Finance for global climate initiatives faces potential risks due to proposed budget reductions in U.S. aid from the Trump administration.

The United States, the world's largest economy and biggest historical emitter of carbon dioxide (CO2), has seen a significant change in its approach to climate finance over the past few years.

Under the Trump administration, the US was criticized for its lacklustre contribution to international climate finance. The administration cut funding for the UN Green Climate Fund (GCF) by US$4 billion, cancelled another US$4 billion previously committed to the GCF, and ended its involvement in the UN loss and damage fund, which it had pledged US$17.6 million towards in 2023.

Moreover, the Trump administration halted US foreign aid and threatened to cancel virtually all USAID projects, with climate funds identified as a prime target. This move was seen as a significant setback to global efforts to help developing countries tackle climate change.

However, the situation has changed under President Biden. The US has increased its climate aid for developing countries roughly seven-fold, reaching US$11 billion per year. In 2023 alone, the Biden administration paid out US$1 billion for the Green Climate Fund (GCF) and US$3 billion through USAID, which handles 60% of US foreign aid.

The US International Development Finance Corporation (DFC), a development finance institution that invests in private enterprises, has also played a significant role in these efforts. DFC committed more than US$3.7 billion in climate finance in 2024 and a similar amount in 2023. USAID provided around a third of US climate finance in recent years.

The shift in focus under the Biden administration is not just about increasing the amount of funding. There are concerns that leaning more heavily on DFC, as well as the US Export-Import Bank (EXIM), could signal a shift away from public, needs-based funding towards finance that prioritizes US commercial and strategic interests.

This concern is further fuelled by the fact that the US contribution to the GCF is now lower than that of Sweden, a country with an economy 50 times smaller. The Trump administration's cuts to climate finance and the potential shift in focus under the Biden administration have raised questions about the US's commitment to global climate efforts.

There has been speculation that DFC may now play a larger role in US foreign policy. If this is the case, it could have significant implications for the future of international climate finance and the global fight against climate change.

In conclusion, while the US has made strides in increasing its climate aid under the Biden administration, concerns remain about the focus and direction of this funding. The US's role in international climate finance will continue to be a topic of interest and debate in the coming years.

Finance for global climate initiatives faces potential risks due to proposed budget reductions in U.S. aid from the Trump administration.