Climate Consequences of Rebalancing Official Climate Finance: Analyzing Multilateral Development Banks’ Allocation Practices

36 Pages Posted: 28 Nov 2021

See all articles by Swarnodeep HomRoy

Swarnodeep HomRoy

University of Groningen

Bert Scholtens

University of Groningen - Department of Finance & Accounting

Lina Xie

University of Groningen, Faculty of Economics and Business, Students

Multiple version iconThere are 2 versions of this paper

Date Written: November 26, 2021

Abstract

The transition towards a low-carbon economy requires the fundamental reallocation of financial capital from current technology towards green innovation. The role of public financing of green technological innovation by Multilateral Development Banks (MDB) is a largely unexplored area. In this paper, we provide novel evidence on the climate financing practices of MDBs and their long-term climate consequences. The majority of MDB climate finance is for mitigation projects and is concentrated in a small number of relatively wealthy countries. We show that MDBs’ climate financing is positively correlated with countries' greenhouse gas emissions but not with their vulnerability to climate risks. Our numerical simulations show that moving towards more equal funding of innovative mitigation-adaptation projects can substantially lower global climate vulnerability. We also show that rebalancing MDB funding towards adaptation projects and technologies can reduce vulnerability significantly for an additional 2.5 billion people, without a significant change in the annualized growth rate of emissions.

Keywords: Multilateral Development Banks, Climate Finance, Adaptation, Mitigation

JEL Classification: Q54, Q55, G21

Suggested Citation

HomRoy, Swarnodeep and Scholtens, Bert and Xie, Lina, Climate Consequences of Rebalancing Official Climate Finance: Analyzing Multilateral Development Banks’ Allocation Practices (November 26, 2021). Available at SSRN: https://ssrn.com/abstract=3972261 or http://dx.doi.org/10.2139/ssrn.3972261

Swarnodeep HomRoy (Contact Author)

University of Groningen ( email )

Nettlebosje 2
Department of Economics, Econometrics and Finance
Groningen, Groningen 9747 AE
Netherlands

Bert Scholtens

University of Groningen - Department of Finance & Accounting ( email )

P.O. Box 800
9700 AH Groningen
Netherlands

Lina Xie

University of Groningen, Faculty of Economics and Business, Students ( email )

Postbus 72
9700 AB Groningen
Netherlands

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