The official development assistance (ODA) eligibility criteria under OECD-DAC does not represent an accurate assessment of climate finance needs as it fails to reflect the costs and impacts of frequent climate-related disasters.
The eligibility criteria for ODA under the DAC is heavily influenced and guided by the collection and analyses of development data from the world’s largest bilateral donors, comprising 32 member countries.
Although there are several climate finance instruments available to SIDS, the potential of these instruments for non-ODA eligible island countries and territories are hindered by the stringent criteria.
The establishment of the Enhanced Direct Access (EDA) pilot by the Green Climate Fund (GCF) will hopefully provide an immediate-term solution for accelerating access to multilateral funding, as an alternative option to bilateral support.
As the swell of global discussions and dialogue around climate finance continues to rise, the voices of Small Island Developing States (SIDS) are steadily becoming the center of attention. With COP28 starting this week, it is imperative that these countries table their concerns of increased vulnerability to external shocks and climate-related hazards, inadequate financing for mitigation, adaptation and resilience-driven projects and dwindling human capacities.
However, there is an additional concern that has emerged more recently. Among the SIDS observed, there is an existing group of island countries and overseas territories (OT) that are not eligible to receive official development assistance (ODA) under the thresholds defined by the Organization for Economic Co-operation and Development’s Development Assistance Committee (OECD-DAC). As discussed in Blog 2 of our Series, there is a wide selection of climate finance instruments and mechanisms available to SIDS. However, because many SIDS are classified as non-ODA eligible islands and territories, the potential for these instruments is hindered by barriers of the established criteria. To address this, islands are tasked to identify alternative sources of funding to draw from, such as multilateral aid, among others.
Making Sense of the Non-ODA Eligibility criteria
The DAC, operating under the OECD, has established criteria for allocating ODA resources, which are aimed at promoting the economic development and welfare for developing countries. The provision of aid through ODA comes in many forms, which includes financial resources such as grants and concessional loans, as well as high-level expertise in the form of technical assistance (TA)—both of which many SIDS heavily depend upon. Out of the existing 57 SIDS around the world, seven countries and 20 overseas territories are classified as non-ODA eligible.
The criteria for funding eligibility developed by the DAC is influenced and guided by the collection and analysis of development data from the world’s largest bilateral donors, comprised of 32 member countries. More specifically, ODA eligibility is primarily based on a country's gross national income (GNI) per capita, as published by the World Bank.
However, because many of the non-ODA eligible island countries and OT have a middle- to high-income status, it has become difficult to justify the need for ODA. For instance, the Bahamas (31.53) and Barbados (19.35) are both examples of countries that have a high GNI per capita because of their thriving tourism industries, among others. In the Bahamas, the tourism industry alone makes up approximately 70% of their national GDP.
While it may be the case that these countries can generate and foster economic growth domestically, it should not undermine the high frequency of climate-related disasters that need to be addressed year-round. The reality for these non-ODA SIDS and overseas territories is that although they are wealthy on paper, a large portion of these resources are allocated to addressing climate vulnerabilities. With this false misconception of wealth and exclusion from ODA financing, SIDS and overseas territories are disadvantaged in terms of accessing sufficient climate finance.
Moreover, the ODA criteria fail to reflect and consider the level of vulnerability these islands face from climate change, resulting in an inaccurate assessment of needs of donor recipient countries who play an instrumental role in the development of these countries and territories.
Integrating A Vulnerability Perspective
To fully capture the struggles faced by non-ODA-eligible islands and overseas territories, there needs to be dialogue to redefine the ODA criteria. As it stands, there is a “missing middle” in which the decline in aid revenue is outpacing domestic revenue generation. Coupled with the detrimental impacts of climate change, the gap in development finance exacerbates the vulnerability of SIDS.
Under the Small Island Developing States Accelerated Modalities of Action (SAMOA) Pathway—an initiative focused on addressing the unique challenges faced by SIDS—there is a call for expanding the eligibility requirements for concessional finance with the inclusion of multidimensional assessments and acknowledging the limitations of income-only development assessments.
