Back in 2009, developed countries pledged to provide $30 billion in climate finance by the end of 2012 in order to help developing countries implement low-carbon, climate-resilient development initiatives. This funding period—which took place from 2010 to 2012—is known as the “fast-start finance” period.
Our analysis reveals two sides to the U.S. contribution of roughly $7.5 billion in fast-start finance: On one hand, it represents a significant effort to increase international climate finance relative to previous years, in spite of the global financial crisis. On the other, it is not clear that the entirety of the contribution aligns with internationally agreed principles, which stipulate that the finance be “new and additional” and “balanced” between adaptation and mitigation. In any case, the United States, along with other developed countries, is now faced with the challenge of scaling up climate finance to developing countries to reach a collective $100 billion per year by 2020.
Major Trends in U.S. Fast-Start Finance
The U.S. reported that it contributed roughly $7.5 billion to fast-start finance (FSF) from 2010-2012. This amounts to 20 percent of the total FSF portfolio globally, as defined and reported by developed country governments. Several major trends emerged over the past three years:
1) Climate Finance has Fluctuated Year to Year
Over the three-year period, the U.S. FSF contribution was characterized by a marked increase in FY11 spending followed by a sharp decline in FY12 spending, driven in large part by the role of the Millennium Challenge Corporation (MCC) and the Overseas Private Investment Corporation (OPIC) in delivering U.S. FSF.
The most significant share of U.S. FSF spending occurred in FY11, largely due to contributions from OPIC and the MCC. Notably, finance channeled by OPIC is stimulated by demands from companies to invest in projects that address climate change in developing countries. This reveals an indirect but important role that the private sector plays in mobilizing funds and highlights the potential impact of OPIC’s financing structure. The United States Agency for International Development (USAID) has also played a key role in delivering U.S. FSF across all three years.
2) Clean Energy Projects in Asia Received the Largest Share
The top three recipient regions of U.S. FSF included Asia (32 percent), Africa (19 percent), and Latin America and the Caribbean (13 percent).
U.S. FSF supported activites related to adaptation and mitigation. Our analysis revealed that 15 percent of the total went toward adaptation projects; 64 percent to mitigation through clean energy projects; and 8 percent to mitigation through REDD+ projects.
In terms of the regional distribution of climate projects, clean energy objectives accounted for 79 percent of U.S. climate finance to Asia. Compared to Asia or Latin America and the Caribbean, Africa received roughly double the share of adaptation finance (15 percent). Similarly, compared to Africa or Asia, Latin America and the Caribbean received about twice the proportion of funds for REDD+ (14 percent).
3) Companies and Multilaterals Played a Key Role
Developing countries received a significant proportion of finance via funds channeled through U.S. companies and NGOs, in addition to multilateral institutions. Furthermore, developing country companies and government entities received about 30 percent of U.S. FSF directly.
4) A Range of Financial Instruments Were Involved
The U.S. directed nearly two-thirds, or about 63 percent, of its FSF portfolio through grants and related instruments. Loans, loan guarantees, and insurance represented 37 percent.
3 Climate Finance Recommendations for the United States
With a new understanding of how these numbers break down, we recommend that the United States take three important steps on climate finance as we move beyond the fast-start period:
Scale up funding to meet a range of developing country needs. As climate change presents new challenges, vulnerable countries will need more funding to mitigate and adapt to the impacts. Although the United States is confronting a difficult political environment characterized by automatic spending cuts, strong leadership from the Obama administration—including a plan to mobilize finance that engages the White House, State Department, and Treasury Department—could support this effort.
Make climate change considerations a bigger part of U.S. foreign aid decisions. It is crucial for development programs to take climate change into account in order to advance international climate and development goals. Recent efforts by USAID and other agencies engaged in U.S. climate finance are a welcome step in that direction. As the relationship between climate and development spending complicates accounting for climate finance, the United States should work in collaboration with the international community to clarify its approach and advance harmonization of accounting and reporting practices.
Improve transparency of climate finance reporting. The latest U.S. fast-start finance report is more user-friendly than previous versions had been, and the agreement in Doha to establish a “common tabular format” for reporting on climate finance is also a welcome step forward. This format, however, stopped short of requiring a detailed list of recipient projects and programs – including amount, objective(s), channeling institution, financial instrument, beneficiary country/region, recipient institution, and disbursement status. Providing this list would facilitate verification of aggregate climate finance statistics. We recommend that the U.S. publish such a list every year.
LEARN MORE: Find out more about the U.S. fast-start finance period by downloading the Open Climate Network’s new fact sheet, which updates a May 2012 working paper on the U.S. FSF contribution. Both papers are part of a series that examines how developed countries—including the United States, United Kingdom, Japan, Germany, and Norway—are defining, delivering, and reporting FSF.