Finance is fundamental to turning targets into concrete action and increasing ambition.
But how much do we need? Globally, there are different efforts to estimate required investments in mitigation, adaptation, and loss and damage. Most mitigation estimates focus on specific sectors, like energy. But in the case of adaptation and loss and damage, global estimates tend to provide aggregate numbers for each thematic issue (i.e. adaptation, mitigation, and loss and damage).
In contrast to these outside perspectives, countries themselves are reporting their climate finance needs. The Nationally Determined Contributions (NDCs) countries submit to the United Nations Framework on Climate Change (UNFCCC) include the opportunity — purely optional to date — to communicate how much countries estimate they will need to spend to meet the adaptation and mitigation goals in their NDC.
This exercise improves countries’ planning. As countries shift from making commitments to actually implementing their NDCs, it helps to know how much money is required to deliver on these promises. Once climate finance requirements are identified nationally, countries can identify where they will need to allocate which type of funding, considering all sources, including private funding.
However, this information is not always updated regularly or completely, depending on data availability.
To help countries, stakeholders, investors and negotiators understand the value of this data on required climate finance, WRI developed a tracker to monitor the information countries communicate about their climate finance requirements through their NDCs.
Monitoring climate finance in terms of how much money is needed to achieve NDCs and how much is being mobilized from different sources — including domestic, private and international financial flows — is not an easy task. Not all countries have been able to include such economic figures in their NDCs. While significant efforts can be found in different rounds of NDCs, there is still much work to be done to unpack finance from climate categories (adaptation, mitigation, and loss and damage) to a sectoral and sub-sectoral level and to embed the methodologies behind those figures. Doing so will increase transparency at a global level — at which point numbers would become more comparable and more useful for estimating, planning and attracting investment.
This article provides key takeaways from how countries have reported climate finance requirements in their NDCs thus far:
1) Finance requirements reporting is increasing. Still, there is a lack of consistency in how the data is reported.
The number of countries reporting finance requirements within NDCs is increasing. While helpful, this comes with a catch: Since there is no mandate within the UNFCCC to do so, there is currently no specific methodology countries must follow to develop and report this information. Therefore, countries have the discretion to report using their own methodologies, meaning reported numbers must be interpreted with caution.
In practice, countries have taken various approaches to develop the numbers presented in their NDCs. Some of the tools used are the integrated assessment models (IAMs) that include a range of modeling tools, which assess emissions and investments and different alternative assumptions, including economic development goals, population and technology. In the case of mitigation, IAMs have been used to estimate required investments for the planet to achieve net zero global emissions by 2050. In the case of adaptation, the Adaptation-Dynamic Integrated Model of Climate (AD-DICE) and the Adaptation–Regional Integrated model of Climate (AD-RICE) are frequently used. These models associate the damages from climate change under different scenarios with economic impacts, then construct damage functions.
Countries that have communicated how much it will cost to implement their NDCs do not tend to include the methodology and assumption they have applied to their finance assessments, making it difficult to understand how they arrived at their conclusions. Countries additionally use different indicators to report finance requirements like needs, costs, investments and finance and they may not even define these terms. This makes aggregation and comparability of finance data difficult, impeding its usefulness to the decision-making processes.
The benefits of identifying climate finance requirements still outweigh the challenges, particularly for countries themselves. Even with the methodological constraints, planning out how to pay for an NDC has to start here.
2) Finance requirements reported are geographically diverse but still with a focus on developing countries.
Developing countries lead in reporting finance requirements, with the highest number of countries reporting in Sub-Saharan Africa.
This may, in part, reflect developing countries’ option under the Paris Agreement to report both “conditional” and “unconditional” NDCs. The “unconditional” NDC is the level of climate action planned by a country without external financial support, while the “conditional” NDC displays a higher level of ambition corresponding to — and conditional upon — the delivery of climate finance from developed countries.
In their cases, developing countries communicate which portion of the NDC will be unconditional (funded with domestic resources) and which part will be funded on the condition of receiving international resources. Developing countries are likely to report their conditional finance requirements to demonstrate the scale of climate finance needed to implement their stated actions as well as to plan accordingly based on the available domestic resources.
3) Adaptation finance requirements are less likely to be reported.
There is no consistency in reporting between mitigation, adaptation, and loss and damage. This is likely because data and indicators for adaptation and loss and damage are less available, and also in part due to the difficulty in defining adaptation needs.
For example, future loss and damage finance requirements will interact with what temperature goals are met and how well a country has been able to adapt – which may in turn depend on how much adaptation finance has been spent. If a country receives the conditional adaptation finance it requires now, then it may be able to avert loss and damages in the future.
Despite this, more and more countries are reporting adaptation finance requirements, as well as their conditionality. The numbers are sometimes going up, too, as countries recognize the scale of the task. For example, in Kenya’s first NDC (2016), the country estimated its total climate finance requirements at $40 billion; in its updated NDC (2020), it estimated that for adaptation alone finance requirements were $43.92 billion. Moldova included $5.10 billion in mitigation requirements in its first-round NDC and has since added $4.22 in adaptation requirements in its updated NDC. Burkina Faso and others have gone from reporting a higher adaptation finance number ($5.8 billion) in their first NDC to a number that is now smaller, but broken down by conditionality ($2.79 billion, with $1.64 billion conditional).
4) Loss and damage requirements are reported in two forms: Historical events and projected long-term economic impacts.
Loss and damage refers to consequences of climate change that go beyond what people can adapt to. These concepts have been in the climate conversation for a long time but reached a significant milestone at the 2022 UN climate summit (COP27) with the mandate to create a loss and damage fund.
Despite this delay on the mandate to create a loss and damage fund and funding arrangements, loss and damage has already been impacting developing countries that are most vulnerable to increasing climate impacts. In 2022, economic losses from major climate and weather events were more than $109 billion.
Countries, particularly developing countries, have been tracking and reporting economic losses in their NDCs. These include both historical losses and projected impacts. Based on WRI’s assessment of all NDCs, projected long-term impacts are much higher than for historical events. This is in part because many expected impacts like sea level rise and droughts are slower moving disasters.
Reporting on Finance Requirements: Still Room for Improvement
The majority of countries — including an especially high proportion of developing countries — have reported finance requirement for at least one thematic issue (i.e., adaptation, mitigation, and loss and damage). However, there is still a long way to go before climate finance reporting is as useful as it can be – for countries and their peers alike. Climate finance requirements need to be continuously identified and updated as countries improve their methods and update their NDCs.
One area for improvement is transparency on how requirements are estimated. This will in turn enable countries to standardize reporting of climate finance requirements – an important step towards comprehensive pictures of global climate finance needs.
The numbers, nonetheless, are already useful. Those provided so far offer insights into the scale and quality of finance required at the country-level and should be used to inform countries planning how to implement and monitor their NDCs.