With $11 billion requested for international climate funding, President Joe Biden’s proposed FY23 budget is a serious effort to make up for the United States’ historic underperformance in this area of vital investment.
If approved by Congress, the budget would deliver on Biden’s pledge, made in September 2021, to provide $11.4 billion in climate finance per year by 2024 — and it would do so one year early. But as last year’s appropriations cycle showed, this is easier said than done.
U.S. budget actions have ramifications on the global scale. Developed countries committed to mobilize $100 billion per year in climate finance for developing countries between 2020 and 2025, but have so far not met this goal. Objective indicators, such as GDP and cumulative greenhouse gas emissions produced relative to other countries, suggest the U.S. should contribute between 40 and 47% of the total climate finance effort. Yet it has never contributed more than $7 billion per year, which is less than Germany or France. With the biggest shortfall between fair share of effort and actual delivery of climate finance, the U.S. bears the greatest responsibility for the failure so far to meet the $100 billion goal.1
The Backstory on U.S. Climate Finance
In his first budget request, President Biden asked for $2.7 billion in direct appropriations for international climate funding. This quadrupled the $669 million appropriated in fiscal year 2021 in the Trump administration’s final year, but fell short for an administration that had promised to put climate at the center of their foreign policy.
At the Climate Leaders’ Summit in April 2021, Biden announced the U.S.’s plan for international climate finance: to provide $5.7 billion per year by 2024. This was a doubling of Obama-era levels, but it did not go down well with other countries – both vulnerable countries in urgent need of support to reduce emissions and adapt to climate impacts, and rich countries that spent the last four years dealing with a recalcitrant Trump administration and now hoped the U.S. would pull its weight. The E.U., for example, already collectively provided €21.9 billion ($24.5 billion) in climate finance in 2019, with an economy three-quarters the size of the U.S. That’s more than four times the amount Biden pledged to provide in 2024.
Following pressure from other governments and civil society, and after the House voted to increase climate funding allocations to $2.8 billion in its version of the FY22 spending bill, the administration course-corrected. In September, Biden announced that he would double again his 2024 climate finance pledge from $5.7 billion to $11.4 billion per year by 2024. The increased pledge would make the U.S. the largest single country contributor of climate finance, and it would be the country’s first serious attempt to contribute its fair share towards the $100 billion goal.1
Biden’s stated ambition appeared to focus Congress. In the fall, the Senate published its FY22 spending bill, allocating an even higher amount: $3.1 billion. The scene appeared set for a record appropriation of U.S. climate funding, including a specific allocation to the Green Climate Fund for the first time.
Then things fell apart. In negotiations to reconcile differences between the House and Senate versions of the spending bills, international climate funding was severely cut. The appropriations omnibus, passed in March 2022, allocates no funding for the Green Climate Fund. Ultimately, only $1 billion was appropriated for international climate-specific accounts.
A big part of the problem was that with total international spending increasing by only $595 million from FY21 levels, there was very little space to raise the amounts for climate.
There are ways the administration can still spend more on climate. The $1 billion appropriation is a floor, not a ceiling, on international climate spending. Biden could encourage agencies like the Development Finance Corporation to fund more climate projects. Or, the administration could use money from flexible international spending accounts like the Economic Support Fund to provide a contribution to the Green Climate Fund, as President Obama did in 2016 and 2017.
Nonetheless, the fact that Congress originally entertained more climate spending only to cut it back in the final negotiations, sent a negative signal to the rest of the world about the U.S.’s ability to deliver on climate commitments.
Can 2023 Be Different for U.S. Climate Finance?
Biden’s current budget request represents a big improvement over FY22. By setting the topline goal of $11 billion in international climate finance, the administration recognizes that gradual increases aren’t adequate.
Of that $11 billion, $5.3 billion is requested in direct appropriations for bilateral and multilateral climate funds, effectively doubling the $2.7 billion requested in FY22 and quintupling what Congress ultimately approved for that year. The remainder of the $11 billion is to come through development agencies that have credit authority to lend at greater sums than their directly-appropriated funding, as well as a proposed new program through the Department of Energy.
For direct appropriations, the administration seeks an increase from FY22 for almost every account:
$2.25 billion in bilateral funding for adaptation, clean energy, and sustainable landscapes through the State Department and the U.S. Agency for International Development is tripled from FY22, with $650 million of this to ensure climate is mainstreamed throughout all development funding.2
$1.6 billion for the Green Climate Fund, the main fund designed to help developing countries implement the Paris Agreement, up from $1.25 billion requested in FY22. The U.S. pledged $3 billion to the Fund in 2014 but has only delivered $1 billion to date. If the administration contributes from the FY22 Economic Support Fund allocation and secures $1.6 billion appropriation from Congress in FY22, it will deliver on this commitment ahead of the Fund’s second replenishment process next year, when all contributors will be asked to up their commitments.
