U.S. International Climate Finance: A Primer

U.S. International Climate Finance: A Primer

Updated April 24, 2023
U.S. International Climate Finance: A Primer
International Environmental Assistance
Among the obligations outlined in Article 4 of the
Many governments hold that environmental degradation
Convention, higher-income Parties (i.e., those listed in
and climate change pose international and transboundary
Annex II of the Convention, which were members of the
risks to human populations, economies, and ecosystems. To
Organisation for Economic Co-operation and Development
confront these challenges, governments have negotiated
in 1992) committed themselves to provide unspecified
various international agreements to protect the
amounts of new and additional financial resources to assist
environment, reduce pollution, conserve natural resources,
developing-country Parties (not specified in the text) in
and promote sustainable growth. While some governments
meeting the full cost of their reporting requirements and the
and some observers call upon higher-income countries to
full incremental cost of implementing greenhouse gas
take the lead in addressing these issues, many recognize
reduction and adaptation measures under the Convention.
Further, “the implementation of these commitments shal
that such efforts are unlikely to be sufficient without similar
l
measures being taken in lower-income countries.
take into account the need for adequacy and predictability
in the flow of funds and the importance of appropriate
burden sharing among the developed country Parties.”
However, lower-income countries, which face poverty and

economic growth challenges, may not have the financial
resources, technological know-how, and/or institutional
Over the past several decades, the United States has
capacity to deploy environmentally protective measures on
delivered financial and technical assistance for climate
their own. Therefore, international financial assistance, or
change activities in the developing world through a variety
foreign aid, has been one method for higher-income
of bilateral and multilateral programs. U.S.-sponsored
governments to support actions on global environmental
bilateral assistance has come through programs at the U.S.
problems in lower-income countries. Often, this assistance
Agency for International Development, the U.S. State
can serve as a cost-effective strategy for donor countries to
Department, the Millennium Challenge Corporation, the
provide greater market access abroad for their
Export-Import Bank, and the International Development
environmental goods and services while providing
Finance Corporation, among others.
increased environmental benefits at home.
U.S.-sponsored multilateral assistance has come through
The United States and other higher-income countries have
contributions by the U.S. Departments of State and the
committed to providing financial assistance for global
Treasury to environmental funds at various international
environmental initiatives through a variety of international
financial institutions and organizations such as the Global
agreements, including, among others, the Montreal Protocol
Environment Facility (GEF), the Green Climate Fund
(1987), the United Nations Framework Convention on
(GCF), the U.N. Development Program, the U.N.
Environment Program, the UNFCCC’s Special Climate
Climate Change (UNFCCC, 1992), and the U.N.

Convention to Combat Desertification (1994). International
Change Fund and Least Developed Country Fund, and the
World Bank’s Climate Investment Funds, among others.
financial assistance takes many forms, from fiscal transfers

