Scope and indicators

This Monitor provides key insights on climate action building on the IPAC Dashboard of climate‑related indicators. The IPAC indicator framework uses an adapted “pressure‑state‑response” model. This model integrates the topics covered in the assessments of the IPCC and used in the United Nations Statistical Division (UNSD) and United Nations Economic Commission for Europe (UNECE) indicator frameworks. A number of criteria are used for validating the choice of the indicators: they are required to be policy relevant and of value for users, as well as analytically sound and measurable. The Monitor, alongside the IPAC Dashboard, complements and supports the UNFCCC and Paris Agreement monitoring frameworks by:

• providing a snapshot of key trends and developments, and highlighting areas requiring further analysis or policy action;

• promoting greater harmonisation of key indicators allowing for a better understanding of country effort towards reaching international commitments;

• promoting climate action by highlighting or showcasing good practices;

• strengthening transparency and accountability over climate policies, thereby supporting countries in making better-informed decisions, and allowing stakeholders to measure improvements more accurately.

The Monitor is structured around three monitoring areas: (1) emissions, (2) impacts and risks and (3) actions and opportunities, supported by the corresponding indicators.

 

Figure 2. The Climate Action Monitor addresses key issues in line with IPAC indicators

“Emissions” monitoring area: Monitoring GHG emission trends is at the core of country climate action and key to measuring progress towards national targets. Emissions-related indicators reflect both direct pressure on climate and the results of policy action. Given the heterogeneity of national targets, visualising the emission trajectories towards the Paris Agreement goal of climate neutrality by 2050 is also essential to guide policy action and close the gap between long-term commitments and concrete short‑term actions.

“Impacts and risks” monitoring area: Assessing climate-related impacts, risks and vulnerability is key to identifying adaptation needs and guiding adaptation measures. Particular attention is given to weather‑related impacts, such as temperature anomalies and extreme weather events.

“Actions and opportunities” monitoring area: Climate policies are necessary to provide effective incentives to businesses and households to modify behaviour in ways that are less emission intensive. This monitoring area zooms-in on key aspects of action, including climate innovation, climate-related pricing and taxation, and climate budgets and expenditure. Monitoring policy responses to the net-zero challenge feeds into the IPAC’s diagnostic component that will provide targeted policy advice for each country’s pathway to climate neutrality.

 Enabling climate action through integrated multi-level governance

Governments have a key role to play in the net-zero transition. They set the ambition and provide credible plans to reach climate goals, building confidence among investors, industry and civil society. Climate objectives need to be mainstreamed in all areas and all levels of government. A concerted whole‑of-government effort is needed to establish a diagnosis, mapping and evaluation of climate policy instruments and underlying policy frameworks to support the transition. Governments are also responsible for the very foundation of climate action: the operationalisation of long-term goals. Several countries have developed roadmaps and implementation strategies to support their long-term targets. Some have further complemented these with specific national sectoral plans, such as National Energy and Climate Plans. The United Kingdom’s experience shows that an independent expert body can provide the evidence base to inform the target setting, revision processes and policy decisions to implement the Climate Change Act (Box 3).

The transition needs to be a shared responsibility across levels of government. While climate challenge is a global phenomenon, its impacts are territorially different. Within-country regional variation in emissions is larger than between countries and there is much variation in agriculture, power generation and industry-related emissions (OECD, 2021c). The capacity of subnational governments to respond is equally different. Regions and cities are already at the forefront of implementing ambitious measures to mitigate and adapt to climate change (Box 4). They are responsible for 55% of public spending and 64% of public investment for climate mitigation and adaptation. Many cities and regions have adopted climate neutrality targets and actions that are more ambitious than those of their national governments. However, acting alone, their full potential remains untapped. Local governments are estimated to have direct power to cut up to one-third of GHG emissions in their cities, with the remaining two-thirds dependent on national and state governments or co-ordination across levels of government (Matsumoto, 2019)..

Metropolitan and rural regions will face specific challenges, which will require targeted urban and rural policies. Globally, cities account for more than 50% of the population, two thirds of energy demand, and more than 70% of energy-related CO2 emissions. These shares are expected to increase significantly over coming decades without decisive action (IEA, 2021a). While metropolitan regions emit the most, production-based emissions per capita are highest in remote regions (Figure 12). Rural regions also cover around 80% of the territory in OECD countries (OECD, 2020b) and contain biodiversity and ecosystems needed to sustain our lives and that are increasingly under threat. Greening subnational government policies and budgets, both on the expenditure and revenue side, is a critical course of action, also given that wellbeing co-benefits often arise locally and can exceed the costs of climate action.

