International climate finance and emission reductions: what do the last twenty years tell us?

We empirically examine the impact of international climate finance transfers on recipient countries’ carbon emissions. We analyse the effect of mitigation and adaptation finance using emission data of 164 non-OECD countries from 2000 to 2017. We use a distributed lag model in first differences, a panel method that allows us to abstract from possible feedback from current emissions to future transfers. We address potential reverse causality while accounting for dynamic effects. We control for other factors that could be correlated with both climate finance flows and emissions. Contrary to expectations, we find that public mitigation finance tends to increase emissions, potentially due to some misreporting of development aid as climate finance. Public adaptation finance appears to drive an even greater increase in emissions. We explain this by the energy-intensive nature of adaptation measures. Transfers under the Clean Development Mechanism reduce emissions modestly after five years.