Asia’s climate emergeny: does climate-related development finance help? an empirical study in Asian developing countries

Abstract

Climate change has undeniably triggered major challenges for the Asia region. Still, the inescapable reality is that a continued slowing persistent slowdown in the overall reduction of greenhouse gas emissions due to crises and tensions among countries. Hence, the urgent climate change impact and rising tendency in the sum of greenhouse gas emissions in years have posed the demand for climate-related development finance in Asia, the region of largest emitting emissions. According to IFM, this region needs at least $1.1 trillion annually for the mitigation of climate and adaptation of climate. However, with this high demand for climate-related development finance, there is little empirical evidence for the effectiveness and confidence in the policy. In this context, the study is conducted to evaluate the effectiveness of climate-related development finance, both total and separated components inclusive of mitigation and adaptation-related development finance perspective along with renewable energy consumption on CO2 emissions, CH4 emissions, and greenhouse gas emissions in developing countries in Asia. Applying the two-step Difference Generalized Method of Moments (GMM) estimation technique on panel data from 2013 to 2020 for 29 Asia developing countries, the findings reveal that (1) both aggregate components of climate-related development finance and mitigation-related development finance contribute to decreasing CO2, CH4, and total greenhouse gas emissions, especially, these finance of previous years also have a positive impact on CO2 and greenhouse gas emissions; (2) different from above finances, adaptation-related development finance does not affect to CH4 emissions, but help reducing greenhouse gas emissions, besides, CO2 emissions is also negatively impacted by adaptation related development finance of the previous year, (3) renewable energy consumption play significant role on reducing greenhouse gas emissions and CO2 emissions but surprisingly increasing CH4 emissions. Hence, the study calls for the ongoing flow of climate-related development finance from developed to developing Asia. Concurrently, the study proposes developing nations could utilize climate finance to invest in sustainable and digitalized infrastructure, well-preparedness for climate shock, energy efficiency, and clean energy transmission.