 

Figure 12. Metropolitan regions emit the most, but production-based emissions per capita are highest in remote regions

Contribution to GHG emissions (bars) and GHG emissions per capita (line) by type of region, 2018

Note: OECD countries, Romania and Bulgaria. Excluding emissions from land use and land use change.

Source: OECD (2021c), OECD Regional Outlook 2021: Addressing COVID-19 and Moving to Net-Zero Greenhouse Gas Emissions, OECD Publishing, Paris, https://doi.org/10.1787/17017efe-en.

 Boosting innovation for a clean technology push

Innovation helps to broaden the range of low-carbon technology options available to governments and the private sector over time. In the power sector, these options include the next generation of renewable electricity generation technologies, nuclear power and carbon capture and storage (CCS), as well as energy storage technologies and smart grid technologies. In the transport sector, new low-carbon vehicles are being developed including vehicles that run on electricity, hydrogen fuel cells, compressed or liquified gas, and biofuels. In the buildings sector, advanced building materials and energy-efficient home appliances are being developed and existing technologies improved. The industrial sector needs to switch to lower-carbon and alternative fuels for production; make more efficient materials, and deploy best available technologies, including CCS (OECD, 2015a).

Without a major acceleration in clean energy innovation, reaching net‐zero emissions by 2050 will not be achievable. If properly deployed, technologies that are available on the market today are sufficient to provide nearly all of the emissions reductions required to 2030, according to the IEA. However, reaching net‐zero emissions will require the widespread use after 2030 of technologies that are still under development. In 2050, almost 50% of CO2 emissions reductions in the IEA’s net-zero scenario come from technologies currently at demonstration or prototype stage. This share is even higher in sectors such as heavy industry and long‐distance transport. Major innovation efforts are vital in this decade so that the technologies necessary for net‐zero emissions reach markets as soon as possible (IEA, 2021a).

Total public low-carbon energy RD&D spending has been increasing in most of the countries in the last five years. The United States is the leading spender in technologies such as renewables, energy efficiency and CCS and Japan spends the most in hydrogen and fuels cells technologies. Several other countries have notably increased their spending in low-carbon technologies: for example, the Czech Republic and Belgium have more than doubled their budgets in energy efficiency over the last five years.

Norway spends most per unit of GDP and, like Finland, its highest category of spending is energy efficiency technologies. This is followed by renewables, an area that only Switzerland, Denmark and Korea count as their largest category, among the top spenders in relative terms. Several countries, such as the Czech Republic, the United Kingdom and the Netherlands, have significantly increased their spending per unit of GDP over the past five years (Figure 13).

 

Figure 13. Public RD&D spending across countries varies considerably

Note: CCS= carbon capture and storage.

Source: IEA (2021), “Energy technology RD&D budgets” (database); https://www.iea.org/data-and-statistics/data-product/energy-technology-rd-and-d-budget-database-2.

OECD countries represent the vast majority of worldwide patents on climate change mitigation technologies. The share of “high-value” climate change mitigation inventions in all technologies has increased from around 4% in the early 1990s to over 9% in latest years (OECD 2021a). Among selected technologies, the increase in filed inventions since 1990 has been more marked for road transport and energy storage. Renewable energy generation technologies increased the fastest up to 2011 (OECD, 2021a) (Figure 14). While patent data are informative about the production of new innovation, they do not indicate whether the technology protected by the patent is actually being used by the owner. Data on trademark filings can usefully complement patent data by focusing on the commercialisation phase of innovations.

The proportion of trademarks for climate-related goods and services has grown markedly over the last two decades. The proportion has tripled in the United States and in Japan (from 1% to 3%) and has nearly quadrupled in Europe (from 2% to 8%). Interestingly, there os an observed decrease in climate-related patenting since 2012. However, trademarks have picked up in recent years. This suggests that firms have partly switched activities away from R&D toward diffusion and commercialisation. Accelerating diffusion of available technologies is critical to reach medium-term carbon emissions reductions, but in the long run, developing new breakthrough technologies that are not on the market yet is also important. An important question for policy is therefore how to accelerate the diffusion of existing low-carbon technologies further, while reigniting low-carbon innovation in breakthrough technologies.

