Forward-looking Scenarios of Climate Finance Provided and Mobilised by Developed Countries in 2021-2025

Forward-looking scenarios of climate finance

This note presents two scenarios for future levels of climate finance provided and mobilised by developed countries for 2021-2025. These scenarios are grounded in a detailed OECD analysis of forward-looking public climate finance information submitted by developed countries and MDBs in connection with the Delivery Plan prepared by developed countries.

This forward-looking information on future levels of public climate finance varies greatly in level of precision, detail and implicit assumptions. Thus, as explained under Data sources and assumptions, a number of further analytical steps and assumptions were needed in order for the OECD to standardise - to the extent possible - the information and make it compatible with the accounting framework and scope of the USD 100 billion goal, including in order to avoid any double counting.

A very wide range of factors will have an impact, positive or negative, on future levels of public climate finance provided by developed countries. Some of these factors are partially within the control of public climate finance providers (e.g. legislative processes to approve budgetary expenditures); many less so (e.g. macroeconomic conditions, project pipelines in partner countries). Importantly, countries’ public finance information over periods longer than budget or electoral cycles are also inherently uncertain. For MDBs, their own resources depend on future recapitalisations as well as, in some significant cases, on their ability to raise further funds from the capital markets, which in turn is dependent on each MDB’s capital assets and will be affected by global financial conditions.

Further, future levels of climate finance are dependent on the ability of public finance interventions to mobilise private finance and, thus on the characteristics of public finance, e.g. in terms of thematic split, geographic destination and financial instrument. Information about the future composition of providers’ portfolios is at best qualitative and indicative, in many cases unknown and difficult to predict beyond the current budget cycle of countries and existing project pipelines of development finance institutions.

Future levels of climate finance provided and mobilised by developed countries are, therefore, inherently uncertain, and this uncertainty is likely to grow over time. Furthermore, given the nature of this exercise, it is, not possible to assign meaningful probabilities to these uncertainties at an aggregate level. Scenarios reflecting these uncertainties, rather than probabilistic estimates are, therefore, the appropriate way to analyse the range of possible future outcomes. The two scenarios used in this analysis are summarised in Table 1. They provide two distinct storylines for the future levels of both public and mobilised private finance. While these illustrate a plausible range of possible outcomes, they may not capture the full range of possibilities, either on the up or the down-side.

Scenario 1 assumes that public finance is scaled up in line with the information provided by countries and MDBs, subject to OECD analysis and assumptions, including to avoid double counting (see Data sources and assumptions). This scenario then uses the minimum ratio of mobilised private to public climate finance observed in a given year during 2016-2019 to estimate the corresponding levels of mobilised private finance, maintaining this ratio constant over the 2021-2025 period.

Scenario 2 aims to illustrate the joint impact of several factors that may result in lower-than-targeted levels of climate finance. These include: (i) the potential near-term macroeconomic risks currently facing many developing countries; (ii) potential capacity constraints on scaling up project pipelines, exacerbated by the pandemic; and (iii) intended shifts in the composition of providers’ portfolios. Compared to Scenario 1, this scenario combines relatively lower levels of public climate finance with a progressively decreasing ratio of mobilised private finance to public finance, as further explained under Data sources and assumptions.

Table 1. Overview of the two forward-looking scenarios

	Public climate finance	Export credits	Mobilised private finance
Scenario 1	Based on countries and multilateral development banks fully delivering on their intended climate finance commitments, in terms of both volume and timing	Both scenarios assume flat volumes based on 2019 levels	Assumes a constant ratio of private to public climate finance throughout the period, based on the minimum annual ratio observed over 2016-2019. The effect of increasing shares of finance for activities that may not mobilise much private finance (e.g. finance for adaptation, capacity building, as grants, to LDCs/SIDS) is offset by a continuous improvement in the rate of mobilisation for activities that do have significant private finance mobilisation potential.
Scenario 2	Delays in scaling up climate finance due to a wide range of factors, e.g. macroeconomic conditions, capacity constraints		Assumes a lower and declining ratio of private to public climate finance over the period relative to 2016-2019. This is the net result of increasing levels of public finance, shifting portfolio composition and no or very limited increase in the rate of mobilisation for activities that do have significant private finance mobilisation potential.

On the basis of these two scenarios, Table 2 presents levels of total climate finance provided and mobilised by developed countries in 2021-2025. The two scenarios yield numbers that are above USD 100 billion from 2023 onwards. It is important to note that there is increasing uncertainty associated with the figures the further forward in time, for the reasons discussed above. However, in the context of the present analysis, it is assumed that, while the level of future public climate finance starts lower under Scenario 2 than under Scenario 1, it almost reaches the same level under both scenarios at the end of the period, i.e. by 2025. This means that, in both scenarios, public climate finance provided by bilateral and multilateral providers converges over time towards their stated intentions, pledges and targets, albeit with some delays under Scenario 2. The difference between the public finance numbers in both scenarios, therefore, shrinks over time, while the difference between the mobilised private finance numbers grows.

Table 2. Indicative composition of future ranges of climate finance provided and mobilised by developed countries based on two forward-looking scenarios (USD billion)

	Component	2021	2022	2023	2024	2025
Scenario 1	Public finance	70.5	77.7	85.3	91.1	94.5
	Export credits	2.6
	Private finance mobilised	15.2	16.7	18.4	19.6	20.4
	Total	88	97	106	113	117
Scenario 2	Public finance	66.5	74.6	82.5	89.3	94.0
	Export credits	2.6
	Private finance mobilised	14.0	15.0	16.0	16.5	16.6
	Total	83	92	101	108	113

Note: The components may not precisely add to the totals because of rounding. Future levels of climate finance are inherently uncertain. The scenarios presented here aim to reflect and illustrate such uncertainty. However, these scenarios may not span the full range of possible outcomes in a given year.

Source: OECD analysis of developed countries’ and multilateral development banks forward looking stated intentions, pledges, or targets subject to assumptions, including to avoid double counting (see Table 1 and the Data sources and assumptions section).