank’s main role has been as a provider of climate finance through the Climate Investment Funds (CIFs) and its main lending activities – of which climate related lending is greater than the CIFs (Dejgaard and Hattle, 2020), but it has also sought to influence the wider governance of climate finance. The latter role has involved hosting and participating in climate finance relevant forums such as the Climate Action Peer Exchange for finance ministry representatives as well as knowledge production, including climate data on climate finance recipients (Climate Action Peer Exchange, 2020; World Bank, 2020a). The Bank has also been instrumental in promoting the CDM and developing CDM projects (Lazarowicz, 2009; Lederer, 2012), as well as private climate finance in general. These climate efforts should be seen in the light of the Bank’s desire to be a leader on climate change (World Bank et al., 2016). Yet, there has also been criticism of the Bank’s considerable lending to fossil fuel projects (Redman et al., 2015; The Big Shift Global, 2019).

9.3.4 Regional Multilateral Development Banks

Similarly to the World Bank, the regional MDBs (the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development and the Inter-American Development Bank) have also scaled up their climate finance, while also facing criticism for their financing of fossil fuel projects (see Delina, 2017 regarding the Asian Development Bank). In general, they have been less active in promoting climate finance and climate action than the World Bank, but have co-produced reports (particularly on the tracking of climate finance) together as a group also including the World Bank (World Bank Group et al., 2011).

9.3.5 Civil Society Actors

Various kinds of civil society organisations have also been active at the international level. These can roughly be divided into two groups: think tanks and NGOs. The think tanks include environment and development think tanks and research institutions such as the Climate Policy Initiative (CPI), Overseas Development Institute and World Resources Institute, and have mainly focused on producing knowledge in the shape of reports on the global state of climate finance as well as how to implement climate finance projects. Notably, the CPI (2017, 2018, 2019) has produced regular reports providing an overview of global climate finance flows. The NGOs include mainly environmental NGOs, for example, Climate Action Network (an umbrella organisation of environmental NGOs), Greenpeace and the World Wildlife Fund, as well as development NGOs such as Oxfam. They have focused more on activism and influencing public agendas but have also (especially the World Wildlife Fund and Oxfam) produced reports on climate finance. In general, they have emphasised equity and often sided with developing countries.

9.3.6 Corporate Actors

Corporate actors, especially from the financial sector, have been very active in funding climate finance projects. Some of them have also been active in various networks promoting climate action from the corporate world, for example, the Global Investor Coalition on Climate Change and Institutional Investors Group on Climate Change (2020). These networks seek inter alia to enhance knowledge about climate issues such as climate risk among investors and to promote policies facilitating climate-friendly investment as well as commitments to net-zero emissions in companies. In general, individual corporate actors as well as private networks and institutions focus on mitigation rather than adaptation.

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 (Pickering 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 (Halimanjaya, 2015, 2016; Michaelowa and Michaelowa, 2011b; Peterson and Skovgaard, 2019; Pickering 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 The G20 and Climate Finance Introducing Finance Ministries to the Topic

The November 2009 St Andrews meeting of G20 Finance Ministers and Central Bank Governors was supposed to provide key input on climate finance. At this time, climate finance was a hot topic in the climate talks going into the Fifteenth Conference of the Parties to the United Nations Framework Convention on Climate Change (COP15), and observers expected it be an issue where the G20 could provide crucial input (author’s observation as a government official working in the COP15 team of the Danish Ministry of Finance). Yet, the attempts to agree on a set of far-reaching conclusions at St Andrews largely failed, and since then this issue has mainly been addressed at the expert level. Thus, climate finance is similar to fossil fuel subsidies as a topic that G20 started addressing in 2009 at the ministerial level, followed by expert discussion. Yet, G20 output on climate finance in general has not had the same catalytic effect as the Pittsburgh commitment on fossil fuel subsidy reform. Nonetheless, it has had repercussions beyond the G20, especially among international institutions. How economisation played out in the case of the G20 addressing climate finance is the topic of this chapter. The chapter starts with an overview of G20 output, from the attempt to reach an agreement in 2009 to the more technical working groups that have addressed climate change from an economic perspective, followed by an analysis of the causes (entrepreneurship from Presidencies, membership circles, interaction with the United Nations Framework Convention on Climate Change [UNFCCC]) that shaped the output. Finally, the chapter discusses the consequences of this output at the international level (salient mainly regarding the UNFCCC and institutions tasked with providing analysis to the G20) and the domestic level (less discernible).

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’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 Zelli, 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’ GDP², 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 (Vorobyova 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 (Hansen 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).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 (Halimanjaya, 2015; Weiler 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

10.3.1 International Consequences

The UNFCCC

The international institution most influenced by the G20’s climate finance output is arguably the UNFCCC, at least as regards the Copenhagen Accord negotiations. Although the finance ministers were not able to reach a final agreement on climate finance in St Andrews, they were ready to agree on several issues which would later be found in the Accord (interview with senior European Commission official, 7 September 2011). When comparing the climate finance provisions of the St Andrews Communiqué (and particularly earlier drafts of this Communiqué) and the Copenhagen Accord, crucial similarities between the St Andrews Communiqué and the Accord stand out, as discussed in Section 10.1. Agreements (or in this case, a nearly completed agreement) in one institution affecting the possibilities for agreement in another constitute an incentive-based and cognitive influence (see also Chapter 2). Incentive-based because states would be more inclined to offer to change their negotiation positions within the UNFCCC if they knew – on the basis of the G20 negotiations – that the other states were likely to respond to such offers with similar offers. Cognitive because the G20 process established an understanding among the finance ministers of both developing and developed countries, which influenced how climate finance was addressed in the UNFCCC (interview with senior Indian Finance Ministry official, 3 November 2014). This understanding was developed in the meetings of experts and is visible in the way in which the provisions on the governance of climate finance reflect finance ministerial thinking. The G20 process meant that the finance ministries of the G20 developed countries accepted this obligation, including the obligation to fund adaptation, which runs counter to traditional finance ministerial preferences for mitigation finance, which provides a global public good (Pickering et al., 2015b). In this respect, it is important to note that the ‘Circle of Commitment’ that negotiated the Accord essentially consisted of the G20 minus a few middle-income countries such as Turkey and Argentina but plus representatives of country groups such as the Alliance of Small Island States and a few smaller countries. The importance of the influence of the G20 is also evident in the similarities between the Copenhagen Accord and the St Andrews text, especially when compared to how the Copenhagen Accord and the UNFCCC negotiation text differ (UNFCCC, 2009a, 2009b).

After 2009, the G20 output has not only been more modest in its ambitions, but its influence on the UNFCCC is also harder to discern. The G20 finance ministers (and central bank governors) have only had a limited involvement in the G20 discussions of climate finance, and the state leaders have been less directly involved in the UNFCCC negotiations compared to in 2009. Thus, the direct link between the two institutions at the level of highly powerful government officials has ceased to exist, and while the technical experts participating in the Climate Finance Study Group may influence their country’s position during the UNFCCC negotiations, this influence is much more indirect. Another factor is that the USD 100 billion target – despite the uncertainty regarding how it can be met – has been the most important climate finance commitment in the past twenty years. Once it was decided, there was less scope for the involvement of the political level. That meant that a key strength of the G20, its ability to agree on disputed but common political issues among twenty of the most powerful states, was less salient. The experts in the G20 Climate Finance Study Group with their economic approach differed less than the experts in the UNFCCC Standing Committee on Finance. They were influenced by and part of the same trend of framing climate finance in economic terms of leveraging private finance and mainstreaming climate concerns into development aid.

