Analysis: UK ‘adds’ £450m to its climate-finance spending by changing definition

The UK has “added” around £450m to its climate-aid spending in developing countries by changing how it defines “climate finance”, according to Carbon Brief analysis.

In a statement to parliament, the government has laid out a new plan to meet its goal of providing £11.6bn of international climate finance (ICF) between 2021/22 and 2025/26.

It relies on expanding the activities that the UK classifies as ICF to include more of the humanitarian funds it distributes in the poorest countries, as well as payments into development banks and money from private-sector investments. 

When compared to pre-revision data obtained by Carbon Brief via freedom of information (FOI) request earlier this year, the government appears to have “added” hundreds of millions of pounds to the UK’s climate aid over the past two years. 

Carbon Brief understands that this is due to more humanitarian aid being defined as climate aid for those years. Civil servants also identified extra funds they could count as ICF after reviewing their portfolios.

These changes would mean ICF spending has “risen” since 2020. This contrasts strongly with Carbon Brief analysis published last week which showed how, prior to these changes, spending had fallen for two years in a row.

This development comes after months of concern that the UK would not be able to meet its ICF goal. Cuts to foreign aid and the diversion of funds to house refugees had rendered the ICF target a “mathematical impossibility”, according to former minister Zac Goldsmith.

Meeting the target

The government committed in 2019 to spending £11.6bn on ICF between 2021/22 and 2025/26. It said this would amount to “doubling” its ICF spending from its previous five-year target of £5.8bn.

In his statement to parliament on 17 October, development minister Andrew Mitchell set out “how we expect to meet our target”, publishing figures for the total spend in 2021/22 and 2022/23, plus estimated ranges for the following three years.

The figure he gave for 2021/22 was £1.65bn. This is £181.6m more than the £1.47bn figure provided to Carbon Brief by FOI earlier this year. (That approximate figure has also been cited by Mitchell himself, who said in July the UK had spent “over £1.4bn” on ICF in 2021/22.)

The ICF figure given for 2022/23 was £1.63bn, which is £267.4m more than the £1.36bn figure stated in Carbon Brief’s FOI results. That number was based on “provisional” data provided by the government, as well as an estimate for the Department for Environment Food and Rural Affairs ICF contribution. It was backed up by a leaked civil service document reported by the Guardian.

In total, this amounts to an additional £449.1m over these two years.

As the chart below shows, the new figures mean ICF has increased since 2020/21 rather than declined.

In response to Carbon Brief’s previous analysis, climate-finance experts said it looked increasingly unlikely that the UK would be able to meet its £11.6bn goal. Carbon Brief calculated spending would have to roughly double and remain that high for three years.

As part of his statement, Mitchell laid out an “expected range” for the UK’s ICF between 2023/24 and 2025/26, which would result in between £11bn and 12bn being spent across the full five-year period.

While this projected increase would be less pronounced than the earlier figures suggested, it is still significant, as the chart below shows. Mitchell said this reflected “both the increasing importance of tackling climate change and the growth in our economy”.

‘Moving the goalposts’

The government has arrived at these figures by expanding the range of spending it categorises as climate finance. Experts and campaigners have described the act as “moving the goalposts” and “an exercise in double-counting”.

It now assumes that 30% of all UK humanitarian spending in the poorest and most climate-vulnerable countries is automatically ICF, without calculating the precise figure. 

This is the key change that has resulted in the backdated £449.1m being added over the past two years. The remainder comes from reviewing the wider set of UK foreign aid programmes and identifying climate-related spending that had previously been overlooked.

Another major change is that, going forward, the UK will count climate-related contributions to the World Bank and other multilateral development banks towards its climate-finance goals. This would amount to roughly an additional £200m a year.

Until now, the UK has limited how much of its investments through British International Investment (BII) and other private finance mobilisation programmes count as climate finance. From now, the government plans to loosen these restrictions, meaning more ICF money will go to businesses rather than country-led responses to climate change.

The government has defended its changes on the basis that other major climate-finance contributors, such as Germany, Japan and the US, already use these approaches.

Mitchell said in his statement that “the UK has long looked to lead on climate action”, citing its record providing climate finance overseas. However, Euan Ritchie, a senior development finance policy advisor at the thinktank Development Initiatives, tells Carbon Brief:

“The UK has been one of the better climate-finance reporters in the past…Justifying slackening in reporting standards based on what other countries are doing is problematic. We want other countries to be improving their reporting to be in line with the UK, not vice versa.”

As Mitchell’s statement points out, the UK has historically provided 85% of its ICF as grants – generally seen as superior to loans for debt-laden countries – while the global average for grant-based finance is 26%. Experts tell Carbon Brief that the new approach will likely mean more UK climate finance is distributed as loans.

In addition, as the original pledge to “double” UK climate finance was based on the original calculations, the new methodology means the £11.6bn goal is no longer comparing like for like. 

Catherine Pettengell, executive director at Climate Action Network UK, tells Carbon Brief:

“It is an accounting exercise to get to a specific figure and is nothing about doubling the amount of finance available or the intended impact and outcomes of climate finance. With costs of climate change escalating around the world, relabelling existing finance is so far from what is actually needed.”

Previously, there had been suggestions that the government could only achieve its goals by taking aid from other funding streams. Given this, Ian Mitchell, an economist at the Center for Global Development, pointed out that broadening the climate-finance definition provided a better option for meeting the £11.6bn target than taking funds from health or education aid.

The Foreign, Commonwealth and Development Office (FCDO) declined to comment on Carbon Brief’s analysis.