IDS researchers are calling for a renewed focus on climate finance commitments to support adaptation and loss for those worst impacted by climate change, amid widespread cuts to development budgets. One researcher describes recent Official Development Assistance (ODA) funding cuts to climate projects as a ‘shocking abnegation of global commitment, which will have dire consequences everywhere’.
Countries including France, the UK and the Netherlands have all announced significant reductions to their ODA contributions in the last few months, which will curb the range of programmes they can fund to support those impacted by the effects of climate change. USAID, which had been the largest contributor of ODA, and played a critical role in funding climate-related support for lower-income countries is terminating almost 90 percent of its funding. Since President Trump came into power in January, the US also withdrew from the Paris Climate Agreement and has ‘instructed the Department of Justice to “stop the enforcement” of state climate laws’.
This all comes at a time when January 2025 was the warmest January on record globally, and when Europe has just experienced its warmest ever March.
‘Huge setback to climate finance’
Shilpi Shrivastava, Research Fellow, Institute of Development Studies, says:
“The ODA cuts and the roll back on climate pledges are a huge setback to climate finance, the loss and damage fund, and some hard-won goals. It does seem very likely that in the short term, the funding space will shrink and put the already contested and meagre contributions under significant strain as more and more countries seem to have announced cuts in recent weeks.
“Adaptation and loss and damage have historically received less funding in comparison to mitigation. Several aid projects that focus on ‘soft adaptation’ such as water and sanitation, disaster preparedness, social protection or health systems have helped in building adaptive capacities and addressing climate challenges in the frontline communities. With the likely squeezing of the aid budgets, there is a significant risk that these issues may slide further down as addressing structural issues of climate injustice may not be high on their agendas.”
Lyla Mehta, Professorial Fellow, Institute of Development Studies, says:
“Climate finance from high income countries to low- and middle-income countries just started to increase after 2022 even though most of the focus has been on mitigation, not adaptation.
“This gap left by the ODA cuts can be potentially filled by the domestic private sector but there are risks of greenwashing, given their preference for mitigation projects that often can cause harm to poor and marginalised communities.”
Communities in the Horn of Africa suffering
Among the many areas now suffering from the sudden withdrawal of USAID, are communities in the Horn of Africa who are particularly vulnerable to the impacts of climate change.
Ian Scoones, Professorial Fellow, Institute of Development Studies, says:
“In 2023, when the Horn of Africa – a vast area stretching across Kenya, Ethiopia, Somalia and beyond – suffered one of the worst droughts in living memory over three years until 2023, several initiatives supported by USAID provided relief and support, as well as building the capacities of communities to respond to such shocks into the future.
“Earlier this year, nearly all of these projects received letters from the US State Department cutting their funds, stating that their work was not in US ‘national interest’. The consequences have been disastrous. Funds have dried up; projects have folded and efforts to build capacity to respond to climate change have ceased.
“The Horn of Africa is a crucial region, with fragile geopolitics. Ensuring stability is vital. It is the source of many migrants seeking alternative opportunities the world over. It is the origin of many who now call the United States home. International aid assistance especially in the face of climate change – of course historically caused by countries in the Global North – surely must be a global responsibility. This is what President JF Kennedy envisaged when USAID was established in 1961.
“Wrecking this consensus through the cuts to USAID – and indeed other agencies, although to lesser extents – is a shocking abnegation of global commitment, which will have dire consequences everywhere.”
Alternative climate finance options?
On the question of whether more climate finance could be raised through carbon taxes, research from the IDS-based International Centre for Tax and Development (ICTD) suggests that carbon taxes do not come close to raising the amount of funding required to fill the gaps left by ODA cuts from the US, UK and other European countries.
Giovanni Occhiali, Research Fellow, Institute of Development Studies and the International Centre for Tax and Development, says:
“First, only a handful of countries who qualifies to receive ODA have implemented a carbon tax. The process took them years of political discussion, and then years for implementation, so even if all of those who don’t have one started planning it today, funds will start coming in only the next decade.
“Second, the revenue from this tax does not compare to the aid received – in 2022, South Africa collected about US$93 million from its carbon tax, and received over US$1 billion in aid, of which over US$400 million from the USAID alone. There is simply no way for countries like Ethiopia or DRC, some of the biggest receivers of USAID funds, to plug that gap with carbon taxes, or even environmental taxes in general: these measures were never conceived to be big revenue raiser, they exist to change the behaviour of citizens and companies.”
China’s role in climate finance
Since the withdrawal of USAID from low-income countries across the world, some argued that as a consequence, China would step in to fill the void, and further dominate the development space, particularly in the African continent. While in reality, China may not replace the vast level of funding lost from USAID, it may join new collaborations for renewable energy initiatives.
Wei Shen, Research Fellow, Institute of Development Studies, says:
“There is a possibility of other actors stepping in such as the private and philanthropic actors, and emergent donors such as China but it is unlikely they will match the funding levels that have been lost.
“For example, funding from the private and philanthropic actors may come with their logic, rationality and riders. Emergent donors such as China has significantly increased its role in providing climate finance to developing countries, averaging around $4.5 billion per year between 2013 and 2022.
“Currently, China or any other emergent donors are unlikely to fully replace the USAID’s contributions in the near term, but they will certainly play a more active role. For example, the combination of Middle East funding with Chinese construction superpowers are creating new collaborative models in supporting renewable energy deployments across South Asia, SSA and MENA region, as a replacement for conventional bilateral mitigation finance.”
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