Institutions Tasked with Providing Analysis

Another set of institutions influenced by the G20 output has been the institutions tasked with providing analysis to the G20 Study Groups. Unsurprisingly, given that it often acts as an unofficial G20 Secretariat, the OECD has provided many of these reports, but nonetheless these reports constitute a relatively small proportion of the overall OECD publications on climate finance (see Chapter 11). The OECD reports provided to the G20 also stressed the same issues and adopted similar framings to the other OECD publications on climate finance, and did not increase in volume after the G20 requests (see Chapter 11). Thus, the G20 hardly induced a fundamental change to the way in which the OECD addressed the issue or the OECD agenda. The same applies to another major provider of reports, namely the World Bank, which also provided a range of publications on climate finance beyond those delivered to the G20. Again, the non-G20 World Bank output is rather similar in approach and theme to the publications delivered to the G20 (see e.g. World Bank, 2010, 2013a, 2017, 2018, 2020c). Other multilateral development banks (MDBs), particularly the Inter-American Development Bank, have also contributed to the reports to the G20, although to a much lesser degree than the World Bank (G20 Climate Finance Study Group, 2015). UN institutions, particularly the Secretariats of both the Green Climate Fund and the Global Environment Facility, and the UNEP and UNDP, also contributed to reports to the G20, again without these reports being radically different to other publications on climate finance published by these institutions (Robbins, 2017; UNDP, 2012). Largely, the reports published by these UN institutions (both those provided to the G20 and the rest) are part of the wider trend of focusing on greening finance and investment rather than the provision of public climate finance.

All of these institutions were used to addressing climate finance, in a knowledge-producing role and/or as providers or implementers of climate finance. Arguably, the G20 commitment exerted its greatest influence over the IMF, the Bank of International Settlements and the Financial Stability Board, which were less used to addressing climate finance, and which provided reports and other input on green and sustainable financial issues such as carbon pricing and green bonds (G20 Green Finance Study Group, 2016, G20 Sustainable Finance Study Group, 2018, IMF, 2011a, 2011b). In the case of the IMF, the output addressing climate finance even decreased significantly when it no longer reported to the G20, demonstrating the G20’s influence on the IMF agenda (see Chapter 12).

10.3.2 Domestic Consequences

The arguably most important influence of the G20 on climate finance at the domestic level has been its contribution to a climate finance system in which the most important decisions are left to the developed countries providing climate finance (Pickering et al., 2017). As I have argued earlier, the G20 has contributed to this system via its influence over the Copenhagen Accord provisions on climate finance, a cornerstone of this system. The G20 Climate Finance Study Group also became a part of this system. The factors shaping the domestic decisions regarding the allocation of climate finance mainly consist of domestic factors (Halimanjaya, 2015, 2016; Michaelowa and Michaelowa, 2011b; Peterson and Skovgaard, 2019; Pickering et al., 2015b). International influences, including from the G20 (or even from the UNFCCC), have had limited direct impact. The G20 Climate Finance Study Group has worked as an important forum for learning about and developing cognitive ideas about climate finance, especially in the early years, when it was a topic that was new to experts in the Study Group (interview with senior European Commission official, 7 September 2011). In this respect, it is important to note that the G20 Climate Finance Study Group was the main institutionalised forum for finance ministry officials discussing climate finance. The EU had a similar working group also oriented towards developing the EU position in the negotiations, but which covered a much smaller share of the global population and climate finance.

In the case of climate finance, international institutions can shape two aspects of a country’s climate finance policy, namely its position in the climate finance negotiations and its provision of climate finance (in the case of developed countries) and the implementation of climate finance (in the case of developing countries) respectively. The involvement of finance ministries is generally lower than the involvement of environment and development ministries both as regards developing a country’s position in the UNFCCC negotiations (Skovgaard, 2017b; Skovgaard and Gallant, 2015) and the provision of climate finance (Peterson and Skovgaard, 2019; Pickering et al., 2015), although in both cases it varies considerably from country to country. Yet, while they are less directly involved, finance ministries still hold considerable power over climate finance in all countries, particularly as regards their ability to cut funds for climate finance if it is not spent in a way that they approve of. Thus, involving finance ministry officials in G20 discussions may change the officials’ understanding of climate finance, and potentially lead them to accepting climate finance in a way they otherwise would not have done, but also to encouraging their direct involvement in climate finance to shape it to ensure that it matches their worldview.

Yet, existing research does not suggest that G20 member states are more likely to involve finance ministries in either the UNFCCC negotiations or the policy processes determining the allocation of climate finance (Peterson and Skovgaard, 2019; Skovgaard and Gallant, 2015). Thus, there is no overall indication that there is a spill-over from the involvement of G20 finance ministries in G20 climate finance discussions to them becoming more involved in other climate finance policy processes.

It is possible to identify influences from the G20 through the pathways of cognitive and normative change and changes to incentive-based and public and policymaking agendas by examining the five countries studied here in greater detail (see also Chapter 2).

In the case of the United States, the different aspects of climate finance have predominantly been shaped by party politics. The US position in all climate negotiations including those concerning climate finance changed radically with the change of Presidents. While the Obama administration was a hardliner in the climate finance negotiations in terms of opposition to finance targets and relinquishing control over allocation, the Trump administration’s decision to leave the Paris Agreement and opposition to the GCF means it plays no role in climate finance negotiations (Bowman and Minas, 2019; Skovgaard, 2017b). Perhaps surprisingly, the provision of climate finance has been less affected, with levels under Trump about a quarter below 2016 levels, although the lack of transparency makes it difficult to determine the exact amounts and their allocation (Thwaites, 2019). Importantly, the United States constitutes an example of a country with a high degree of involvement of the Treasury, inter alia because it has the responsibility of financing flows to multilateral funds, including the GCF and the Climate Investment Funds (Pickering et al., 2015b). The US Treasury under Obama saw the G20 as a forum for climate discussions that was important in its own right and significant for addressing climate change in economic terms (Lew, 2014). Later, the Trump administration has been more sceptical of any kinds of climate discussions in the G20. Yet, even to US Treasury officials during the Obama administration it was not the only relevant forum for discussions with other finance ministry officials, as forums such as the Major Economies Forum and World Bank meetings as well as informal discussions were also important (interview with former US Treasury official, 8 April 2014). Thus, while participation in such meetings were important for cognitive influences in the shape of US officials gradually developing their understanding of climate finance issues, it is difficult to disentangle the influence from the G20 from that of other forums (interview with former US Treasury official, 8 April 2014). In terms of the US public agenda (see Table 10.1), the G20 influence was limited and the institution’s output on climate finance was only addressed in articles in the New York Times and Washington Post in 2009, in both cases focusing on how climate finance was not a major issue at the Pittsburgh Summit (Eilperin, 2009a; Galbraith, 2009).

Table 10.1 Climate finance and the G20 in the US media: New York Times and Washington Post

	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	Total
Articles referring to US climate finance and the G20	2	0	0	0	0	0	0	0	0	0	0	2
All articles referring to climate finance (international and domestic)	5	5	4	1	3	1	12	1	3	6	5	46

The United Kingdom has consistently had a high profile both regarding the climate finance negotiations and the delivery of climate finance (Skovgaard, 2015). The UK is one of the few countries that meets the 0.7 per cent Gross National Income (GNI) target for ODA, and is among the top five global contributors (Atteridge et al., 2019). The United Kingdom has also sought to establish a common ground and promote action on climate finance in various UN and non-UN institutions, including the G20. Most notably, the UK government took on an important entrepreneurial role in establishing the 2009 climate finance expert group and as the host of the St Andrews meeting. At a later stage, the Bank of England, representing the UK government co-chaired the Green/Sustainable Finance Study Group, reflecting Bank Governor Mark Carney’s strong interest in the relationship between climate change and risk within the global financial system (interview with former chair of G20 Study Group, 30 April 2020). Thus, both the UK Treasury and the Bank of England have interacted with the G20. Similarly to the United States, participation in the G20 study groups influenced cognitive ideas in these two domestic institutions regarding climate finance issues, but this influence was limited by the UK government (especially the Bank of England at the time of the Green/Sustainable Finance Study Group) already having established an understanding of these issues when entering the G20 discussions. Notably, in spite of the relatively prominent place that climate finance has enjoyed on the UK public agenda (see Table 10.2), only two articles have linked the UK’s status as a G20 country to climate finance, in both cases noting the UK government’s reluctance to provide (new) finance to the Green Climate Fund (Carrington and Watt, 2014; Vidal, 2014a).