 

Figure 15. The proportion of trademarks for climate-related goods and services has grown markedly over the last two decades

Note: Data on trademark applications relate to trademarks registered at the European Union Intellectual Property Office (EUIPO), the Japan Patent Office (JPO) and the United States Patent and Trademark Office (USPTO). While patent data are informative about the production of new innovation, they do not indicate whether the technology protected by the patent is actually being used by the owner. Data on trademark filings can usefully complement patent data by focusing on the commercialisation phase of innovations.

Source: OECD (2021), forthcoming.

Monitoring progress in the development of “green” start-ups allows to track private investment targeting new companies engaged in climate-related sectors and activities. There has been a large increase in global venture capital (VC) investment in climate-related start-ups in the last decade, from USD 5 billion in 2010 to USD 30 billion in 2020. However, after a peak in 2018, global VC investment in green start-ups has decreased in the last two years. Between 2010 and 2020, the share of total VC funding going to climate-related start-ups has not changed much (12% in 2010, 11% in 2020), but has fluctuated significantly, with a peak at 18% in 2017 (Figure 16).

 

Figure 16. Investment in green start-ups has increased in the last decade

Source: OECD (2021) forthcoming.

 Setting effective carbon pricing and taxation

Carbon pricing is an essential element of climate change mitigation policy. Pricing CO2 and energy remains the most economically efficient tool to bend the trajectory of carbon emissions globally, and create favourable conditions to mobilise the private finance and investment required to achieve global mitigation objectives. Climate-related taxation can improve environmental quality by using price signals to shift investment and behaviour patterns. Taxes on tax bases such as logging, forestry products and land-use change can, in turn, help safeguard planetary carbon sinks and encourage carbon sequestration (OECD, 2021a). Whereas carbon taxes fix the price but not the quantity of emission reductions, emissions trading systems fix the targeted quantity but not the price of emissions allowances. Cap-and-trade provides more certainty regarding environmental outcomes (OECD, 2015a).

There has been a noticeable, albeit uneven, progress in carbon pricing since 2018: half of all CO2 emissions from energy use in G20 economies are priced in 2021, up from 37% in 2018. The coverage increase is largest for emissions trading systems, with the new Chinese national emissions trading system for the power sector as the main driver. At the same time, coverage continues to vary widely across sectors. Across G20 countries the average effective carbon rate has increased to EUR 19, up by approximately EUR 2 since 2018. However, there has been little change in countries where rates were relatively low in 2018.

In most countries effective carbon rates (ECR) in the road transport sector are higher than in other sectors. About 53% of emissions from road transport are already priced above EUR 60/tCO2 and around 24% are priced at above EUR 120/tCO2. ECRs are particularly low in the electricity and the industry sectors. In the residential and commercial sector, there is significant heterogeneity: a handful of countries price a significant share of carbon emissions above EUR 60/tCO2, but with very low carbon prices in other countries (OECD, 2021a).

Reliance on climate-related taxes varies across countries. In the OECD area, climate change-related taxes raised USD 793 billion in 2019, representing the majority of environmentally related tax revenue (90%). This share has remained relatively unchanged since 2000. The bulk of revenue coming from taxes directed at climate change is raised from taxing energy (77%), in particular motor fuels, and transport (22%), while pollution and resource tax bases play a minor role in generating revenue.

Overall, the share of environmentally related tax revenue (ERTR) continues to decline in OECD countries, amounting to 5.2% of total tax revenue in 2019, down from 6.1% in early 2000s. Compared to GDP, ERTR is also decreasing and reached 1.5% of GDP in 2019. The decreasing trend is a combination of factors, namely, that tax rates are typically defined in physical units (e.g. per litre) and hence are set in nominal terms. Without inflation adjustment, these rates decrease in real terms over time. While countries such as Denmark, the Netherlands and Sweden have implemented such adjustments, most OECD countries do not yet apply inflation adjustments to environmentally related taxes. Another factor contributing to this trend is the increase in crude oil prices up until mid-2014, which triggered substitution away from motor fuel use, also making adjustments in nominal tax rates on motor fuels politically difficult. Yet some countries, such as Slovenia, Costa Rica, Turkey and Estonia strengthened the role of environmentally related taxes and have tripled their share of tax revenue since 2000 (OECD, 2021a).

