Climate Finance Is Everything—And So Nothing

It’s Beyond Time to Collapse the Distinction Between Climate and Development Assistance

By William Davison

Over the past few decades, most world governments and international institutions shared the consensus that climate change must be addressed via both domestic and foreign policy. That consensus might be fraying, but its legacy lives on in the “climate finance” that rich countries and multilateral banks have been funneling to the developing world since the 1990s.

Because wealthier, industrialized countries are responsible for the vast majority of warming emissions, they need to foot the bill if they wanted less developed countries to act to mitigate or adapt to climate change. Rich countries first committed to support poorer nations in tackling climate change at the 1992 United Nations Framework Convention on Climate Change in Rio de Janeiro.

Climate finance has two pillars: mitigation and adaptation. Mitigation means reducing greenhouse gas emissions. Adaptation refers to increasing the ability to cope with a changing climate.

Those with particularly high levels of concern about climate change are often aligned with mitigation efforts. They argue that the world cannot cope with the impact of more fossil fuels being used. In their stead, they suggest, renewables are a rare win-win-win: good for the economy, good for security, and good for the environment.

Adaptation proponents, often from developing countries, are more pragmatic. Recognizing the challenges of the energy transition, they argue that more climate finance should go to adaptation than is currently the case. Because developing nations did not cause climate change but are most vulnerable to it, advocates of adaptation sometimes argue that it is unethical to expect poorer countries to forego fossil fuels on the instruction of richer ones that have benefited from them.

While those who advocate for adaptation are correct that developing nations should not be forced to address the causes of climate change at the expense of their own economic growth, the solution does not lie in simply increasing the adaptation portion of climate financing. Instead, we must start by collapsing the artificial and counter-productive distinction between climate finance and development finance.

Call Adaptation by its Real Name: Economic Development

Throughout history, humans have always strived to adapt to their climate. Adaptation, in this frame, is a fundamental aspect of economic development.

Adaptation is thus all-encompassing. This is clear from attempts to define it in the context of climate change. The Intergovernmental Panel on Climate Change, for example, defines adaptation as “the process of adjustment to actual or expected climate and its effects.” Everyone from farmers to traders adjust to their environments and have throughout history.

Since the historic 1992 treaties, an array of agreements and committees have sprung up in pursuit of adaptation, producing countless reports. Recently agreed adaptation objectives for 2030 resemble the Sustainable Development Goals in their sweeping ambitions for water, food, health, infrastructure, settlements, and social protection.

And despite efforts to define and limit what counts as “adaptation” by the climate movement, it can be reasonably argued that all development assistance—and, indirectly, most commercial and public investment—contribute to adaptation.

Adaptation’s aim is to increase resilience to climate change-related phenomena, such as extreme weather. Take flooding, for example. Measures include more and better roads, watershed management, drainage, flood warning mechanisms, communication networks, emergency response systems, and insurance options. Adaptation, here, simply means building better and more infrastructure and services.

Clearly, there are more and less direct forms of adaptation. For example, building flood defences is direct. But, a lot of important methods of enhancing resilience to flooding are less so. In particular, delivering expensive public goods like all-weather roads is the task of governments. To add more highways, a government requires, among other things, sufficient funds, sound policies, and adequate capacity to manage contracts. In short, what is known as “good governance”, part of which involves increasing revenues through taxation of private enterprise (commercial activity improves not just government’s tax-take, but also the financial resources of companies and individuals, allow them to invest in products and services that help them adapt to climate change).

While there is an increasing need for something that resembles “adaptation,” as it is defined, the tools needed for it are by no means new. Indeed, there have already been decades of debate about appropriate levels of development assistance and the most ethical and optimal methods of delivering it. For example, some experts say it is most fair and efficient to deliver funds directly to governments. Others prefer bolstering civil society and the private sector, perhaps because of the perceived authoritarianism, inefficiency, and/or corruption of recipient governments. Human rights advocates suggest that civil liberties protection is a necessary condition for equitable development; others suggest the opposite, maybe pointing to recent examples in Asia of “authoritarian development”.