Table 10.2 Climate finance and the G20 in the UK media: The Guardian and The Independent

	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	Total
Articles referring to UK climate finance and the G20	0	0	0	0	0	2	0	0	0	0	0	2
All articles referring to climate finance (international and domestic)	20	22	6	1	2	7	33	3	2	2	2	100

India was the largest recipient of public climate finance in the period 2002–17, having received about USD 22 billion in climate finance⁴ (Atteridge et al., 2019). In the climate finance negotiations, India has adopted a stance stressing historical responsibility, CBDR, developed country targets for public climate finance and channelling climate finance through UNFCCC institutions (Dasgupta and Climate Finance Unit, 2015; Skovgaard, 2017b). The Indian Ministry of Finance has had the lead on climate finance since 2011, when a designated Climate Finance Unit was set up within the Ministry (and also leads participation in the G20). The Ministry of Finance frames climate change as an issue of equity but also of efficiency. The former is more important, since according to the Ministry, the developed countries delivering on their (equity-based) climate finance is a precondition for allocating climate finance in an efficient manner. The emphasis on CBDR has characterised the Indian position in the climate negotiations generally speaking (Sengupta, 2019; Thaker and Leiserowitz, 2014) and is shared with other involved ministries such as the Ministry of the Environment. Regarding the G20, the Ministry of Finance is of the opinion that any decisions on climate issues need to be adopted within the UNFCCC, and the G20 is mainly a forum for economic issues (interview with senior Indian Ministry of Finance official, 3 November 2014). Nonetheless, the Ministry of Finance sees the G20 as an important forum for discussion and sharing best practices and technical knowledge, which may help clarifying and creating a shared understanding among twenty powerful countries, an understanding that may make it easier to reach agreements in the UNFCCC (interview with senior Indian Ministry of Finance official, 3 November 2014). Thus, participation in G20 expert groups has led to cognitive changes in the Ministry, affecting the negotiation position in the UNFCCC, but also how the Ministry perceives the implementation of climate finance projects in India.

Table 10.3 Climate finance and the G20 in Indian media: The Hindu and Times of India

	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	Total
Articles referring to climate finance in an Indian context and the G20	0	0	0	0	0	0	7	1	2	0	0	10
All articles referring to climate finance (international and domestic)	0	2	1	4	1	5	47	14	3	14	14	102

Table 10.4 Climate finance and the G20 in the Danish media: Politiken and Jyllands-Posten

	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	Total
Articles referring to Danish climate finance and the G20	0	0	0	1	0	0	0	0	0	0	0	1
All articles referring to climate finance (international and domestic)	0	1	4	61	28	45	18	19	48	60	26	310

On the public agenda, the link between the G20 and climate finance existed only in the run-up and aftermath of COP21. Perhaps surprisingly, the rather modest climate finance discussions during the 2015 Turkish Presidency received most attention (Mohan, 2015c).

As regards Indonesia⁵, the country was the second-largest recipient of climate finance in the period 2002–17, having received USD 9.7 billion in climate finance during this period (Atteridge et al., 2019). During the climate finance negotiations, Indonesia has generally adopted a less hardline position than India. While it has stressed CBDR, developed countries’ climate finance targets and the role of the UNFCCC, it has been more positive regarding non-UNFCCC channels for climate finance and has contributed to the GCF, thus contributing to the softening of the developed/developing country distinction (Skovgaard, 2017b). The Indonesian Ministry of Finance has been involved in the implementation of recommendations from climate finance negotiations without taking the lead on either of these two issues. In terms of the overarching framing of climate finance, the Indonesian Ministry of Finance has emphasised efficiency, signalling Indonesian readiness for climate friendly investment to the market, carbon pricing as well as CBDR (Indonesian Ministry of Finance, 2009; interview with a senior Indonesian Finance Ministry official, 24 June 2015). The Ministry’s responsibility for G20 has – together with the 2007 COP13 in Bali – increased its attention to climate change. In the G20 expert groups, the Indonesian Ministry of Finance officials have stressed efficiency over CBDR (G20 Climate Finance Study Group, 2014).

As a non-G20 country, Denmark is less relevant when studying direct influences. As regards the public agenda, a couple of articles addressed Prime Minister Lars Løkke Rasmussen giving a presentation at the St Andrews meeting, and focused inter alia on the fiscal costs of climate finance to Denmark (Beder and Plougsgaard, 2009; Kongstad et al., 2009).

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 The OECD and Climate Finance Development and Investment

The OECD’s involvement with climate finance dates back to the 1990s and thus much further than that of the other international economic institutions. The OECD as an institution involves a wider range of actors, particularly domestic ministries, than the other two institutions, as exemplified by the involvement of development ministries in the OECD Development Assistance Committee (DAC). While it is still essentially an economic institution with the objective of improving the economic and social wellbeing of people around the world and with its economic worldview (Ruffing, 2010), it has addressed non-economic policy issues such as development and environmental protection to a larger degree than the other two institutions. Compared to them, its membership circle is much more restricted to developed countries, so much so that OECD membership has become synonymous with being a developed country.

As a knowledge-producing institution, the OECD has produced numerous reports and other publications on climate finance, which can be divided into two strands: a development strand within which the DAC has published statistics on the provision of development aid with climate objectives and an investment strand producing analyses of how to redirect investment to green purposes. This chapter outlines these two strands, and proceeds to analyse the factors that shaped them (institutional interaction, worldview and member states). Finally, the chapter discusses the consequences of OECD output for the international (especially the United Nations Framework Convention on Climate Change [UNFCCC]) and domestic levels (most salient regarding the development strand).

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 (Michaelowa and Michaelowa, 2011a), the OECD figures of bilateral climate finance have been criticised for being too high (Roberts 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 (Donner et al., 2016; Roberts and Weikmans, 2017; Weikmans 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; Weikmans 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 (Sethi, 2015). The negotiators argued that the actual figure was much lower, even as low as USD 2.2 billion USD (Dasgupta 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 (Weikmans 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’ (Kaminker et al., 2013; Kato 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 (Corfee-Morlot et al., 2012; Kato 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 (Jachnik 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 (Jachnik 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 (Jachnik 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 (Corfee-Morlot et al., 2012; Jachnik 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 (Haščič et al., 2015). While the Environment and particularly the Financial and Enterprise Affairs Directorates may have been focused predominantly on mitigation (Kato 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; Röttgers 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. Jachnik et al., 2019; Kato et al., 2014a,b). 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 (Carroll and Kellow, 2011; Ruffing, 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 (Carroll 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

11.3.1 International Consequences

At the international level, the OECD has occupied a central position in a tight web of international institutions addressing climate finance, particularly those focusing on producing knowledge about climate finance. The central role of the OECD has meant that economisation in the shape of the OECD framing climate finance in economic terms has spilled over onto the agendas of other institutions. These institutions have influenced the OECD and have been influenced in return, predominantly via cognitive mechanisms. The G20 has been cognitively influenced by the OECD (mainly the Secretariat) through the reports the OECD provided it as well as OECD Secretariat officials participating in G20 workshops, both of which were used by the G20 Study Groups as material for producing their own reports. These reports focused on OECD areas of expertise, specifically on climate finance tracking and fossil fuel subsidy reform (OECD Secretariat, 2011; World Bank Group et al., 2011). The fact that these reports have been utilised by the G20 meant that they have contributed to supporting the donor-driven climate finance system, in which the important decisions about climate finance have been made by donor governments individually (see Chapter 10). The OECD did not create this system, but its reports on how to make it work in an effective and efficient way have supported its operations by producing cognitive knowledge (domestic and international) actors have been able to utilise.

