Wealthy countries have reached a major climate finance milestone.
In May, the OECD announced that, for the third year in a row, wealthy countries had exceeded their goal of providing US$100 billion to developing countries to tackle climate change.
But a debate is growing in the development aid community over what those billions represent — whether climate finance is genuinely new development assistance, or simply replacing traditional foreign aid.
“From the beginning, everybody was saying climate finance had to be additional — that we mustn’t divert foreign aid to climate — it has to be new money,” said Stephen Brown, a professor at the University of Ottawa specializing in international development.
“Everybody said ‘Yes, yes, yes, we’re going to do that.’ And then [they didn’t].”
This is the fifth article in a Canadian Affairs series examining the transformation of the global development aid landscape, Canada’s participation in that shift, and what it means for donor countries and aid recipients.
Climate finance
Since 2009, wealthy countries have promised to collectively provide developing countries with $100 billion a year to help reduce greenhouse gas emissions and adapt to climate impacts.
But it took until 2022 for countries to first meet that goal, and it did so again in 2023 and 2024.
Canada is a significant contributor to international climate finance. In 2021, it pledged C$5.3 billion to support global clean energy, climate resilience and adaptation projects over five years.
It counts much of this funding as Official Development Assistance (ODA), which has a total annual budget of about $14 billion.
International climate finance generally falls into two categories: adaptation, which helps countries adapt to climate change; and mitigation, which aims to help them reduce emissions.
Brian Tomlinson, founder and executive director of AidWatch Canada, says adaptation funding fits more naturally within the traditional definition of development aid because it directly supports vulnerable communities.
Mitigation projects, by contrast, are more questionable, since their benefits are diffuse.
Under OECD rules, mitigation projects can count as Official Development Assistance if they are “principally intended” to benefit the developing country, says Brown.
“[But] everybody benefits from mitigation — you do and someone in Tanzania does. There is no specific benefit that’s directly relating to developing countries. Whether it should actually count as ODA, I would really question it.”
Counting mitigation projects as aid risks overstating how much donor countries are contributing to development.
“In the last five years, aid has become something where it’s a resource to respond to every crisis or global issue that we’re facing,” said Tomlinson.
“And aid was never designed to be as inclusive of all of the different ways in which we’re trying to use it.”
Loans vs. grants
There is also debate over how climate finance is delivered.
A significant portion of public climate finance, including Canada’s, now comes in the form of loans rather than grants. Critics say this places additional financial pressure on developing countries — and is unjust.
“Those who caused [climate change] should be the ones paying for it, not the victims,” said Brown.
Loan repayments can drain resources sorely needed elsewhere.
“Where’s it going to come from?” Brown said. “Will it come from your education budget? Will it come from your health budget? Because in that case you’re actually sabotaging the well‑being of your own population.”
Tomlinson says Canada’s previous $5.3-billion climate pledge was delivered through a mix of grants and loans. Loans are an increasingly attractive option for governments because they are recorded differently in public accounts.
“[Loans] don’t count as expenditures on the government’s books; they are assets,” he said.
This trend looks set to continue in Canada. Beginning in 2027, Canada will channel more than C$2.7 billion through FinDev Canada, a development finance institution that works primarily with the private sector through loans, equity investments and guarantees.
Tomlinson notes FinDev has a “track record” of favouring mitigation over adaptation, when adaptation better serves these “poor and vulnerable populations.”
Aid vs. climate
Some economists say donor countries should be cautious about using development assistance to reduce global emissions rather than improve the lives of people in developing countries today.
Charles Kenny, an author and senior fellow at the Center for Global Development think tank, says aid agencies should focus on interventions that directly improve welfare and prosperity in developing countries.
“You could reduce low-income country emissions to zero and it would make the tiniest dent in global emissions,” Kenny said in an email.
“Low income countries have considerably more urgent policy priorities — like reducing deaths from conditions that cost just a few dollars to avoid.”
Richard Tol, a professor of the economics of climate change at the University of Sussex, says that conventional development assistance may itself be one of the most effective forms of climate adaptation. By focusing on helping countries develop their basic institutions, it makes them wealthier, and wealthier societies are best able to cope with climate risks.
“Help them grow rich and protect themselves,” he wrote in an email.
But Teddy Samy, director of the Norman Paterson School of International Affairs at Carleton University, says poorer countries are being asked to transition away from fossil fuels, while lacking the financial capacity to fund that shift themselves.
“They can’t borrow anymore, and now they’re going to have to borrow even more money to finance a green transition. They’re not going to be able to do it.”
Kenny says wealthy countries do bear greater responsibility for climate change, so they should provide climate finance in addition to existing aid. He also notes the challenge is one that requires global cooperation.
“[W]e can’t fix the emissions problem without bringing along the world — and especially middle income countries like China, India and Brazil,” he said.
“And again, there’s the element of global solidarity — we shouldn’t want to see some of the world’s already most vulnerable people further immiserated by drought and heat.”
