Climate finance for developing countries: its role after Copenhagen and how actors affect its effectiveness

Climate finance for developing countries is moving to the core of international climate negotiations. In both the Copenhagen Accord and the Cancun Agreements billions of dollars have been stipulated to be paid in the next few years. Notably, the use of funds is affected by the interest of international organisations, governments and even private actors (such as NGOs and companies) as is evident from both knowledge of experts and first descriptive studies. This paper gives the first quantitative insights into the impact of the most influential actors on the effectiveness of existing climate finance mechanisms. The analysis uses panel data of renewable energy diffusion in developing countries and studies three channels of climate finance: flows under the Clean Development Mechanism (CDM) as market mechanism involving private actors, bilateral climate funds between national governments, and finally, the Global Environment Facility (GEF), the international organization mainly responsible for public funds pledged under the United Nations’ climate convention. It is especially shown how the CDM’s effectiveness is influenced by interest groups and country membership within the governing board, how bilateral climate finance is affected by donor interests, and how in case of the GEF the implementing agency matters most. Post-2012 climate policy, which will be much more focused on bottom-up measures such as climate actions and finance, and less on top-down measures such as CO2 targets, will have to incorporate the influence of those different actors in order to remain effective.