to market transactions. It may include grants, loans, loan
Each channel has its own mission and particular capacities.
guarantees, export credits, insurance products, and private-
Global Environment Facility
sector investment. It may be structured as official bilateral
development assistance or as contributions to multilateral
The GEF was established in 1991 as an independent
development banks and other international financial
international financial institution to provide grants, promote
institutions and environmental funds.
cooperation, and foster actions in lower-income countries to
protect the global environment. The GEF subsequently
Ultimately, U.S. government assistance to lower-income
became an official operating entity of the financial
countries for environmental initiatives is determined by
mechanism of several international environmental
Congress. Congressional committees of jurisdiction
agreements, including the UNFCCC.
include, but are not limited to, the House Committees on
Foreign Affairs, Financial Services, and Appropriations and
The GEF is structured to provide grant-based financing to
cover the additional or “incremental” costs associated with
the Senate Committees on Foreign Relations, and
Appropriations.
transforming projects with national development benefits
into ones with global environmental benefits. GEF partners
Climate Finance Under the UNFCCC
with international institutions, nongovernmental
The UNFCCC is the principal international treaty to
organizations, and the private sector to assist lower-income
acknowledge and address human-driven climate change.
countries with environmental projects related to six areas:
The United States ratified the treaty in 1992 (U.S. Treaty
biodiversity, climate change, international waters, the
Number: 102-38).
stratospheric ozone layer, land degradation, and persistent
organic pollutants.
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U.S. International Climate Finance: A Primer
The George H. W. Bush Administration supported the
Finance Under the Paris Agreement
establishment of the GEF in 1991. The United States has
In 2015, the COP in Paris, France, adopted the Paris
made commitments to all eight GEF resource
Agreement (PA). The PA reiterates the obligation in the
replenishments, including $430 million in 1994, $430
Convention for developed country Parties (not specified in
million in 1998, $430 million in 2002, $320 million in
the text) to seek to mobilize financial support to assist
2006, $575 million in 2010, $546 million in 2014, $273
developing country Parties (also not specified in the text)
million in 2018, and $600 million in 2022. U.S.
with climate change mitigation and adaptation efforts
commitments correspond to about 12% of the GEF’s total.
(Article 9.1). Also, for the first time under the UNFCCC,
the PA encourages all Parties to provide financial support
Other UNFCCC financial entities that operate under the
voluntarily, regardless of their developmental standing
direction of the GEF include the Adaptation Fund
(Article 9.2). The agreement states that developed country
(established in 2001 to finance adaptation projects); the
Parties should take the lead in mobilizing climate finance
Special Climate Change Fund (established in 2001 to
and that the mobilized resources may come from a wide
finance projects relating to adaptation, technology transfer,
variety of sources. It adds that the mobilization of climate
and capacity building); and the Least Developed Country
finance “should represent a progression beyond previous
Fund (established in 2001 to support the world’s most
efforts” (Article 9.3). The COP decision to carry out the PA
vulnerable countries).
(1/CP.21) uses exhortatory language to restate the CA’s
collective pledge by developed countries of $100 billion
World Bank Climate Investment Funds
annually by 2020 and calls for continuing this collective
In February 2008, outside of the UNFCCC negotiations,
mobilization through 2025. In addition, the Parties agree to
Japan, the United Kingdom, and the United States
set, prior to their 2025 meeting, a new collective, quantified
announced their intention to create a set of funds at the
goal for mobilizing financial resources of not less than $100
World Bank to help low- and lower-middle-income
billion annually to assist developing-country Parties.
countries “bridge the gap between dirty and clean energy”
and “boost the World Bank’s ability to help developing
The Green Climate Fund
countries tackle climate change” (Former Secretary of the
The GCF is another official operating entity of the financial
Treasury, Henry Paulson). The World Bank Climate
mechanism of the UNFCCC. The fund was proposed during
Investment Funds (CIFs) included (1) the Clean
the 2009 COP in Copenhagen, Denmark, and its design was
Technology Fund, which sought to provide financing—
agreed to by all Parties during the 2011 COP in Durban,
principally to larger emerging economies and to regional
South Africa. The GCF aims to assist lower-income
groups—for demonstrating, deploying, and diffusing large-
countries in their efforts to combat climate change through
scale clean energy investments with the potential for long-
the provision of grants and other concessional financing for
term avoidance of greenhouse gas emissions; and (2) the
mitigation and adaptation activities. The GCF is capitalized
Strategic Climate Fund, which supported three programs
by “financial inputs from developed country Parties to the
that aimed to pilot new and scaled-up approaches to address
Convention” and “may also receive financial inputs from a
climate change challenges in lower-income countries.
variety of other sources, public and private, including
alternative sources” (3/CP.17§§A29-A30). The GCF was
Overall, 14 contributor countries pledged $8.1 billion to the
officially opened for capitalization at the U.N. Climate
funds since 2008. The United States pledged and
Summit in September 2014. The initial resource
contributed $2 billion between 2010 and 2016. The funds
mobilization totaled approximately $10 billion. In 2019, the
were programmed to sunset upon the commencement of a
GCF initiated its first replenishment process for the years
specialized climate change fund negotiated under the
2020-2023. As of March 2023, 34 contributors have
UNFCCC (i.e., the 2014 Green Climate Fund; see below).
pledged $10 billion for GCF-1.
However, the CIFs’ project pipelines are still active, and
some governments and stakeholders, including the United
In 2014, the Obama Administration announced an initial
States, have contributed additional financing.
U.S. pledge of $3 billion over four years, and made two
separate contributions of $500 million in March 2016 and
Finance Under the Cancun Agreement
January 2017. The funds were obligated with FY2016
The 2009 UNFCCC Conference of Parties (COP) in
budget authority from the State Department’s Economic
Copenhagen, Denmark, took note of a nonlegal political
Support Fund account. No contribution was made for
document called the Copenhagen Accord. The following
FY2017. The United States did not contribute funds to the
year, in Cancun, Mexico, the COP officially adopted many
GCF during the Trump Administration. In April 2023, the
of the accord’s elements into the Cancun Agreements (CA),
Biden Administration announced plans to contribute $1
including several quantified financial arrangements.
billion to the GCF with FY2022-2023 budget authority
Principally, the CA puts forth a collective commitment by
from the State Department’s Economic Support Fund
developed country Parties (not specified in the text) to
account. For discussion of U.S. climate finance under the
achieve a goal of mobilizing jointly $100 billion per year by
Biden Administration, see CRS In Focus IF12036, U.S.
2020 to address the climate finance needs of developing
International Climate Finance: FY2023.
countries (also not specified in the text) (1/CP.16§98). The
CA states that “funds provided to developing country
Richard K. Lattanzio, Specialist in Environmental Policy
Parties may come from a wide variety of sources, public
IF10763
and private, bilateral and multilateral, including alternative
sources” (1/CP.16§99).
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U.S. International Climate Finance: A Primer

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