The Organisation for Economic Co-operation and Development (OECD) has released a report that finds that development finance for energy efficiency and renewables has increased since the Paris Agreement on climate change, but continues to be undermined by financing for new fossil fuel-based energy. The report calls for donors to improve alignment with climate goals to support a sustainable development pathway.

The report titled, ‘Aligning Development Co-operation and Climate Action: The Only Way Forward,’ analyzes development finance provided by members of the OECD Development Assistance Committee (DAC), non-DAC members, UN agencies and development banks. It finds that 20% of finance provided by DAC members over 2013-2017 focused on climate change, compared to 40% of finance provided by UN agencies and development banks.

Since the Paris Agreement, the report finds, countries have approximately doubled development finance to renewable energy, resulting in an increase from an average of USD 5.6 billion annually in 2014-2015 to USD 12.2 billion annually in 2016-2017. However, an average of USD 3.9 billion, or 1.4% of total development finance, in 2016 and 2017 supported fossil fuel activities. The majority of this funding (77%) came from multilateral providers, while 23% of bilateral aid from DAC members went to fossil fuel activities.

The EIB Group has committed to align all financing activities with the Paris Agreement by 2020 and to stop financing fossil fuel energy projects beginning in 2022.

The report finds that momentum for aligning development financing with the Paris Agreement is growing. The European Investment Bank (EIB) Group, for instance, has committed to align all financing activities with the Paris Agreement by 2020 and to stop financing fossil fuel energy projects beginning in 2022. A survey conducted for the report found that one-third of respondents have exclusion lists for fossil fuel-intensive activities. Despite this momentum, the report cautions, “progress is not happening quickly enough,” and many donors lack mandates, incentives, strategies and resources to ensure that they factor in climate change. The report further warns that aid activities inconsistent with the Paris Agreement, such as economic activities or financing infrastructure that are not climate resilient and/or are high emitting, “risk locking countries into development pathways that will exacerbate and increase vulnerability to climate change” and hinder SDG achievement. The report emphasizes that low-emission, climate-resilient pathways are essential for achieving sustainable energy access and poverty reduction goals.

OECD Secretary-General Angel Gurría welcomed progress in aligning development finance with climate goals, but stressed that the world needs to do more to tackle climate change and eliminate aid to fossil fuels. He emphasized that, “given the climate emergency that we are facing … there is simply no excuse for using foreign aid to subside fossil fuels.” To help providers of development cooperation reform their financing and policy support, the OECD Secretary-General has convened a High-Level Advisory Group, composed of international leaders and experts on climate change and sustainable development, and an Informal Expert Group.

The report calls on providers to take action at three levels. First, it recommends alignment at home by integrating the climate imperative into providers’ mandates and establishing the right capacities and tools, and providing coherent support to developing countries across all foreign policy areas. Second, the report recommends alignment in developing countries by supporting governments to plan for, finance and implement a transition to low-emission, climate-resilient pathways and assisting developing countries in incorporating ambitious climate objectives throughout budgetary and financial systems. Third, the report calls for alignment at the system level through support for consistent international standards and pursuing ambitious multilateral action and effective partnerships to promote finance for investments in low-emission, climate-resilient infrastructure at scale.

The OECD will hold a high-level event to discuss the report’s findings at the 25th session of the Conference of the Parties (COP 25) to the UNFCCC. [Publication: Aligning Development Co-operation and Climate Action: The Only Way Forward] [Report Webpage] [OECD Press Release]