The influence on the UNFCCC is most direct in the case of cognitive influence on the SCF. First, there is the influence via the OECD member states that tend to rely on DAC data when they report their climate finance to the UNFCCC in their biannual reports. This influence is important not only at the level of the individual country but also because the SCF uses the climate finance figures in the biannual reports to estimate total flows of climate finance. The SCF also relies heavily on OECD DAC figures when it estimates the allocation of public bilateral climate finance for inter alia adaptation and mitigation, to different groups of countries (e.g. Small Island Developing States and Least Developed Countries, different regions) and for gender-oriented projects. Second, the SCF has also relied on OECD data on private investments mobilised by bilateral and regional institutions as well as on fossil fuel subsidies and investment in fossil fuels, recognising the OECD’s expert authority regarding these subjects (UNFCCC Standing Committee on Finance, 2014; 2016, 2018).

Beyond the SCF, the responses from the UNFCCC to the OECD output have been more mixed. The question of what counts as climate finance has been a heated topic in the negotiations since before COP15, and the role of the OECD in this has been controversial (Weikmans and Roberts, 2019). Particularly the 2015 OECD and CPI report on climate mobilised developed countries, and its finding that USD 62 billion had been mobilised was criticised by negotiators from developing countries (Sethi, 2015). Much of the criticism concerned the CPI and OECD’s reliance on inflated figures reported by developed countries and ignoring the question of additionality. While there was also contestation over these issues in the SCF, the SCF as a technical body was more prone to utilising OECD data (together with data from other sources) than the more political body of the UNFCCC climate finance negotiations. While there was some overlap in terms the officials involved in the SCF and the climate finance negotiations, the more technical mandate of the SCF (UNFCCC Standing Committee on Finance, 2020), this meant that the technical (cognitive) knowledge produced by the OECD was more acceptable to the SCF than to the UNFCCC climate negotiations. Normative influences were very limited, since climate finance was too politicised in the UNFCCC and the OECD was too much of a club for developed countries for the OECD to exert direct influence over how normative questions were addressed, although it implicitly supported the donor-driven system. Yet, incentive-based influences mattered in terms of the DAC figures showing how far developed countries contribute climate finance towards their UNFCCC commitments.

The network of institutions producing knowledge about climate finance also includes several institutions with which the OECD has co-produced output. In these cases, the interaction between the institutions consists of two-way cognitive learning processes influencing the OECD as well as the other institutions. These institutions include the MDBs, particularly the World Bank, which the OECD Secretariat has collaborated with on several of its reports and workshops (OECD and World Bank, 2016; OECD et al., 2018; World Bank Group et al., 2011). Beyond the World Bank, there has been a cognitive influence running in both directions between the OECD Secretariat and the MDBs as a group, in which they have collectively been developing their cognitive ideas about climate finance. This has been the case both as regards mobilising private finance (of which the MDBs have considerable practical experience) and tracking multilateral climate finance. Collaboration with the IEA is more limited than one might expect given the close relationship between the two institutions (also compared to the case of fossil fuel subsidies), but has nonetheless resulted in joint publications on climate finance by the OECD–IEA Climate Change Expert Groups (e.g. Kato et al., 2014b; Vallejo et al., 2017).

The institutions providing knowledge about climate finance also include non-UNFCCC UN institutions, particularly United Nations Development Programme (UNDP) and UNEP. Both UNEP and UNDP have collaborated with the OECD Secretariat on publications, in the case of UNEP and the UNEP Finance Initiative¹ on (especially infrastructure) investment (OECD et al., 2018), in the case of UNDP on the relationship between climate finance and development.

Beyond intergovernmental institutions, the OECD has also had a considerable influence on non-state actors and institutions. Although environmental non-government organisations (NGOs) have voiced criticism similar to that of the UNFCCC negotiators from developing countries (Climate Action Network Europe, 2015a), and they have also relied on OECD DAC data and often utilised these data (Climate Action Network Europe, 2015b). Research institutions and think tanks such as the CPI, World Resources Institute or the Overseas Development Institute have also utilised OECD data, as well as collaborating with the OECD on some of its output, most notably the 2015 OECD and CPI report (interview with senior OECD official, 12 May 2015). Finally, corporate actors, in particular actors from the financial sector such as banks and pension trusts, have been influenced by output from the OECD investment strand. This includes participation in workshops and seminars arranged by the OECD Secretariat and drawing on OECD publications, and participating actively in OECD networks such as the Research Collaborative on Tracking Finance for Climate Action (OECD, 2018c, 2020c).

11.3.2 Domestic

Regarding the domestic level, the influence of the OECD has also mainly been cognitive and has involved government officials rather than non-governmental constituencies such as NGOs or the general public. This is evident in all the five countries studied, even the non-OECD countries India and Indonesia. The DAC reporting requirements have involved officials in each DAC country, setting in motion the production of knowledge about climate aspects of their own ODA and framing existing ODA projects as climate projects. DAC reporting not only affects their cognitive understanding of their own climate finance; it also provides them with knowledge about other countries’ climate finance. All DAC countries, including the United States, the United Kingdom and Denmark, have treated climate finance as a subtype of development aid.

As regards both the development and investment strands, the OECD has played an important role as a provider of knowledge and ways of understanding climate finance. As regards producing data and statistics on public bilateral climate finance, the OECD enjoys a quasi-monopoly, which has meant that even those critical of the OECD data have to rely them, as is evident in the case of India (see later). This influence has also been important regarding climate-related investment, which is a new subject that people, including government officials, had little understanding of and regarding which only limited knowledge had been produced. OECD publications, workshops and seminars were among the first to address investment as a climate finance issue, at least beyond academia and think tanks. The OECD Secretariat’s expertise on investment and development has played an important role for its authority on these issues in the eyes of government officials. Especially as regards investment, reframing particular kinds of already existing finance as climate finance has meant that actors, including government actors, already working with investment have been able to address it in a different way. All the five countries studied here have been active in the investment strand.

Neither of the strands has played a major incentive-based role, yet DAC reporting has provided opportunities for incentivising countries to provide more climate finance, as well as more climate finance in line with equity-based ideas such as prioritising vulnerable countries and adaptation. Such incentives may take the shape of reputational costs of not living up to climate finance commitments, hence reducing a state’s credibility when future commitments (regarding climate finance or other issues) are negotiated (on reputational costs and benefits, see Abbott, 2014). The fact that there are no individual country obligations to provide a given amount of climate finance limits the impact of such reputational costs, yet the fact that countries over-code their climate finance indicates that they are concerned about being seen as providing sufficient amounts of climate finance. Furthermore, the amounts of public climate finance provided– according to the DAC (OECD, 2019b) – increased consistently during the period 2013–17, indicating that countries are responding seriously to the commitment of providing increasing amounts of climate finance, even though these amounts may not be sufficient to reach the USD 100 billion target.

