Western countries' potential retreat may open the field wider for countries such as China, writes Georgia Gratton
A renewed focus on defence spending in Europe and swingeing aid cuts from major western donors create a gloomy outlook for international climate finance.
It has been less than four months since developed countries settled a deal at the UN Cop 29 climate summit to ramp up climate finance to developing countries to $300bn/yr by 2035 — the highest ever agreed. Climate finance is unlikely to take centre stage at this year's Cop 30 in Brazil in November, but the topic underpins all climate talks and plays a large role in the speed at which the global energy transition proceeds.
There have been steady, if modest, increases in climate finance in recent years. Developed countries delivered $115.9bn in climate finance to developing nations in 2022, the most recent OECD data show. This was a rise of just under a third on the year, and the first time developed countries hit their target of providing $100bn/yr in climate finance over 2020-25.
But recently announced and expected cuts to aid are likely to slow progress. Official development aid typically encompasses climate finance. US president Donald Trump in January announced a pause to all US foreign aid through the country's international development agency, USAID, while UK prime minister Keir Starmer said last month that he would fund a rise in UK defence spending entirely through cuts to the country's aid budget from 2027. Starmer said the UK would continue to provide climate finance, as well as aid in other areas, but former UK international development minister Anneliese Dodds — who resigned over the cuts — said that it would be "impossible to maintain these priorities".
Other European leaders are also focused on rapidly expanding defence spending — notably Germany's incoming chancellor Friedrich Merz — although there is no sign as yet that aid or climate finance will be diverted for this purpose. But both France and Sweden have indicated they will spend less on aid from this year, non-profit Donor Tracker says. The US, the UK, Germany, France and Sweden collectively provided $142.33bn in aid in 2023, OECD data show.
Filling the finance gap
Hitting the $300bn/yr climate finance goal by 2035 "is very much in reach", despite the challenging geopolitical landscape, research organisation World Resources Institute (WRI) says. The majority of climate finance is public — bilateral finance and funding from institutions such as multilateral development banks (MDBs). There are several options to ensure that financing from public institutions rises, WRI says. If countries pay in more capital to MDBs, it will increase the base amount against which they can lend. "While such increases may be unlikely today with current political dynamics, they could feasibly happen before 2035," WRI says. But significant private investment would be needed to move beyond the $300bn/yr goal and towards the wider roadmap for $1.3 trillion/yr in climate finance by 2035, as agreed at Cop 29.
The retreat of wealthy western countries from contributing aid and climate finance is likely to erode some of the soft power these countries hold. This will allow other actors to step in. China portrayed itself as a reliable leader on climate at Cop 29, including making new concessions in the language used to describe its climate finance contributions. And the UAE committed $30bn to a new climate fund during Cop 28, which it hosted in 2023.
UN biodiversity talks, which reconvened last week, proved a bright spot, as countries agreed on a strategy to boost biodiversity finance to $200bn/yr by 2030. But Brazil is well aware of the fractured developed-developing country relationship at climate talks, and of the divide it must bridge at this year's Cop 30.
