UK Climate Aid Reaches £11.6bn: Impact of Rule Change

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In a landmark development for climate action, the UK government has reported a record expenditure of approximately £3 billion on foreign climate aid in the last financial year. This significant figure, obtained by Carbon Brief, showcases the UK’s commitment to supporting climate initiatives in developing countries. However, a closer examination reveals complexities in how these numbers are calculated, raising important questions regarding the authenticity and impact of this financial support.

According to Carbon Brief’s analysis, over £500 million of the reported climate aid stems from contentious changes in the UK’s accounting methods for climate finance. By incorporating private-sector investments and previously existing projects into the total, the government has inflated its figures, allowing it to present a more favourable image of its climate funding capabilities without providing substantial new financial resources. This strategy has enabled the UK to appear on track to meet its five-year target of contributing £11.6 billion by 2026, despite cuts to the overall foreign aid budget.

International climate finance (ICF) is crucial for helping developing nations mitigate the effects of climate change and adapt to its unavoidable impacts. However, the current trajectory suggests that spending will need to exceed £3 billion in 2025 for the UK to achieve its ambitious target. The latest data, revealed through freedom-of-information requests, covers provisional spending projections for the 2024-25 financial year across three key government departments involved in funding overseas climate projects.

The findings from this analysis highlight significant trends in the UK’s climate finance landscape:

• The largest single payment in the past year was a £482.3 million contribution aimed at bolstering British International Investment’s (BII) private-sector initiatives in developing nations.
• Ethiopia emerged as the top recipient of bilateral climate finance, receiving £92.3 million, followed by Pakistan (£55.8 million), Afghanistan (£43.7 million), and Sudan (£41.1 million).
• A World Bank project designed to assist developing nations in selling carbon offsets was the most substantial single project funded, with an allocation of £153.9 million.
• Significant portions of climate finance were also directed towards the Green Climate Fund (£227 million) and the Global Environment Facility (£64.8 million).

The government’s accounting adjustments have had a profound impact on the perceived growth of climate finance. Without these changes, climate aid would have needed to rise by a staggering 78% this year. Instead, the revised figures indicate a mere 2% increase is required. A substantial portion of the UK’s ICF over the past four years—around £1.3 billion—can be attributed to these accounting modifications.

Target Achieved?

The Labour government, which assumed office last year, confirmed its commitment to honour the previous administration’s pledge of £11.6 billion in climate finance over the five-year period concluding in 2025-26. This funding is part of the UK’s commitment under the Paris Agreement, designed to assist developing countries in reducing emissions and fortifying themselves against the escalating threats posed by climate change.

Since the announcement of this goal in 2019, experts have consistently expressed scepticism regarding its attainability, primarily due to substantial cuts to the foreign aid budget implemented by successive governments. The situation grew more complex following the recent announcement that the Labour government would further reduce aid—from 0.5% to 0.3% of gross national income—to finance defence spending, although officials have maintained that the remaining aid will prioritise climate initiatives.

Despite these uncertainties, the data disclosed to Carbon Brief indicates that the UK is indeed on course to meet its £11.6 billion target. Climate finance spending reached an unprecedented high of just under £3 billion in the 2024-25 financial year, surpassing the previous year’s expenditure by over £700 million.

It is essential to note that these figures are provisional and subject to revision. The methodology changes have already led to significant upward adjustments in previous financial years. As currently projected, the UK will need to increase its climate finance to £3.1 billion in 2025-26 to fulfil the £11.6 billion commitment.

However, this required level of climate funding must be sustained even as the government plans to tighten its overall aid budget in 2025. When questioned during a recent committee hearing about the availability of new funds for the £11.6 billion goal, international development minister Baroness Chapman candidly stated:

“I think the search for new money at the moment is going to be pretty fruitless… Is there going to be any new money for climate in a world where we have just gone from 0.5% to 0.3%? I think you can probably work that out.”

This sentiment highlights the reliance on reclassifying existing funding as climate finance, a strategy that has been maintained by the current government, despite its initial introduction under the Conservatives. By relabelling contributions for multilateral development banks, humanitarian aid, and private-sector investments via BII as climate finance, the UK has inflated its reported figures, making the £11.6 billion target more attainable.

Carbon Brief estimates that £528 million, representing 18% of the climate finance provided in 2024-25, can be traced back to these accounting changes. Since 2021, the cumulative total resulting from these adjustments has surpassed £1.3 billion—nearly a sixth of the total spending to date. Observers have raised concerns that this practice essentially reduces the actual climate aid being provided, as it results in less new funding than initially pledged.

Had the previous accounting methodology been applied, UK climate finance would have only reached approximately £2.5 billion last year, necessitating a dramatic 78% increase to achieve the £11.6 billion target. In stark contrast, the current accounting framework allows for only a 2% increase.

Perception vs. Reality

The UK government has defended its accounting methods, asserting that they align with international standards set by the Organisation for Economic Co-operation and Development (OECD). A spokesperson from the Foreign, Commonwealth and Development Office (FCDO) stated:

“We will continue to account for all of our international climate finance using internationally agreed OECD guidelines. Meeting our £11.6 billion commitment by March 2026 remains our ambition, and it is only right that we accurately reflect the funding going to support this aim.”