The United States has consistently preferred the OECD to the UNFCCC as an institution for monitoring climate finance. The United States has also consistently reported to the DAC committee even when the Trump administration ceased to report its climate finance flows to the UNFCCC, and also referred to the OECD’s figures and argued that they may underestimate actual flows (Sethi, 2015). Yet, the fact that US public climate finance has been shaped more by domestic than international politics (see Chapter 10) and that the United States interacts with a wide range of institutions regarding climate finance, many of them with headquarters in Washington, DC (the World Bank, the Inter-American Development Bank), means that OECD influence on US climate finance can be difficult to discern from other factors. On the public agenda, the OECD has not been linked to US climate finance, except for two articles in 2015 (see Table 11.1), which referred to the OECD and CPI report on progress towards the USD 100 billion target (Davenport, 2015; Porter, 2015). Importantly, the criticism of the level of US climate finance from officials and NGOs from European and developing countries (including India) was placed in the context of the report, thus adding to the normative pressure on the United States to provide more climate finance. This is an example of how OECD reporting makes it possible to criticise countries for not providing enough climate finance. In this way, the OECD makes it easier to hold countries accountable for equity-oriented normative ideas, although it is possible that another, more equity-oriented institution established in the UNFCCC would have taken its place had it not reported on climate finance. Furthermore, on a very fundamental level, the OECD has supported the CBDR-based normative idea that developed countries have an obligation to provide climate finance.

Table 11.1 Climate finance and the OECD in the US media: New York Times and Washington Post

	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	Total
Articles referring to US climate finance and the OECD	0	0	0	0	0	0	2	0	0	0	0	2
All articles referring to climate finance (international and domestic)	5	5	4	1	3	1	12	1	3	6	5	46

The United Kingdom is a prominent example of a country that has played an active role in international climate finance discussions, as well as having increased its public climate finance and reported the same climate finance data to the OECD DAC and to the UNFCCC (UK Government 2019). The UK has stressed normative ideas such as efficiency and the importance of leveraging private finance (Pickering et al., 2015b; Skovgaard, 2017b; UK Government, 2019). UK government representatives have also been highly active in the OECD investment strand, notably the Forum on Green Finance and Investment, in which representatives of inter alia the Bank of England have presented their perspectives on green investment and finance issues. On the public agenda (see Table 11.2), a picture similar to the one of the United States emerges: it was not until 2015 that newspaper articles linked OECD data and UK climate finance. Furthermore, in these articles the OECD estimates of climate finance provided a context for NGOs to criticise the United Kingdom (and other developed countries) for not providing sufficient amounts of climate finance, including shaming the United Kingdom for not contributing as much as France and Germany (Mathiesen, 2015; Neslen, 2015).

Table 11.2 Climate finance and the OECD in the UK media: The Guardian and The Independent

	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	Total
Articles referring to UK climate finance and the OECD	0	0	0	0	0	0	3	0	0	0	0	3
All articles referring to climate finance (international and domestic)	20	22	6	1	2	7	33	3	2	2	2	100

A criticism of the OECD is that the DAC countries can provide as much climate finance as they wish to and also report as much as they wish to due to the limited scrutiny of the DAC figures, an issue often raised by the government of India (Dasgupta and Climate Finance Unit, 2015; Indian Ministry of Finance, 2019). Thus, the Indian government has been highly critical of the current system of donor-driven climate finance. Specifically, it has criticised both the OECD’s estimate of global climate flows and the use of OECD DAC data to calculate individual countries’ climate finance contributions (see inter alia Dasgupta and Climate Finance Unit, 2015; Indian Ministry of Finance, 2018). Nonetheless, India has as a partner country participated in meetings arranged by the DAC Environet Working Group climate finance meetings. A crucial factor explaining this difference is that the OECD’s output on investment has been more aligned with the preferences of the Indian government (which is in favour of leveraging private finance, Indian Ministry of Finance, 2019) than the development strand output. On the public agenda, as in the United States and the United Kingdom, the OECD link between the OECD and climate finance in an Indian context has hardly featured before or after 2015, 2016 being the sole exception (see Table 11.3). Also similar to the US and the UK public agendas, it is the OECD’s estimate of global climate finance on progress towards the USD 100 billion target that receives the attention, and the findings are used to shame developed countries for not living up to their promises (Mohan, 2015a). Yet, unlike the US and UK newspapers, the veracity of the OECD’s figures are called into question, and the Indian government’s claim that these figures are exaggerated is referred to (Byravan, 2015; The Times of India, 2015).

Table 11.3 Climate finance and the OECD in the Indian media: The Hindu and Times of India

	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	Total
Articles referring to climate finance in an Indian context and the OECD	0	0	0	0	0	0	4	1	0	0	0	5
All articles referring to climate finance (international and domestic)	0	2	1	4	1	5	47	14	3	14	14	102

Like India, Indonesia is an OECD partner country, which has participated in a few of the investment and (to a lesser degree) development strand meetings but has been less vocally critical of the DAC estimates of climate finance. Both Indonesia and India have participated actively in the activities under the investment strand, including the Forum on Green Finance and Investment, since this forum is less controversial, as it has not interfered with the USD 100 billion target and other issues discussed in the UNFCCC.

Denmark is like the United Kingdom, a country that has increased its public climate finance and reports the same climate finance data to the OECD DAC as to the UNFCCC (Danish Ministry of Energy, 2017). Also similarly to the United Kingdom, the Danish government has stressed normative ideas such as efficiency and the importance of leveraging private finance (Danish Ministry of Foreign Affairs, 2017; Pickering et al., 2015b; Skovgaard, 2017b). In the investment strand, at the OECD meetings and forums Denmark has played a very active role considering its small size compared to the other countries studied, often highlighting Danish experiences with climate investment. The public agenda follows a pattern similar to that of the other countries, although the link between the OECD and Danish climate finance is also present beyond the peak in 2015 (see Table 11.4). The focus is also on NGOs shaming the government for not providing sufficient amounts of climate finance and this finance not being new and additional climate finance (Hannestad and Bostrup, 2019). Yet, there are also references to the OECD’s analysis of climate finance, including the shares of private finance (Thomsen and Hannestad, 2015).

Table 11.4 Climate finance and the OECD in the Danish media: Politiken and Jyllands-Posten

	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	Total
Articles referring to Danish climate finance and the OECD	0	1	0	0	0	1	4	1	0	2	2	11
All articles referring to climate finance (international and domestic)	0	1	4	61	28	45	18	19	48	60	26	310

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 The IMF and Climate Finance Carbon Pricing Rears Its Head

The IMF has not traditionally paid much attention to climate finance or to climate change in general but started publishing reports on climate finance from 2010. More recently, the Fund has paid more attention to climate change in general (IMF, 2019c, 2019e, 2019g; Lagarde and Gaspar, 2019). Thus, the IMF has not dedicated as much attention to climate finance as to fossil fuel subsidy reform and has also dedicated less attention to the subject than the G20 and especially the OECD. Nonetheless, the IMF output on climate finance provides an important insight into a case of economisation. The chapter starts with an outline of the IMF’s relatively limited output on climate finance, which initially focused on the mobilisation of climate finance and later more broadly on fiscal policies. The way in which the IMF linked climate finance to fossil fuel subsidies and carbon pricing is indicative of its view that climate change is best addressed by pricing emissions. As I explain in the subsequent section, this approach is shaped by the Fund’s worldview and its focus on fiscal policy, and its initial impetus to address climate finance has come from institutional interaction and policy entrepreneurs within the bureaucracy. Finally, the limited consequences of the IMF output at the international and domestic levels are discussed.

