Executive Summary

In December 2015, countries will gather in Paris to finalize a new global agreement to tackle climate change. Decisions about how to unlock finance in support of developing countries’ low-carbon and climate-resilient development will be a central part of the talks. But key questions about how to finance the larger, global transition, will remain largely unresolved. These include, how much climate finance is needed around the world to deliver low-carbon energy systems and climate-resilience? How much investment is already flowing? Who are the key actors? And what is the optimal balance between public and private resources?

The Global Landscape of Climate Finance 2014 supports serious debate on these key questions by drawing together climate finance data from numerous sources to present policy makers with the most comprehensive information available about the scale, key actors, instruments, recipients, and uses of finance supporting climate change mitigation and adaptation outcomes.

In 2013, annual global climate finance flows totaled approximately USD 331 billion, falling USD 28 billion below 2012 levels. Public actors and intermediaries contributed USD 137 billion (USD 134-140 billion) largely unchanged from last year. Private investment totaled USD 193 billion, falling by USD 31 billion or 14% from 2012, see Figure ES1. The actual decrease in total flows may be even larger as, for the first time, Landscape 2014 captures public finance flowing to large hydro and research and development (USD 4 billion and USD 3 billion respectively).

Climate finance flows were split almost equally between developed (OECD) and developing (non-OECD) countries, USD 164 billion and USD 165 billion respectively. The amount we tracked flowing from developed to developing countries fell by USD 8 billion from 2012, to USD 34 billion, with multilateral DFI contributions falling by USD 5 billion and private investment contracting by USD 2 billion.

Almost three-quarters of total flows were invested in their country of origin. Private actors had an especially strong domestic investment focus with USD 174 billion or 90% of their investments remaining in the country of origin. This demonstrates that investment environments that are more familiar and perceived to be less risky are key to investment decisions, highlighting the importance of domestic policy frameworks in unlocking scaled up climate finance flows.

The good news is that the overall decrease is mainly due to the falling cost of some renewable energy technologies, particularly solar PV. These cost savings mean that in some cases more renewable energy is actually being deployed for less investment (see Figure ES4). In 2013, it cost USD 40 billion less to achieve the same level of solar deployment as in the previous year. Despite some successes, however, the situation remains grave. The International Energy Agency estimates that an additional USD 1.1 trillion in low-carbon investments is needed every year on average between 2011 and 2050, in the energy sector alone, to keep global temperature rise below two degrees Celsius. In cumulative terms, the world is falling further and further behind its low-carbon and climate-resilient investment goals.

Landscape 2014 provides some clear lessons for policy makers about where policy and public resources might be focused to help drive increased action, including from private actors:

1. Less finance can be a positive sign. Around 80% of the sharp fall in private investment came from falling costs for some renewable technologies (particularly solar PV) where efficiencies are increasing and unit costs are coming down. If investment costs of solar power had remained the same in 2013 as in 2012, the 2013 solar deployment would have resulted in an increase of USD 12 billion in global climate finance flows rather than a decrease of USD 28 billion. Policymakers should not just focus their efforts on mobilizing finance but also on decreasing technology costs.
2. Public resources remain key drivers of the climate finance system, bridging viability gaps and covering risks that private actors are unable or unwilling to bear. Despite well documented data gaps, it remains significant that almost all of the developed to developing country finance we capture came from public actors.
3. Domestic policy frameworks are critical drivers of investment particularly for private investors. Three-quarters of investment originates and is spent in the same country. Private actors spent 90% of their investments in the country of origin. Getting domestic policy frameworks right is of paramount importance for policymakers.

Landscape 2014 also shows progress towards getting a comprehensive picture of climate finance, an important basis to strengthen countries’ ability to achieve their climate financing needs and goals.

1. Information about key actors in the landscape has again improved, supporting policy makers in their assessment of climate finance gaps and opportunities. In 2013, MDBs started to report project-level climate finance data to the OECD and are interacting for their Joint Report with the International Development Finance Club with the aim of harmonizing approaches. CPI, with the Ministry of Finance in Indonesia, made one of the first attempts to capture in-depth all public climate finance flows in a developing country. Finally, the UNFCCC Standing Committee on Finance will soon publish its first biennial assessment and overview of climate finance flows.
2. Filling remaining major gaps in our knowledge of climate-resilient and low-carbon versus high-carbon investment is crucial to measure progress and to identify opportunities for scale up. We lack crucial information about domestic public climate budgets, private investments in adaptation, forestry and transport, and estimates for private investments in energy efficiency do not allow us to track investments to a project level. To advance this knowledge, better and more consistently applied methodological approaches across these sectors are required as is more transparency at the project level. On the private side of the landscape, the OECD-coordinated Research Collaborative on Private Finance may be able to fill some of the gaps in tracking and calculating investments. Finally, to put climate finance estimates into perspective, we need comparable estimates of trends in traditional high-carbon “brown”, or business-as-usual, finance. This will enable us to track whether there is real progress towards a low-carbon, climate-resilient future and identify opportunities to shift financial resources towards more sustainable uses.
3. Our understanding of how to use finance effectively, and of whether it adequately addresses the global investment needed to address climate change, is improving. However, this knowledge is scattered across projects, technologies and regions. We still lack a systematic understanding of how effectiveness can be ascribed to different parts of the climate finance landscape.

CPI remains committed to improving the understanding and transparency of today’s climate finance landscape.