Does Climate Aid Truly Work for Carbon Emissions Reduction? Evidence from the Belt and Road Countries

Abstract The climate change crisis requires strong, rapid and sustained global actions to limit greenhouse gas emissions in the coming decades. Although most developed countries are in the emissions reduction stage on the path towards carbon neutrality, numerous developing countries, mainly distributed along the Belt and Road, are facing severe pressure in the low-carbon transition. Therefore, a large amount of financial support from developed countries is required. Considering that the Belt and Road countries receive over 60% of global climate aid, with energy as the largest usage sector, the present study evaluated the effects of climate aid on carbon emissions and the impact mechanism through energy structure optimization. A systematic panel approach using system generalized method of moments estimators was established, and then the panel data of 93 Belt and Road countries from 2000–2018 were used for empirical analysis. The results show that climate aid has a significant reduction effect on the carbon emissions intensity of Belt and Road countries, and the dominant component of climate aid, i.e., mitigation aid, shows better carbon emissions reduction benefits than adaptation aid. The impact mechanism clarifies that climate aid has dual carbon emissions reduction effects in BRI countries with an intermediate energy structure, indicating that climate aid not only directly reduces carbon emissions by increasing carbon reduction resources in BRI countries but also indirectly reduces carbon emissions by promoting renewable energy to optimize the energy structure. This paper suggests that to promote the low-carbon transition and carbon neutrality process in Belt and Road countries, more climate finance support should be provided by developed countries as pledged, the effectiveness of climate aid should be improved by investing in projects with significant carbon reduction effects such as renewable energy, and monitoring and performance evaluation of climate aid should be strengthened.