Climate mitigation finance across developing countries: what are the major determinants?

Abstract

This empirical study assesses the relationship between the characteristics of developing countries and the amount of official climate mitigation finance inflow. A two-part model and robustness checks were used to analyse 1998–2010 Rio Marker data on 180 developing countries. The results show that developing countries with higher CO2 intensity, larger carbon sinks, lower per capita gross domestic product (GDP) and good governance tend to be selected as recipients of climate mitigation finance, and receive more of it. CO2 emission is not used as a determinant of mitigation finance until the actual financial disbursement. Poverty aid tends to be allocated to countries with low CO2 emissions, possibly to avoid diverting aid from poorer developing countries. However, such a diversion is unavoidable if the share of mitigation finance in climate finance and in overall official development assistance (ODA) continues to escalate. This study calls for an equitable allocation of total ODA mitigation and adaptation finance in addition to the 0.7% ODA/gross national income target, and for transparent criteria and the verification of reporting on the allocation of mitigation finance.