In contrast, non-governmental organisations and aid experts argue that the UK should have upheld its previous status as a leader in climate finance accountability, rather than adopting looser methodologies akin to those employed by other nations such as Germany and France. Furthermore, the £11.6 billion goal was intended to represent a doubling of the prior target of £5.8 billion, which was based on a more stringent accounting methodology. If the previous target had included a broader definition of climate aid, the current objective would need to be adjusted upwards to reflect a genuine doubling.

As the UK approaches the conclusion of its third five-year ICF target, it is anticipated that a new goal will be announced for the period from 2026-27 onwards. This forthcoming target will contribute to the global climate finance initiative that nations agreed upon at the COP29 climate summit last year.

Amid budget cuts, climate NGOs are advocating for the reversal of the accounting changes and are urging the government to pursue “polluter-pays” mechanisms to generate the necessary public funds. Catherine Pettengell, executive director of Climate Action Network UK, expressed her concerns:

“Our main concern is that we now have the spending review, but there is still no clarity—or vision—on current or future climate finance from the UK.”

Big Investments, Big Questions

As the UK navigates these complexities, it is increasingly relying on private-sector investments to meet its climate finance commitments. The most significant climate finance input last year was a £482 million contribution to the UK’s development finance institution, BII, marking the largest contribution in a single year according to Carbon Brief’s analysis.

This amount represented nearly a fifth of the total climate finance for the year and was almost three times higher than any previous investment channelled into BII. The surge in financing can be attributed to two key factors: the government’s decision to classify a greater portion of BII investments as climate finance following the accounting changes, and an additional £400 million investment that primarily stemmed from underspending on housing asylum seekers in the UK.

Despite these adjustments, critics argue that BII’s focus on loans and equity finance rather than grants limits its capacity to effectively support climate action in the world’s poorest and most climate-vulnerable nations. The government’s increased allocation of funds to BII comes amid ongoing criticisms of the institution’s continued support for fossil fuel developments.

Recent spending reviews have allocated at least £300 million annually to BII and similar organisations until 2029-30, even as the overall aid budget faces cuts. Ian Mitchell, a senior policy fellow at the Center for Global Development, commented:

“BII looks set to become the government’s main climate-finance vehicle. Though whether this is compatible with its historic focus on Africa and the poorest countries remains to be seen.”

Additionally, the largest individual project funded by the UK last year was the World Bank initiative titled “Scaling Climate Action by Lowering Emissions (SCALE),” which received an initial contribution of £154 million. This initiative aims to assist around 20 countries in generating carbon credits that can be sold on voluntary offset markets or internationally through Article 6 carbon markets.

While selling carbon offsets has been promoted as a mechanism to channel climate finance into developing nations, it has faced accusations of “greenwashing” and raised serious ethical questions regarding its effectiveness and impact.

Accounting Changes and Their Implications

Further examination of the UK’s 2024-25 climate finance budget reveals that numerous large funding allocations can be directly linked to the accounting changes instituted by the government. For instance, in 2023, the UK began counting portions of its core payments to multilateral development banks (MDBs) as climate finance, significantly inflating its reported totals.

This funding is typically used by these banks to issue loans and grants for development projects in various nations. While many of these initiatives may have climate-related components, relabelling contributions as “climate finance” does not result in the distribution of additional funds. In the 2024-25 financial year, this reclassification accounted for at least £103 million of the total climate finance, including £84 million for the African Development Bank (AfDB) and £11 million for the Asian Development Bank (ADB).

In terms of bilateral aid, several of the largest climate finance projects last year were concentrated in countries experiencing conflict, famine, and natural disasters. This trend is partly attributable to accounting changes that classify 30% of all humanitarian funding in the most climate-vulnerable countries—such as Afghanistan, Sudan, and Somalia—as climate finance, effectively inflating the totals reported by the UK government.

Countries like Ethiopia, which has remained the largest recipient of UK climate finance for over a decade, received £92.3 million last year. The funding primarily supports programmes aimed at enhancing climate resilience in regions of Ethiopia afflicted by drought and flooding, exacerbated by ongoing regional conflicts.

Rather than directly funding individual projects in specific countries, the majority of UK climate finance is allocated to international bodies and initiatives that operate on a broader scale. This includes significant payments to established international grant providers, such as £227 million for the Green Climate Fund and £64 million for the Global Environment Facility.

Conclusion

The complexities surrounding the UK’s climate finance reporting and the methods employed to achieve its targets raise critical questions about the integrity and effectiveness of its contributions to global climate action. As the country prepares for its upcoming climate finance commitments and strategies, it must ensure that transparency and accountability remain at the forefront of its efforts.

The future of the UK’s climate finance will undoubtedly influence its role on the global stage as a leader in climate action. However, without a clear vision and a commitment to genuine funding, the promise of achieving the £11.6 billion target may become increasingly elusive.

As champions of net-zero, it is essential for us to hold our government accountable, ensuring that our financial commitments translate into meaningful action that supports the most vulnerable communities worldwide. Together, we can advocate for a future where climate finance is not just a statistic but a lifeline for those most affected by the climate crisis.