Governments are pushing ahead with emissions-trading systems. The largest carbon market in operation is the EU Emissions Trading System, covering about 2 billion tonnes of CO2 equivalent (tCO2-eq) emissions. Several smaller systems have been implemented, with at least one initiative to link two systems (Quebec and California). The systems vary in scope – e.g. few include forestry or agriculture activities, while almost all include power generation.

The environmental effectiveness of taxes and tradable permits on carbon may be hampered by direct and indirect government support to fossil fuels. OECD countries and partner economies provided around USD 183 billion worth of total support for fossil fuels in 2020, which represents a year‑on‑year decline of around 10%. Such decrease was mostly driven by a drop in fuel consumption following widespread COVID-19 mobility restrictions and by record-low oil prices that reduced government spending on end-user consumption of fossil energy. By contrast, support for production of fossil fuels experienced a 5% rise as governments drew up rescue programmes for state oil and electricity companies (OECD, 2021d).

And government support for fossil fuels is expected to increase once again. With several hefty government COVID-19 recovery bailouts coming up for disbursement in fiscal year 2021 as well the gradual re-opening of the global economy driving energy prices up, it is expected that overall fossil fuel support will rise again. Backsliding on support for fossil fuels demonstrates a concerning disconnect with the increasingly pressing climate emergency. It also underscores the need for ongoing efforts to enhance transparency on the many ways that governments continue to encourage fossil-fuel production and use. Supporting economies and societies through the COVID-19 crisis must be a priority, necessitating the phase out of support for polluting technologies.

 

Figure 19. Support for fossil fuel production and use has decreased in 2020 but further reduction is required to support the net-zero transition

Billion USD, 50 OECD, G20, and Eastern Partnership economies

Note: General Support Services Estimates (GSSE) represents the value of transfers arising from policy measures that create enabling conditions for the fossil fuel sector through the development of private or public services, institutions and infrastructure regardless of their objectives and impact on fossil fuel production and or consumption. It includes policies where fossil fuels are the main beneficiaries, but does not include any payments to individual producers. GSSE transfers do not directly alter producer receipts or costs, or consumption expenditures, although they may affect production or consumption of fossil fuels in the long term. The Producer Support Estimate (PSE) indicator measures the annual value of transfers from consumers and taxpayers to producers of fossil fuels. Consumer Support Estimate (CSE) reflects the value of transfers to consumers of fossil fuels regardless of their nature, objectives or impacts on consumption.

Source: OECD (2021d), OECD Inventory of Support Measures for Fossil Fuels, https://www.oecd.org/fossil-fuels/

 Powering climate action through green budgets and expenditure

The radical transformation of the global energy system alone, required to achieve net‐zero emissions in 2050, hinges on a big expansion in investment and a big shift in capital expenditure. Getting the world on track for net-zero emissions by 2050 requires clean energy transition-related investment to accelerate from current levels to around USD 4 trillion annually by 2030. Lack of investment on low-carbon infrastructure could lock economies into the emission-intensive systems and technologies, and make them increasingly vulnerable to climate impacts (OECD, 2015b).

An expansion of public sources of finance is required. While the IEA estimates that around 70% of clean energy investment will need to be carried out by private developers, consumers and financiers responding to market signals and policies set by governments, public sources of finance are also required. They will in fact need to double relative to current pledges for the net-zero pathway to be achieved. Public actors, including state-owned enterprises (SOEs), often have a key part to play in funding network infrastructure and clean energy transitions in emissions-intensive sectors.

The boost in public spending undertaken by governments as a response to the COVID-19 pandemic presents a unique opportunity for climate action. In 2020, the world’s fifty largest economies announced USD 14.6 trillion in fiscal measures to address the crisis (O’Callaghan & Murdock, 2021). Such measures are to provide immediate support to the most vulnerable categories of population, workers and firms and, as conditions allow, to drive near-term economic recovery. These measures also have implications for the achievement of broader national and international goals, including countries’ NDCs and the Paris Agreement goal.