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 Rights¹ (SDRs) of IMF member states as capital on its balance sheet, thus allowing the Green Fund to issue green bonds with SDRs as security (Bredenkamp 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 (Mooij and Keen, 2012), published in an IMF report on the fiscal responses to climate change (Mooij 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 (Lagarde, 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 Parry 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 Georgieva² 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 (Georgieva, 2019; IMF, 2019a; Lagarde 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 (Coady et al., 2015, 2019; 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 (Clements et al., 2013; Coady 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 Krogstrup 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 (Mooij 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 them³, 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 (Bows-Larkin, 2015; Romera 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; Lagarde, 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 (Bredenkamp 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 (Bredenkamp and Pattillo, 2010; Parry 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 (Mooij 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 (Bredenkamp and Pattillo, 2010). The use of SDRs as a source of climate finance was initially proposed by billionaire George Soros (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

12.3.1 International Consequences

The international consequences of the IMF’s climate finance output have been limited both by the small size of this output and by the IMF’s more isolated position in the institutional complex governing climate finance. The Fund occupied its most central position within this complex in 2011, when it – together with above all the World Bank – provided the G20 with input for its discussions of climate finance. Yet, even at that time, the IMF’s proposals for using fossil fuel subsidy reform and carbon pricing of domestic, aviation and shipping as sources had not been developed into concrete proposals by the G20 or other international institutions. Although international aviation will be subject to market-based instrument, this instrument will not provide climate finance for developing countries (ICAO, 2019). The main reason for this is that earmarking – especially for activities taking place outside the country where the revenue is collected – is politically and legally controversial (Esch, 2013; Romera and van Asselt, 2015). Likewise, the proposal for a Green Fund financed by SDRs was not developed into a concrete proposal for IMF policy. Nonetheless, institutions such as the UNDP (2012) did pick up and elaborate the notions of using revenues from pricing of international aviation and shipping and SDRs as sources of climate finance. More recent output on improving resilience through financial instruments is more in line with the emerging positions of other institutions and has also informed how they have addressed resilience especially in vulnerable countries. More specifically, the OECD and the World Bank have relied heavily on IMF analyses of the financial and economic situation of vulnerable countries, and recommended that the IMF play an active role as provider of resilience finance to such countries (OECD and World Bank, 2016). Likewise, the UN Inter-agency Task Force on Financing for Development has relied on the IMF’s analysis of economic benefits of fiscal spending on resilience and recommended that the IMF be involved in how vulnerable countries improve resilience (United Nations, Inter-agency Task Force on Financing for Development, 2019).

The cognitive idea that carbon pricing, fossil fuel subsidy reform and climate finance are interconnected and the normative idea that this relationship should be strengthened, which the IMF has consistently stressed, has also gained momentum in the run-up to and following COP21 (see inter alia Bowen et al., 2013; The Coalition of Finance Ministers for Climate Action, 2019; UNFCCC Standing Committee on Finance, 2016, 2018). Arguably, the IMF output should be seen as an early forerunner of (among international institutions) and contributor to the framing of climate finance in particular (and climate change in general) as an economic issue to be addressed with economic instruments. Climate finance, in itself not an issue that can be framed as addressing the externality of climate change⁴, has been framed as an issue of redirecting (predominantly private) finance both by the IMF and within the wider climate change complex. As discussed in Chapters 10 and 11, this approach is also common in the G20 and the OECD, and is based on the notion of addressing climate change through economic instruments addressing the barriers to climate action (especially de-risking) rather than climate change as an externality. The IMF did not invent this approach, but whenever it has expressed that finance should be redirected from brown to green, or that resilience should be addressed through financial instruments, it has contributed to the standing of this approach. The IMF’s support for this way of addressing climate finance is important, as it has considerable expertise and authority, especially among international and domestic economic actors (Barnett and Finnemore, 2004, chapter 3). On a very fundamental level, since 2010, the IMF has supported the normative idea that climate finance is important, and that developed countries have an obligation to provide it, which is not a given for an institution often accused of furthering the economic interests of developed countries.

12.3.2 Domestic Consequences

The IMF’s calls for using revenue from carbon pricing or fuel or electricity levies as a source of climate finance (IMF, 2011b) has not been heeded by developed states, inter alia because finance ministries are opposed to earmarking revenue and because the constitutions of some states prohibit it. Even the revenue from the auctioning of emission allowances to aviation in the EU Emissions Trading System (ETS), half of which should be earmarked for climate purposes according to the 2008 EU Regulation on aviation in the ETS, has been controversial and the revenue mainly spent domestically, underscoring the opposition to earmarking revenue for international public climate finance (Esch, 2013).

The consequences of the IMF’s output are more pronounced concerning output focusing on individual countries, often with a more implicit climate finance focus. Crucially, the Climate Change Policy Assessments have contained very concrete policy recommendations that inter alia might help the countries in question attract public and private climate finance. These Assessments consist of technical assistance, provided on the request of the country that is being analysed. They will constitute one framework for the Fund’s (and also the World Bank’s) interaction with the countries in question regarding climate change, including collaboration between the Fund and the government on issues such as risk management (IMF, 2019d). All in all, in the future, the Climate Change Policy Assessments will mean a closer IMF involvement with the implementation of climate finance. On a similar note, the integration of climate mitigation issues in Article IV consultations may provide a framework for systematically promoting mitigation policies in line with IMF recommendations on policy design. Whether mitigation issues are integrated in these consultations will depend on how much traction the country team believes these issues will have with the government in question (interview with senior IMF official, 19 May 2020).

Given that the IMF’s output on climate finance has been limited, it is difficult to discern direct influences on the negotiation positions on climate finance or the provision or implementation of such finance in the United States, United Kingdom, India, Indonesia or Denmark. For instance, the Fund’s argument for focusing on adaptation risk and resilience and on shifting private financial flows has resonated domestically, but given that such arguments have come from a range of different actors and institutions, it is difficult to discern how influential the IMF has been in this respect. Nor has the IMF influenced the position of the climate finance issues it has addressed on either public or policymaking agendas, inter alia because some of these ideas regarding generating resources had already been proposed in the 2010 UN High-level Advisory Group on Climate Change Financing report (United Nations, 2010) without much effect.

In the case of the United States, there has been limited cognitive and normative influence from the IMF on policymakers, in spite of the generally close interaction between the US Treasury and the IMF made possible by being headquartered in the same city. Fundamentally, much of the IMF output has been in direct opposition to US positions on climate finance, for example, the notions of burden-sharing and of using carbon pricing revenue as a source of climate finance. The idea of federal carbon pricing was largely abandoned by the Obama administration after the defeat of the Waxman–Markey proposal for an US emissions trading system in 2009 (MacNeil, 2016). Furthermore, the IMF has not been linked to climate finance at all in either the New York Times or the Washington Post (see Table 12.1).

Table 12.1 Climate finance and the IMF in the US media: New York Times and Washington Post

	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	Total
Articles referring to US climate finance and the IMF	0	0	0	0	0	0	0	0	0	0	0	0
All articles referring to climate finance (international and domestic)	5	5	4	1	3	1	12	1	3	6	5	46

Table 12.2 Climate finance and the IMF in the UK media: The Guardian and The Independent

	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	Total
Articles referring to UK climate finance and the IMF	0	0	0	0	0	0	2	0	0	0	0	2
All articles referring to climate finance (international and domestic)	20	22	6	1	2	7	33	3	2	2	2	100

The IMF has also not yet had a discernible impact on the UK position on climate finance. While the IMF has provided important data for G20 discussions of climate finance that have involved the UK (and the United States, India and Indonesia), this constitutes an influence on the G20 rather than directly on the United Kingdom. The United Kingdom is one of the countries which will have mitigation issues included in their Article IV consultations although at the time of writing these have been postponed due to the Corona pandemic. On the public agenda, the only references to the IMF in relation to UK climate finance consist of two brief references to a 2015 meeting on climate finance in the margins of the IMF and World Bank annual meeting in October 2015 (Editorial, 2015).

India and Indonesia have also interacted with the IMF concerning climate finance in the context of the G20. Beyond this, the limited IMF output on climate finance has had no discernible influence on climate finance in the two countries or on the negotiation positions. Indian media has mentioned the IMF only in the context of climate finance once, namely the aforementioned 2015 meeting on climate finance in the margins of the 2015 IMF and World Bank annual meeting (Mohan, 2015b).

