Mapping the global climate finance network

By Lisa Tessier (will not take the second half of the class).

Background

International efforts to tackle climate change are at a critical juncture. In December 2015, the 196 Parties to the United Nations Convention on Climate Change will gather at the Paris Climate Summit to frame the post-Kyoto Protocol legally binding agreement, aimed at keeping average global temperature rise below 2°C. Two key concepts when discussing climate change, that will be used throughout this document, are those of climate change mitigation – defined as the efforts to reduce GHG emissions in order to limit the increase in global average temperature, and adaptation - the adjustment in natural or human systems in response to actual or expected climate changes (IPCC, 2007). Finance has a pivotal role to play in supporting developing countries’ low-carbon (mitigation) and climate-resilient economies (adaptation) development goals, and governments across the world’s poorest countries see financial commitments as key to a global deal in 2015 that can deliver meaningful climate action (ODI, 2014).

What are the different sources, channels and recipients of climate finance?

1) Sources

• Public sources: In 2013 public actors committed $137 billion, or 42% of total climate finance efforts:

     Development Finance Institutions (DFIs). National DFIs (e.g. the China Development Bank), bilateral DFIs, (for example the North American Development Bank), multilateral DFIs (e.g. World Bank).

     National and multilateral climate funds: Multilateral funds, such as the Least Developed Countries Fund, and the Green Climate Fund are direct products of international policy processes. The latter was created in the context of the Copenhaguen Accord of 2009, where developed countries pledged to deliver finance approaching $30 billion between 2010 and 2012, and a commitment to mobilize $100 billion per year from public and private sources by 2020.

     Governments and their agencies: They contributed $9 billion in 2013, most of which from developed to developing country.

• Private sources: They are the main source of climate financing, contributing to at least $193 billion and 58% of total flows in 2013 (the only sector for which data was gathered was renewable energies).

2) Recipients

More than half (58%), or $191 billion of total climate finance flows was invested in private entities including households in 2013. $46 billion (14%) went to public entities while $32 billion (10%) flowed to a mix of public and private entities (including public private partnerships).

3) End-use

Mitigation projects represented 78% of climate finance, the remaining 22% being mainly geared towards adaptation.

 

(CPI, 2014)

Beyond questions about how to unlock finance support of developing countries’ low-carbon and climate-resilient development, central to the Paris talks, key questions about how to finance the global transition to low-carbon and climate resilient economy will largely remain unresolved. These key questions include, how much climate finance is needed around the world to deliver low-carbon energy systems and climate-resilience? How much investment is already flowing? Who are the key actors? And what
is the optimal balance between public and private resources? (CPI, 2014)

Research Questions

Depending on the granularity of data available, several research questions arise from this topic.

1)    Which countries are the key players in aggregated/mitigation/adaptation climate finance? Which countries are the main recipients? How does climate finance flow geographically between OECD and non-OECD countries, and between public and privates sources? Which countries are key actors in climate finance in other countries?  

2)    Does adaptation finance target the more vulnerable countries ?

3)  Are public financing intermediaries effective in redistributing funds to developing countries? Which are the key public financing intermediary agencies?

Hypothesis

For the first set of questions on key country actors and geographical flows, the following graphs already gives ideas as to how finance flows geographically between or among OECD and non OECD countries.

                                                                         (CPI, 2014)

Almost three-quarter of flows were invested in their country of origin, with in particular the private actors having a strong domestic investment focus (90% of their investments in the country of origin). The majority of finance flows remained within the country of origin (74%). Developed-to-developing country flows captured are predominantly public resources (94% in 2013) (CPI).

Social Network Analysis

•    Data availability

The study will draw from the Climate Policy Initiative (CPI) study on the global landscape of climate finance (CPI, 2014). The first step could be to contact CPI and discuss with them if their databases could be available for student research. If this is not possible, CPI listed their sources of information, which include:

- Private finance: Bloomberg New Energy Finance (BNEF). 2014. “Projects and assets database: Renewable energy projects and asset finance [Internet]”; [cited 2014 July 29]. 

Available from: https://www.newenergyfinance. com/projects and https://www.newenergyfinance. com/assetfinancing/

- Development Finance Institutions:  International Development Finance Club (IDFC). 2013. “Mapping of green finance delivered by IDFC members in 2012”. Frankfurt: IDFC, supported by Ecofys.

- Climate funds: Overseas Development Institute (ODI) and Heinrich Böll Foundation (HBF). 2014. “Climate funds update database” [Internet]; [cited 2014 July 14]. London; Washington DC: ODI/HBF. Available from: http://www.climatefundsupdate.org

- Government and Agencies: Organisation for Economic Co-operation and Devel- opment (OECD). 2014a. “OECD DAC Statistics. Climate-related Aid”. Paris: OECD. Available from: http://www.oecd.org/dac/stats/documentupload/Climate%20change-related%20Aid%20Flyer%20 -%20November%202013.pdf

•  Network construction 

1) Valued Network to answer the first set of questions:

Nodes would represent countries and ties would represent the valued financing flows, broken down by source and end-use: Mitigation/private, Mitigation/public, Adaptation Private/Adaptation Public. The attribute table would include: the country region (OECD vs non OECD), the GDP/capita, the amount of aggregated spent/received in climate finance (broken down by sector and mitigation/adaptation).

2) Valued Network to answer the second question:

Nodes would represent countries and ties would represent the valued financing flows, broken down by buckets to represent the magnitude of financing (for instance 0, between 0 and $100 million…). Attributes for countries would include the GDP/capita and some measure of the vulnerability to climate change (e.g. probability of inundation, extreme weather events, droughts…).

3) Valued Network to answer the third set of questions:

Nodes would represent each financial actor: government, public and private intermediary financial institutions, country recipients (broken down into private and public). Ties valued financing flows, broken down by source and end-use (see for question 1), and attribute data would include the amount of finance received or spent (broken down between mitigation and adaptation), and other information on the location of the actor (OECD/non OECD country for example).

• Network measures

Main SNA measures:

•   In out and Degree centrality: those centrality measures would be especially interesting for questions 1) to identify if the countries who spend/receive the most amount of money are more central in terms of the number of countries they finance/receive money from. In question 3), high degree centrality could help identify the financial intermediaries that are efficient in redistributing to an important number of countries
•  E-I Index: would be a good measure to evaluate where sources go from a country to another (between OECD and non OECD and public and private actors).
•  Isolates: Isolates would be especially important in question 2) to identify the countries that are highly vulnerable to climate change, and yet are still isolated from the adaptation finance network.
• Ego-network: would be especially interesting to study the position of financial intermediaries in the climate finance network (question 3).
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Conclusion

Although the Climate Policy Initiative (CPI) study on the global landscape of climate finance was a first very valuable assessment of the climate finance flows and actors, social network analysis could bring further dimensions to the analysis:

•  Visualizations of flows between countries (that could be visually overlaid in a map). 
•  Quantitative analysis of the key actors in climate adaptation and mitigation, at the country level, or at the sub/supranational level (if the actors are broken down by governments, financial intermediaries, private investors).
•  SNA would be a precious tool to assess the evolution of theses questions and trends over the years, and evaluate the impacts of the Paris agreement on global climate finance.

Sources

1.    IPCC, 2007. Intergovernmental Panel on Climate Change - Contribution of Working Groups I, II and III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, 2007

2.     ODI, 2014. Overseas Development Institute - Climate Finance, is it making a difference? A review of the effectiveness of Multilateral Climate Funds, 2014

3.     CPI, 2014. Climate Policy Initiative - The Global Landscape of Climate Finance, November 2014