However, while green spending grew since the beginning of the pandemic, it remains low as a proportion of total recovery spending (21.5%) (O’Callaghan & Murdock, 2021). South Korea, Spain and Germany lead in total green spending. Under the lens of green spending as a proportion of GDP, Spain, South Korea and the United Kingdom take the lead. Despite the efforts of these countries, recovery measures in other countries lacked a green focus in 2020.

For the fiscal policy to be effective in supporting climate action, governments need to mainstream green budgeting. Green budgeting means using the tools of budgetary policy-making to help achieve climate and environmental goals. It entails a systematic approach to assess the overall coherence of the budget relative to a country’s climate and environmental agenda, and to mainstream an environmentally aware approach across all policy areas and within the budget process (OECD, 2021e). Most frequent tools are ex-ante and ex-post environmental impact assessment, green budget tagging, environmental cost-benefit analysis and carbon assessments.

Less than half of 39 countries studied by the OECD were identified as having green budgeting practices in place, while nine were planning to introduce some of these practices. Finland and Sweden highlight within the budget documents the measures that have a clear impact on specific environmental objectives. France, Ireland and Italy tag the budget to identify items with a potential environmental impact. For each item, its green content is identified, i.e., the proportion relevant to green objectives. In doing so, Ireland implements a binary weighted approach, where the entire cost of a measure is tagged as green or not. France and Italy implement a scaled approach to determine the green content of a measure. Sweden focuses on climate change mitigation measures, while Finland, France and Italy cover a broad set of environmental aspects. As for the budgetary items covered, these countries focus on favourable expenditure, with the exception of France that covers also revenue and tax expenditure, both favourable and unfavourable (OECD, 2021e).

 

Box 9. Green budget tagging and performance in France

France conducted its first green budgeting exercise in 2019 (Inspection générale des finances - conseil général de l’environnement et du développement durable, 2019). In 2020, it has established a budget tagging system using positive, negative, and neutral classifications according to six environmental objectives (Figure 22).

 

Figure 20. Green Budget Tagging of the French Central Budget in 2021

The second edition of the “Green Budget” concludes that, out of a total of EUR 586.6 billion for 2022 in budgetary spending and tax expenditures, EUR 53.4 billion have an impact on the environment, which is an increase of +0.6 billion euros compare to the 2021 finance law.

The evolution of tagging practices in France will enable the Ministry of Finance to publish a consistent time series for a three-year period to help inform budget decisions. The procedure is evolving as France will continue to publish a green budget as an annex to its finance act every year. The 2022 edition incorporates methodological clarifications and new elements of analysis. A more in-depth analysis of the rating of expenditures, a clarified differentiation between expenditure effectively considered as neutral, expenditure not rated due to methodological difficulties, the integration of a performance section and the presentation of expenditure executed in the year 2020 complete and enrich the 2022 edition.

Source: Authors and Ministry of Economy and Finance of France (2021), Rapport sur l’impact environnemental du budget de l’Etat, http://www.economie.gouv.fr/files/files/2021/Rapport_impact_environnemental_budget_Etat_2022.pdf#%5B%7B%22num%22%3A39%2C%22gen%22%3A0%7D%2C%7B%22name%22%3A%22XYZ%22%7D%2C68%2C756%2C0%5D and Ministry of Economy and Finance of France (2020), Report on the Environmental Impact of the Central Government Budget, https://www.budget.gouv.fr/files/uploads/extract/2021/PLF_2021/report_environmental_impact_french_central_government_budget_2021.pdf.

 Turning risks into opportunities for the benefit of all

Public acceptance of climate action is crucial and depends on un-locking the full potential of the green economy. Perceptions of distributional fairness can play a significant role for public acceptability, which is why integrating environmental and inclusiveness aspects into recovery packages and measures for the net-zero transition is a mutually beneficial strategy. Beyond protecting vulnerable groups from socio‑economic impacts associated with the net-zero transition, countries need to unleash new opportunities - for the energy sector alone, there is an annual market opportunity that rises well above USD 1 trillion by 2050 for manufacturers of wind turbines, solar panels, lithium-ion batteries, electrolysers and fuel cells (IEA, 2021c).