In line with the other countries, at the time of writing, it is, in the case of Denmark, not possible to discern any IMF influence on climate finance, although this may change when the Article IV consultations with Denmark start including mitigation issues as planned. There have been no identified references to the IMF and climate finance on the Danish public agenda (see Table 12.4).

Table 12.3 Climate finance and the IMF in the Indian media: The Hindu and Times of India

	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	Total
Articles referring to climate finance in an Indian context and the IMF	0	0	0	0	0	0	2	0	0	0	0	2
All articles referring to climate finance (international and domestic)	0	2	1	4	1	5	47	14	3	14	14	102

Table 12.4 Climate finance and the IMF in the Danish media: Politiken and Jyllands-Posten

	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	Total
Articles referring to Danish climate finance and the IMF	0	0	0	0	0	0	0	0	0	0	0	0
All articles referring to climate finance (international and domestic)	0	1	4	61	28	45	18	19	48	60	26	310

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 The Alignment of the Economic Institutions on Climate Finance Efficiency in Development and Investment, but Also Carbon Pricing

The involvement of economic institutions has played out somewhat differently in the case of climate finance compared to fossil fuel subsidy reform. All three institutions have framed climate finance in economic terms and stressed normative ideas such as efficiency. They have also linked climate finance to issues such as fossil fuel subsidies, carbon pricing, risk and investment to a larger degree than environmental institutions. This economisation has taken place within the climate finance system characterised by considerable fragmentation in terms of norms, institutions and actor constellations (Pickering et al., 2017). This system includes a much larger and diverse group of actors and international institutions than the fossil fuel subsidy reform system, and much more normative contestation regarding what the core issue is and what it is supposed to achieve. Although the three institutions share an economic framing of climate finance, they do not constitute a distinct cluster within the climate finance complex. Not only does the IMF mainly operate in isolation from the other two institutions, but the G20 and the OECD, despite interacting frequently, also have synergistic relations with other institutions, especially the multilateral development banks (MDBs).

The chapter proceeds by outlining the alignment of the institutions regarding types of output, scope and actors addressed and cognitive, normative and incentive-based dimensions, finding that while they have agreed on an economic framing of the issue, there has also been divergence between the institutions. This divergence is most notable regarding whether carbon pricing should constitute a source of climate finance, and to some extent also regarding how equity should be prioritised. Subsequently, this chapter explains this alignment in terms of economic worldviews and interaction pulling towards convergence. Divergence between the institutions has been driven by differences in worldviews (e.g. between the OECD Development Directorate and the IMF) and the degree of autonomy from member states. Finally, the consequences of the output are described, identifying more significant (cognitive) influences at the international level than the domestic level, but also incentive-based influences from the OECD and the G20.

13.1 How They Align

13.1.1 Types of Output

The three institutions vary considerably regarding the size of their output on climate finance. The OECD has produced numerous reports, meetings and workshops every year since the mid-2000s and enjoys a quasi-monopoly on climate finance statistics, whereas the output of the other two institutions has been less voluminous and regular. The OECD also stands out in terms of addressing climate finance along two distinct strands, addressing the topic as a development finance issue and as an investment issue respectively. The G20 and the IMF have been more unitary in their approach, while still addressing a range of issues covering development, adaptation, mobilising climate finance, leveraging private finance and reducing investment risk. The formal output of all three institutions has consisted mainly of (rather technical) knowledge. Besides the G20’s unsuccessful attempt in 2009 to produce a commitment on climate finance covering its member states (which influenced the subsequent United Nations Framework Convention on Climate Change [UNFCCC] USD 100 billion target), formal G20 output has consisted of reports about how to address specific climate finance issues (adaptation, leverage, etc.). The OECD’s main formal output has been knowledge about levels of climate finance, best practices and a new understanding of financial flows, especially in the context of investment. Moreover, the IMF’s formal output has solely consisted of reports analysing how to address climate finance issues, particularly sources of climate finance. The OECD DAC’s reporting on contributor countries’ climate aid arguably provides incentives for delivering more climate aid by increasing transparency and possibilities for comparison between countries (thus allowing for countries with low contributions to suffer reputational costs). The G20 and particularly the OECD have also produced considerable informal output in the shape of arranging meetings and workshops for experts from different countries and institutions, in the case of the OECD also business, interest groups, think tanks, academia and civil society. These meetings have constituted venues for learning about new aspects of climate finance (e.g. investment, leveraging, risk), venues which have been important as many of the participants have not been familiar with climate finance or the climate negotiations, but have come from finance ministries or other economic institutions, the worldview of which has resonated with the institutions’ framing of climate finance.

13.1.2 Scope and Actors Addressed

All three institutions have provided output aimed at global audiences. The G20 and the OECD have also provided output more specifically targeted at their member states, and the IMF has provided the Climate Change Policy Assessments of individual states. In particular, the 2009 G20 attempt to provide a climate finance agreement, but also the learning processes within the G20 study groups, have been aimed at G20 representatives of member states, often from finance ministries. Likewise, the activities of the OECD Development Assistance Committee (DAC), especially the informal deliberations, have been aimed at OECD member states and to some degree observer states. The OECD investment strand has been more focused on a global and public as well as private audience. Since most of the G20 and OECD publications have been intended for consumption by their member states as well as other actors, it is difficult to draw a sharp line between the output specifically aimed at their member states and that aimed at a global audience. The IMF, with its near-global membership, has provided output aimed at a global membership consisting of states as well as non-state actors, as well as at the G20 in the case of the reports requested by the G20. All three have addressed finance ministries to a larger degree than most other institutions in the climate finance system.¹

13.1.3 Cognitive Dimensions

All three organisations have framed climate finance and climate change in economic terms, emphasising the economic consequences of climate change and the need for remedying them with economic instruments. Particular emphasis has been placed on linking climate finance to the issues of carbon pricing (especially by the IMF) and fossil fuel subsidy reform, two issues that in a range of other forums – especially the UNFCCC – have not been linked to climate finance until recently, and even then not to the same extent. Climate finance has also more recently been linked to the issues of investment and risk. Unlike for carbon pricing, addressing the risks associated with climate change (Campiglio et al., 2018)– both risks associated with fossil fuel and green investment and with the impact of climate change – does not address the root cause of climate change, but economic obstacles to mitigation and adaptation. Hence, addressing climate finance with reference to these risks constitutes a less ideal-typical case of economisation than addressing it with reference to the externality of climate change (see Chapter 1).

These four issues are all rather ‘economic’ in the sense that they fully (investment, risk) or partially (carbon pricing, fossil fuel subsidies) belong to the realm of economic policymaking. Linking them to climate change policy in general and climate finance in particular also entails an economic framing of the problem of climate change: it should be addressed with economic policy instruments affecting the cost–benefit calculations of actors making economic decisions (whether to invest in a project, buy a particular product, etc.). The economic framing has also included continuously stressing the importance of private finance, a source of climate finance that has been more controversial in the UNFCCC than in the three institutions, especially as concerns counting it towards the USD 100 billion target.

There is also a shared emphasis on mitigation rather than adaptation (also evident in the emphasis on carbon pricing and fossil fuel subsidies), although all three institutions increasingly address adaptation issues. The increasing attention to adaptation arguably reflects the overall trend in the climate finance system and was evident in the OECD (markedly with the Rio adaptation marker) at an earlier stage compared to the G20 and the IMF.

