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

39 Pages Posted: 16 Feb 2022

See all articles by Bert Scholtens

Bert Scholtens

University of Groningen, Faculty of Economics and Business, Department of Economics, Econometrics and Finance

Lina Xie

University of Groningen, Faculty of Economics and Business, Students

Swarnodeep HomRoy

University of Groningen

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Abstract

The transition towards a low-carbon economy requires the fundamental reallocation of financial capital from current technologies 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: climate finance, mitigation, adaptation, multilateral development banks, greenhouse gas emissions, vulnerability, data envelopment analysis, simulation

Suggested Citation

Scholtens, L.J.R. (Bert) and Xie, Lina and HomRoy, Swarnodeep, Climate Consequences of Rebalancing Official Climate Finance: Analyzing Multilateral Development Banks’ Allocation Practices. Available at SSRN: https://ssrn.com/abstract=3986682 or http://dx.doi.org/10.2139/ssrn.3986682

L.J.R. (Bert) Scholtens (Contact Author)

University of Groningen, Faculty of Economics and Business, Department of Economics, Econometrics and Finance ( email )

P.O. Box 800
9700 AV Groningen
Netherlands

Lina Xie

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

Postbus 72
9700 AB Groningen
Netherlands

Swarnodeep HomRoy

University of Groningen ( email )

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

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