To maximise benefits of the transition, countries are increasingly coupling climate action with wider wellbeing objectives, recognising that climate action could contribute to a broader reform agenda for greener, more resilient and inclusive growth, including better designed tax codes, pro-growth long-term infrastructure investment, and energy and transport systems that support cleaner air, better health and a more diversified energy supply. The co-benefits mentioned in some first NDCs include food security (e.g. South Sudan), rural and regional development (e.g. Indonesia), resilience to natural disasters (e.g. Bangladesh) and employment (e.g. Niger). Chile’s recently-revised NDC requires each goal in the NDC to also contribute to fulfilling one or more sustainable development goal. Jamaica is drawing on integrated approaches across energy and land-use sectors, yielding co-benefits such as health and strengthening of ecosystems. Rwanda is mainstreaming gender equality and nature-based solutions in actionable items within the agriculture sector.

The transition to a green economy creates opportunities for firms and workers, but could also lead to short and medium-term economic and social costs. The estimated employment impacts of decarbonisation, while modest overall, will be much higher in some regions. On average across OECD regions, only 2.3% of employment is in sectors at potential risk from climate policies consistent with the Paris Agreement. But in some large regions, this may exceed 6%. For example, in the Polish region of Silesia, more than half of employment in sectors at risk is in the mining of coal and lignite, and a quarter is in the manufacturing of rubber and plastics products (IEA, 2021c). Employment opportunities may not materialise where losses occur, which is why vulnerable regions and communities will need targeted support.

Green skills are essential, as a shift to green jobs is gradually underway: the ILO estimates that labour market and skills policies play a key role to enable countries to better manage and profit from the green transition. 24 million jobs worldwide could be created by the green economy by 20301. In almost half of OECD countries, local and regional governments are wholly or partially responsible for implementing active labour market policies and are therefore key for a response that takes territorial differences into account. New “green” skills can help local economies secure employment for workers losing out from the transition. “Greening” of skills is likely to require upskilling, as low-carbon sectors are estimated to require more skills than carbon-intensive industries. In addition, on-the-job training should be given priority over external retraining programmes, to ensure a connection to job prospects. Skills mapping can also help identify skill needs in future investment priority areas. This is especially important in regions in industrial transition, where it is often uncertain how workers’ skills in “brown” industries are transferable to emerging jobs in low-carbon sectors (OED, 2021c).

Policy action on the green transition will also require adequate social protection and co‑ordination of migration and housing policies. Climate change and mitigation policies can have a profound impact on individuals and communities by shaping family circumstances and livelihoods. Social protection will be a crucial building block of governments’ strategies to promote a just green transition by preventing and cushioning individuals and communities from potentially damaging disruptions to their livelihoods, thus easing voter resistance to carbon pricing and other mitigation efforts. Migration policies will also play an important role, as climate change is expected to push greater numbers of people to seek to emigrate from the most affected areas. Migration could also play a role in reducing any short to medium-term skill gaps that may appear in OECD countries, including as part of the transition to a low-carbon economy.

In all countries, there is scope to design policies to ensure the benefits of the transition are shared by all, including low-income households. Such measures include decreasing labour taxes at the lower end of the wage distribution, and improving access to education and training, healthcare, low-cost quality housing and public transport. Priorities will differ depending on individual countries. Assuming, crucially, that governments invest in quality projects and that the fundamental framework conditions are in place to get the most out of these investments, the transition has the potential to bring sizeable gains in employment to most countries (OECD, 2017a). Social entrepreneurship and the social economy can also be sources of quality job creation, while addressing environmental issues and often integrating disadvantaged people into the labour market. In some regions, percentage growth in employment in the social economy has outpaced that of the private sector in recent years (OECD, 2014). Policy makers at the local level can complement national framework conditions with supports such as social entrepreneurship hubs and social and environmental clauses in local public procurement processes.

Climate action is also about ensuring that no country is left behind in the transition to net zero. Fulfilling the commitment by advanced economies to mobilise USD 100 billion per year in climate finance is necessary, but not sufficient. Mobilising additional private capital on the back of these commitments will rely in particular on the enhanced deployment of blended finance to catalyse project development. This will need to include the packaging of a range of instruments and approaches ranging from guarantees to concessional loans to first-loss equity. Such packages are critical to improving the risk profiles of some market-ready investments (e.g. renewables-based power in many sub-Saharan Africa countries) and to support development of small-scale projects that lack a track record with banks (e.g. building retrofits or EV charging infrastructure). It will also be important to deploy risk capital in sectors at early stages of readiness to support, for example, industrial decarbonisation, and to help in cases where risks are hard to mitigate, such as energy access projects for vulnerable communities or in remote areas (IEA, 2021c).