In addition to the SAMOA Pathway, this call for exploring ODA criteria beyond macroeconomic metrics has been echoed repeatedly in intergovernmental agreements and conferences such as the Barbados Programme of Action, Bridgetown Initiative, Mauritius Strategy and several UN General Assembly resolutions.
To advance this vision of integrating climate vulnerabilities into ODA criteria, the Sustainable Development Solutions Network, along with other Resident Coordinators in SIDS, including Barbados, Cabo Verde and Fiji, developed the foundations for a Multidimensional Vulnerability Index (MVI). The index was developed to showcase the need for a more robust international financial system, specifically regarding concessional development financing or ODA, with the aim of encouraging members of the DAC to reevaluate the criteria and principles for non-ODA eligible island countries and territories.
Multilateral Sources of Climate Finance
With bilateral financing from ODA out of the equation, island countries and territories will need to prioritize identifying other sources of climate finance. The stringent principles of the ODA-eligibility criteria have made the pathway for funding increasingly narrow, despite access to finance already being a reoccurring issue for SIDS.
Exploring multilateral sources of funding is one option non-ODA eligible islands and territories may seek to capitalize on, as many of them, including the Green Climate Fund (GCF) and Global Environment Facility (GEF), are active in both the Caribbean and Pacific regions. Given the complexity of undertaking the accreditation process, SIDS may consider a more direct approach through the establishment of an Enhanced Direct Access (EDA) pilot.
The purpose of an EDA pilot is to aid existing Direct Access Entities (DAEs) in enhancing country ownership of small-scale projects and programs through an access window in which flexible decision-making takes place at the national or regional level to accommodate the unique circumstances of SIDS. Through this process, individual sub-projects do not have to be submitted through a funding proposal to the GCF but are instead validated based on preapproved selection criteria at the country level, allowing for strengthened institutional capacities and robust regional and country systems.
To sum up the contexts of funding in SIDS, the current structure of the ODA criteria is not sufficient for SIDS, since it fails to reflect the climate vulnerability costs and impacts. With such limited alternatives for appropriate climate financing, SIDS governments must lead the way forward in endorsing a new climate finance architecture that is more robust and inclusive.
Non-ODA-eligible island countries and OT collectively will need to strengthen efforts around data collection that will feed into key decision-making processes, debates and negotiations relevant to the effective provision of allocating financial resources to SIDS.
In the lead-up to COP28, SIDS must continue to table discussions of replenishing climate funds and easing the process and modalities of accessing climate finance aligned with existing initiatives, including the New Collective Quantified Goal (NCQG), the establishment of a Loss and Damage Fund, actions around debt restructuring and debt sustainability, and ultimately, the reform of the ODA eligibility criteria under OECD-DAC.
CCAP stands committed to bolstering the resilience of SIDS in the face of the daunting climate challenges.
Supporting waste management and GHG quantification in the Maldives, funded by the Climate and Clean Air Coalition (CCAC)
Support provided to the government of Seychelles for tracking climate finance in the energy sector funded by IRENA and NDC Partnership
Recognizing the urgency and gravity of their situation, CCAP is committed to supporting SIDS. Our goal is to collaborate closely with SIDS, leveraging our expertise in climate action and policy—specifically climate finance, carbon markets, and methane mitigation—to catalyze tangible change. Through strategic partnerships, capacity-building initiatives and innovative solutions, CCAP seeks to foster a more equitable and sustainable future for SIDS, where their unique cultures, environments and aspirations can flourish despite the array of unique challenges faced.
CCAP’s mission is to support every step of climate action, from ambition to implementation. A recognized world leader in climate policy and action, CCAP creates innovative, replicable climate solutions, strengthens capacities, and promotes best practices across the local, national, and international levels to accelerate the transition to a net-zero, climate resilient future. CCAP was founded in 1985 and is based in Washington, DC.