Much of the haggling over the details of climate adaptation rehashes these development debates, as the core challenges and core principles remain the same.

Mitigate What?

The overlap between what we now call adaptation financing and what has, for decades, been called development finance is clear. Mitigation finance, though, is less obviously connected to long-run development programs, and might actually be at odds with their fundamental goals, such as poverty alleviation and improvement in the quality of life of developing nation’s population.

Consider the often-overlooked tensions between climate mitigation and adaptation itself. In recent years, high temperatures in India meant an increased demand for electricity from life-saving air-conditioning units. This required ramping up power stations, which, in the existing Indian context, meant ramping up coal production. While increased coal use means more climate emissions, using that fossil power to drive air conditioners saves lives.

A root problem here is the frequent under-appreciation of energy’s role in economic development. Abundant energy—regardless of how clean or dirty it is—is an essential input for rapid economic growth. Therefore, unless all new energy development is low-carbon only, economic development goals will clash with climate mitigation.

The ramifications of this critical trade-off are a life-threatening concern for people in less wealthy countries. Western governments and the multilateral institutions they dominate are not only hypocritical—especially hydrocarbon-reliant rich nations like Norway—when they, in effect, block fossil fuel energy projects in the developing world; they are also constraining growth, and so causing real harm to countless millions of people.

When these restrictive policies apply to Least Developed Countries, they are also doing precious little to counter climate change, as their economies are set to produce relatively few emissions in the coming decades even if they embark on energy-intensive growth paths.

The issue is compounded by the approaches donors have taken as climate finance has risen in prominence. Many governments have redirected traditional aid towards climate finance, again meaning that mitigation is being prioritised ahead of economic development. Finally, as an almost inevitable result of the situation, donors end up classifying all sorts of thing as ‘climate finance’, including a film, hotels, and chocolate shops. Development assistance and climate finance are both essential—but large chunks of the system have become an incoherent charade.

Protecting Autonomy

Climate finance is a response to historical inequities and the fact that most past emissions came from the wealthiest nations.

One consequence of the inequality is that nations have a degree of influence within the international system that roughly corresponds to their wealth, and use their power to control how development assistance is spent. However, rich donor nations should not dictate to recipients how they spend their money. Instead, the latter’s autonomy should be respected and recipients should be empowered to make their own resource-allocation choices.

This is true of any and all development assistance—whether related to climate or not. Ideally, poorer nations would decide how to spend received funds, whether that is on, for example, coal generators to power air-conditioning units to save lives now, or investments in renewables or nuclear power to replace coal in the future.

But, while autonomy is a high priority for developing nations looking to achieve economic growth and poverty alleviation, they will continue to have to deal with the vested interests that have elevated climate finance—whether for mitigation or adaptation—above other forms of economic development. To get funding of any kind, NGOs and local officials have to appeal to the interests of their potential donors, and while climate remains top of mind for wealthy countries and development banks, climate will remain the skeleton key for receiving necessary funds.

In a sense, the climate movement—exemplified by the increasing bloat at the annual COP meetings—has overtaken development, and set its own rules for how developing nations must act.

Consolidating Development

Instead of continuing this sort of energy-sapping diplomatic shadow boxing, the way out of the decades-old morass of climate finance is to retrace our steps. A fresh pathway could follow some core principles:

Abundant energy—whether green or not—facilitates rapid economic development. This means that cheap energy is integral to not just mitigation but also to adaptation, and thus development.

Because of the overlap, only one national development plan is needed, which would include energy and emissions-reductions policies. The principle of autonomy should be paramount: national governments decide spending priorities and trade-offs between saving lives now or in the future, not climate advocates in faraway rich countries.

Of course, by no means would this streamlined approach ensure global justice, end poverty, or bridge divides—let alone reverse climate change. But by recentring the debate on some core premises, researchers, policy-makers, and diplomats could have more focused, meaningful, and productive conversations.

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William Davison is a journalist and analyst. He covered Ethiopia and the Horn of Africa for more than a decade from Addis Ababa, primarily for Bloomberg and International Crisis Group, and has been focused on energy issues since 2021.