The distorting effects of bilateral climate finance for mitigation on ODA

Since there is only one climate, reducing greenhouse gas (GHG) emissions can qualify as a perfect global public good. As the benefits are global, climate change mitigation cannot be administered solely with the promotion of the economic development and welfare of developing countries as the main objective, a core eligibility criterion of Official Development Assistance (ODA). Consequently, this puts a question mark on the ODA-eligibility of climate change mitigation. Building on ODA reporting by member countries of the Development Assistance Committee (DAC), the annual total of climate finance sourced from ODA that aimed at climate change mitigation reached approximately USD 30 billion in 2022-2023, representing 20% of their allocable ODA. Donors may object that their support for mitigation also contributes to devel- opment. A solar energy project in a developing country can also contribute to economic development and welfare of that country. However the geographi- cal and sectoral allocation of ODA-related climate finance for mitigation is very different from the rest of ODA. For example, while a majority of ODA-related climate finance for mitigation is targeted to infrastructure projects in middle-in- come countries, only small shares of these resources are allocated to low income countries, the most vulnerable countries and social sectors. One could therefore wonder how these allocation decisions relate to donors' commitment to poverty eradication, humanitarian assistance and other core values underpinning ODA. Should climate change mitigation not count as ODA and with the hypothesis of a constant donor effort, donor countries could reallocate approximately USD 30 billion to countries with lower income and greater vulnerabilities, such as LDCs. Mitigation projects could then be funded through alternative sources, such as national climate budgets, export and other trade finance or the private sector, without exhausting aid budgets on global public goods. Redirecting ODA for climate change mitigation to social sectors, urgent humanitarian needs and building resilience to the impacts of climate change could enhance its effective- ness and credibility, as well as equity of international aid. Total Official Support for Sustainable Development (TOSSD) framework could facilitate discussions integrating development and climate finance to uphold transparency and im- prove global standards beyond ODA.