Nonetheless, there are important differences between the institutions. Notably, the OECD in its development strand has defined climate finance as a subtype of development finance, whereas the IMF has proposed measures that would clearly set climate finance apart from development finance, for example, domestic and international carbon pricing of domestic and international emissions, and the earmarking of domestic revenue. The G20 has occupied the in-between position (but closer to OECD), treating climate finance as more than a subtype of development finance but still with a significant overlap. The IMF has also emphasised the link with carbon pricing – particularly regarding emissions from the international shipping and aviation sectors – to a much larger degree than the other two institutions.

13.1.4 Normative Dimensions

In terms of normative ideas, the three institutions have all prioritised efficiency over equity norms such as Common but Differentiated Responsibilities and Respective Capabilities (CBDR) and vulnerability, and mitigation over adaptation. CBDR has not been central to any of the institutions’ output, although the normative idea that climate finance is something developed countries should provide has been inherent to their output. As concerns the allocation of climate finance, although the OECD and the G20 have stressed adaptation finance and climate finance for the most vulnerable, the overall approach has been that efficiency is the key principle. The IMF has been less explicit regarding the allocation of climate finance but has more recently also stressed the importance of adaptation within the context of individual developing countries. The efficiency focus matches the institutions’ economic worldview, since it highlights the importance of keeping economic costs low.

Yet, the institutions have diverged more regarding normative ideas than cognitive. Generally speaking, the IMF has advocated solutions rooted in a vision of how climate finance ideally should be addressed, whereas the G20 and the OECD have largely based their positions on the actual state of affairs and in the case of the OECD tried to forge ahead within the context of this state of affairs. First, in the 2010 reports to the G20, the IMF (implicitly) advocated a global burden-sharing key based on emissions, while the G20 and the OECD left it to the individual country to determine its contribution. Second, carbon pricing has been addressed in different ways: whereas the IMF outright advocated adopting it at the domestic and the international levels (especially the latter might infringe on the fiscal sovereignty of states), the OECD and particularly the G20 have stressed that adopting carbon pricing is inherently a national decision. The IMF advocacy of carbon pricing has been rooted in its framing of climate change as an externality that should be addressed by pricing the externality, a vision not shared with the G20 and the OECD (see Chapters 7 and 12 regarding the IMF’s promotion of carbon pricing). Altogether, the output from the OECD and the G20 has been more closely aligned with the preferences of its member states than the output of the IMF. Thus, economisation has been more ideal-typical or ‘pure’ in the case of the IMF, and less ‘contaminated’ with member state preferences (as discussed in Section 13.2).

13.1.5 Incentives

The institutions have provided very few direct changes to the incentive structures to the actors involved in climate finance, be they contributors, recipients or a third kind of actor. The incentives provided by the institutions have not been in conflict at any point, and have to some degree been synergistic. The OECD DAC’s monitoring of bilateral (and recently also multilateral) climate aid, incentivises countries to provide more climate finance (but also to designate more of their development finance as climate-related), as well as to prioritise vulnerable countries and adaptation. Such incentives may consist of reputational costs associated with not living up to climate finance commitments, which reduce the credibility of the states and developed countries as a group when future commitments (regarding climate finance or other issues) are negotiated. Yet, the absence of individual country climate finance targets limits the impact of such reputational costs. The 2009 G20 attempt to create a shared climate finance commitment for industrialised countries would have constituted an important change to incentive structures (in terms of developed G20 countries facing reputational costs if the commitment were not fulfilled), yet did not succeed. It was only influential in an indirect way through influencing the UNFCCC’s Fifteenth Conference of the Parties (COP15) climate finance commitment, most notably the USD 100 billion target, which the developed countries may suffer reputational costs if they do not meet. The IMF’s recent attention to climate measures in its interaction with individual countries via so-called Climate Change Policy Assessments and in the future also Article IV consultations) may affect the incentives of both contributors and recipients of climate finance, for example, by tying IMF finance to the Assessments or by contributor countries providing more finance to countries with positive Assessments. At the time of writing, five countries (Belize, Grenada, Micronesia, St Lucia and the Seychelles) have been the subjects of such Assessments.

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. Bredenkamp and Pattillo, 2010; Grippa 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.

13.3.1 International Level

The three institutions have interacted with a range of other institutions, with considerable overlap between them in terms of which institutions they have interacted with. Arguably, the most important influence on another institution has been the influence of the G20 on the UNFCCC, when the discussions within the G20 in spite of the disagreements helped make an agreement on climate finance possible at COP15. The G20 process established an understanding among emerging and developed country finance ministries, which influenced how climate finance was addressed in the UNFCCC (interview with senior Indian Finance Ministry official, 3 November 2014). The G20 process meant that the G20 representatives involved in the drafting of the Copenhagen Accord (a small group of countries in which G20 countries constituted the majority) knew what would be acceptable to the other G20 countries’ finance ministries, making an agreement easier. The understanding included that private finance would count as climate finance (accepted by the emerging G20 countries) and that there should be a collective climate finance target (accepted by developed G20 countries). The increased credibility of negotiation offers constitutes an incentive-based influence.

Cognitive influences constitute the most widespread kind of influence, adding to the degree of synergy in the climate finance system. The OECD has had an important cognitive influence on the UNFCCC, particularly the Standing Committee on Finance, which has used OECD estimates of finance flows in its reports. These OECD estimates as well as other OECD climate finance have also been used by other international institutions, including think tanks, research institutions and non-governmental organisations. Regarding the recent trend of focusing on investment, all three institutions have influenced the World Bank and other MDBs, as well as UNEP and UNDP. Beyond this, the cognitive influence of the IMF has been rather limited at the international level beyond the G20. Collaboration on producing publications and participation in workshops and seminars have been important channels for G20 and especially OECD cognitive influence on international institutions including the MDBs, UNEP, UNDP and other economic, development and environmental institutions. By defining the terms of the workshops and especially in the case of the OECD also producing much of the data material and analyses discussed, the two institutions have been able to encourage and shape the other institutions’ output on climate finance.

As regards more normative interaction, the three institutions have addressed the key normative issues in climate finance in a way that reflects their character as economic institutions, and have hence increased the degree of divergence on normative issues in the climate finance system. This is evident in their strong emphasis on efficiency, which sets them apart from the UNFCCC. The three institutions have been able to cluster together with other economics-oriented institutions such as the MDBs and the Financial Stability Board on these normative issues, but have differed from environmental and development institutions, especially those within which developing countries have significant influence. In terms of agenda-setting, only the G20 has had an influence on the institutions it requested to provide an analysis of climate finance (beyond the IMF and the OECD mainly the MDBs but also the Bank of International Settlements and other economic institutions).

13.3.2 Domestic Level

The influence on the domestic level is more difficult to discern, inter alia because there has been less direct interaction with this level. The most important influence has been the institutions’ contribution to a climate finance system in which the most important decisions regarding climate finance allocation are made by the contributor countries with developing countries having few possibilities for influencing these decisions. The Copenhagen Accord is an important element of this system, and hence the G20 influence on the Copenhagen Accord has contributed to shaping this system.

In terms of more direct influences, the OECD DAC output has constituted an incentive to provide more climate finance and to do so in line with equity normative ideas such as prioritising vulnerable countries and adaptation. Furthermore, its data has been used in (by NGOs) and among countries to highlight and criticise the provision of climate finance of individual governments. The IMF has a less direct influence on recipient countries that have been the subject of Climate Change Policy Assessments. These assessments may in the future influence how much climate finance they receive and for which projects.

Cognitive and normative influences are more salient for all three institutions, especially the G20 and the OECD. Through meetings and workshops the two institutions have been able to influence the participants’ understanding of climate finance, especially as many of them have come from finance ministries and thus have been new to the topic and more susceptible to the framings of climate finance promoted at the meetings. The engagement with finance ministries has also meant that the two institutions have exerted an (albeit limited) agenda-setting influence over these finance ministries.

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.