In era of escalating climate challenges, public finance has proven to be a vital force in promoting climate action in Asia and the Pacific. According to report published by ADB, during 2018–2019, public finance amounted to $351.8 billion, constituting a significant 68% of the total climate finance in the region. This substantial investment underscores the commitment of governments and financial institutions to address climate change through targeted funding for mitigation, adaptation, and dual-benefit initiatives.

Public finance was primarily allocated to three key areas: mitigation, adaptation, and dual-benefit finance. Mitigation finance dominated with $320.1 billion (91%), emphasizing projects aimed at reducing greenhouse gas emissions. This included investments in renewable energy, energy efficiency, and low-carbon technologies. Adaptation finance followed with $28.1 billion (8%), focusing on enhancing resilience to climate impacts, such as improving water security, disaster risk management, and infrastructure resilience. Lastly, dual-benefit finance accounted for $3.6 billion (1%), supporting projects that address both mitigation and adaptation simultaneously.

The substantial increase in public finance—up by 48% from $142 billion to $209.8 billion over the two years—reflects a growing recognition of the urgent need to invest in climate solutions. This surge was driven by significant contributions from Development Finance Institutions (DFIs), government budgets, and various climate funds.

The role of Development Finance Institutions (DFIs)

DFIs were pivotal in mobilizing climate finance, contributing 68% of the public finance total. National DFIs led the way, with their commitments soaring by 88% in 2018 to 2019. These investments were predominantly directed towards clean energy projects, including power and heat transmission and distribution. For instance, in countries like China, national DFIs were instrumental in advancing renewable energy infrastructure, significantly boosting the region’s capacity in solar, wind, and other renewable technologies.

Multilateral DFIs also increased their contributions, from $13.1 billion in 2018 to $16.2 billion in 2019, supporting diverse regional projects that enhanced energy access, infrastructure development, and the adoption of renewable energy technologies. However, bilateral DFIs saw a reduction in their contributions, decreasing from $12.9 billion in 2018 to $8.4 billion in 2019. This decline can be attributed to a strategic shift in funding priorities from sectors like agriculture and forestry to energy-related projects.

Government budgets and agency commitments experienced a notable increase, rising from $48.4 billion in 2018 to $58.6 billion in 2019. These funds accounted for 30% of public finance flows and were primarily allocated to national climate policies and initiatives. Investments focused on the transport and energy sectors, driven by commitments under international agreements such as the UNFCCC, as well as national policy frameworks aimed at reducing emissions and advancing decarbonization.

Multilateral climate funds and public funds played a crucial role in sustaining climate finance, with average annual contributions of $898 million and $236 million, respectively. Key funds like the Green Climate Fund (GCF) and the Least Developed Countries Fund (LDCF) were instrumental in supporting both mitigation and adaptation projects. The GCF, for example, disbursed $440 million in 2019 and $536 million in 2020, with significant portions allocated to energy access, power generation, and low-carbon transportation projects. The LDCF provided essential support for water and waste management projects in countries such as the Lao People’s Democratic Republic and Vietnam.

Energy sector focus

The energy sector emerged as a major focus of public finance flows, aligning with the region’s growing demand for energy access and security. Despite achieving a high electrification rate of 95.6% in 2018, there was a strong push to transition to cleaner energy systems. This transition involved substantial investments in renewable energy technologies, including solar, wind, hydropower, geothermal, and bio-based energy. In China, for instance, the renewable energy capacity reached 758.6 GW by 2019, representing 35% of the world’s solar capacity and 34% of its wind capacity. Such developments highlight the critical role of public finance in accelerating the shift towards sustainable energy solutions.

Focus on adaptation finance

While adaptation finance was smaller in scale compared to mitigation finance, it targeted essential areas such as water security, disaster risk management, and enhancing climate resilience. Funds like the GCF emphasized projects aimed at improving climate information services, infrastructure resilience, and livelihoods in vulnerable communities. In 2020, the GCF financed regional adaptation projects with $47 million in grants for five Pacific countries, aiming to enhance climate information and knowledge services. Similarly, the LDCF supported vital water and waste projects across the Pacific and other regions.

Public finance has proven to be a crucial driver of climate action in Asia and the Pacific, supporting a wide range of mitigation and adaptation efforts. The significant investments from DFIs, government budgets, and climate funds have been instrumental in advancing renewable energy, enhancing infrastructure resilience, and addressing the diverse impacts of climate change. As the region continues to navigate the complexities of climate mitigation and adaptation, the ongoing growth and strategic allocation of public finance will be essential in fostering a resilient and sustainable future.

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