About 27% of Official Development Assistance (ODA) targets climate action to some degree. In 2019, members of the OECD Development Assistance Committee (DAC) committed USD 34.3 billion in bilateral allocable ODA that principally or significantly targeted climate action (screened against the Rio markers). This represents an increase in volume of 45% since 2014. 43% went to climate change mitigation activities, 33% to climate change adaptation, and 24% to projects that addressed both climate change mitigation and adaptation.

A particular attention of the international community will need to be given to extractive-based countries. The carbon footprint of oil and gas projects will affect prospects for continous market access and has global equity implications, considering the weighted value of income in countries with a diversified industrial base, compared to fossil-fuel dependent developing economies, where diversification is challenging. Support will be thus needed for these countries to manage uncertainties and increased vulnerability, build their resilience to external shocks and embrace the challenge of undergoing unprecedented economic and social structural transformation (OECD, 2021f).

International trade, coupled with appropriate policies for the environment and society, can be a principal driver of the transition to an inclusive green economy. To achieve ambitious environmental outcomes, countries are expected to raise the level of stringency of their environmental policies, citizens are expected to demand more goods and services that are ‘environmentally friendly’ and businesses to be seeking cleaner investment opportunities. This in turn can generate higher demand for products deemed “environmental” – which “measure, prevent, limit, minimise or correct environmental damage to water, air and soil, as well as problems related to waste, noise and eco-systems” (OECD/Eurostat, 1999)– as firms and households seek to alleviate the compliance costs of new environmental regulations and to access environmental goods and services.

 

Figure 21. While growing overall, the flows of climate-related ODA are insufficient to support the Paris Agreement objectives

 

Note: Climate change mitigation-related aid is defined as activities that strengthen the resilience of countries to climate change and that contribute to stabilisation of GHG concentrations by promoting reduction of emissions or enhancement of GHG sequestration. The climate change mitigation marker was introduced in 1998. Climate change adaptation-related aid, approved by OECD-DAC members in December 2009, is defined as aid in support of climate change adaptation and complements the climate change mitigation marker, thus allowing presentation of a more complete picture of aid in support of developing countries’ efforts to address climate change. The climate change adaptation marker was introduced in 2010. Total ODA comprises both screened and non-screened ODA bilateral commitments. ODA data are obtained from the Aid Activities Targeting Global Environmental Objectives dataset of the.

Source: OECD (2021), “Creditor Reporting System”, OECD International Development Statistics (database).

Global trade in environmental goods (EGs) increased significantly in the last decades, by 52.8% between 2007 and 2019 – from USD 976 billion to USD 1.492 billion – representing an average annual growth of 4%. In relative terms, the share of trade in environmental goods grew from 7.5% to 8.2% of global trade (Figure 22). The largest category of exported EGs is renewable energy plants (REP), which accounts for 31.4% of global trade in EGs. This is consistent with recent trends of countries shifting towards greater renewable energy use, particularly in electricity generation (IEA, 2018). The other three largest traded categories of EGs are wastewater management and potable water treatment [WAT] (19.5%); cleaner or more resource efficient technologies and products [CRE] (11.8%); and environmental monitoring, analysis, and assessment equipment [MON] (10.9%). Together, REP, WAT, CRE, and MON account for 73.6% of global trade in EGs.

As firms in different countries have specialized in different environmental technologies, international trade in environmental goods is likely to increase further. Removing barriers to trade in EGs will contribute to achieving a sound environmental agenda by facilitating the diffusion of equipment and technologies necessary to abate or avoid environmental damage.

 

Figure 22. Global environmental goods’ (EGs) exports by environmental medium, 2007-2019

Note: Environmental media of environmental goods: APC = Air pollution control; CRE = Cleaner or more resource efficient technologies and products; EPP = Environmentally preferable products based on end use or disposal characteristics; HEM = Heat and energy management; MON = Environmental monitoring, analysis and assessment equipment; NRP = Natural resources protection; NVA = Noise and vibration abatement; REP = Renewable energy plant; SWM = Management of solid and hazardous waste and recycling systems; SWR = Clean up or remediation of soil and water; WAT = Waste water management and potable water treatment.

Source: OECD (2021); Combined List of Environmental Goods; BACI (2021), International Trade database.