$350 million for the Clean Technology Fund (CTF) would allow the U.S. to extend a $3.2 billion loan to a new facility focused on phasing out coal in developing countries.
$150.2 million for the Global Environment Facility (GEF), less than a $1 million increase over FY22. The GEF provides funding for several global environmental conventions, including biodiversity, desertification, mercury and climate. It has long enjoyed strong bipartisan support, so it’s puzzling that the administration didn’t seek to raise this funding more. Moreover, the GEF is undergoing its 8th replenishment this year. As a major contributor, the U.S. helps set the bar for other countries’ pledges. By barely increasing the GEF allocation, the Biden administration sends a poor signal for an ambitious overall replenishment. In past years, Congress ignored the Trump administration’s efforts to cut GEF funding, so legislators may have appetite to go higher than Biden’s request for the GEF.
$64 million for the Montreal Protocol Multilateral Fund, a $12.1 million increase over the FY22 approved funding. This fund supports developing countries to reduce their use of ozone-depleting chemicals, many of which are also powerful greenhouse gases.
$21 million for the Intergovernmental Panel on Climate Change (IPCC) and the UN Framework Convention on Climate Change (UNFCCC), the UN’s climate science and negotiating bodies, respectively. This is a $6 million increase what Congress approved for FY22.
The above accounts add up to $4.6 billion, leaving a $700 million gap to the $5.3 billion the budget requests for appropriated international climate finance. Further details may be clarified when the State Department releases its more detailed Congressional Budget Justifications. It might include allocations to the Adaptation Fund and Least Developed Countries Fund which support vulnerable countries in planning for and adapting to the impacts of climate change.
For the remainder of the $11 billion, the administration projects $5.5 billion will come through agencies that only get their general administrative and operating budgets appropriated, which are not specifically allocated to climate change. However, under the direction of the administration, they can still provide significant sums of climate finance.
- U.S. Development Finance Corporation (DFC) last year committed that one-third of new investments from FY23 onwards would be climate-focused. If funding remains at status quo, this would suggest at least $1.5 billion per year for climate. Legislative proposalsA bipartisan legislative proposal working its way through Congress would remove some of the constraints on DFC’s equity investments and nearly double its overall investment portfolio, enabling its climate financing to increase.
- U.S. Export-Import Bank (ExIm) has a history of financing significantly more for fossil fuels than clean energy. However, last year the U.S. joined 33 other countries in committing to end international public support for unabated fossil fuel energy by the end of 2022 and shift support towards the clean energy transition. Between 2018 and 2020, ExIm provided almost $2 billion per year in oil and gas finance, which it could – and should – shift to clean energy, which has received less than $100 million in ExIm funding per year.
- The Millennium Challenge Corporation and the U.S. Trade and Development Authority are among other agencies now working to prioritize climate action.
Finally, Biden’s budget request seeks to establish $1 billion in mandatory funding over five years for a Global Clean Energy Manufacturing effort under the Department of Energy. The program seeks to build resilient supply chains for clean energy, undoubtedly motivated in part by the renewed focus on the need to accelerate the transition off fossil fuels brought about by the war in Ukraine. Because it would be mandatory funding, it would not require annual appropriations. While the funds would average $200 million per year, the amount that would count towards the administration’s international climate finance commitments depends on how much of it actually gets spent in developing countries.
What’s Next for U.S. Climate Finance?
It’s a strategic move to aim to reach the 2024 U.S. climate finance commitment a year early. The war in Ukraine has shown even more clearly that fossil fuels are a source of instability and conflict. Helping countries transition away from them and address the impacts of climate change is an investment in a safer and more secure world.
Just as the U.S. played a critical role in helping Europe rebuild after World War II, so it can play a pivotal role in helping the world transition to clean energy and deal with the impacts of climate change. But this will require serious international investment. In the five years after World War II, the U.S. spent around 2% of its GDP in foreign assistance; today it spends 0.2%.
To deliver on its proposals, the White House needs to give climate finance serious attention as it engages with Congress in the appropriations cycle.
Footnotes
1. The White House made clear that this figure did not include finance the U.S. provides through multilateral development banks (MDBs), nor any private finance its public funding mobilizes. Our analysis estimated that the U.S. share of climate finance channeled through MDBs was $4.6 billion in 2018, and with MDBs looking to further scale up their climate funding, the U.S. could potentially reach $10 billion per year, which would come on top of the $11.4 billion pledge.
2. A more detailed breakdown of these figures is expected from the State Department in coming weeks.
