However, it will be crucial to further address, and finally solve, these shortcomings, in order to build the necessary trust and to stimulate positive dynamics towards a low-carbon, climate resilient future.
The State of German Climate Finance
Germany is an important player in the climate finance arena. According to the OECD, it is the second-largest donor of climate-related finance after Japan, and also a key country within the EU for the negotiating blocks.[1] According to the German government, approximately € 1.27 billion of the federal budget in 2010 are earmarked for spending with – at least a partial – relevance for climate protection and adaptation in developing countries. The largest share out of this (€ 1.13 billion) is allocated through the Federal Ministry for Economic Cooperation and Development (BMZ).
In addition, an increasing amount is provided through the International Climate Initiative (ICI) set up by the Federal Ministry for Environment (BMU), an innovative instrument which is financed from auctioning revenues from the Emission Trading Scheme and, thus, keeps resources within the climate change policy cycle.
In total, ca. € 350 million are supposed to be counted in 2010 towards the fast start finance commitment made in Copenhagen. This is the result of the government’s own definition of “additionality”, i.e., the increase of climate finance over the base year 2009 or financed through innovative mechanisms.
Germany performs relatively weak with regard to fulfillment of its commitment to provide 0.7% of its Gross National Income (GNI) for Official Development Assistance (ODA), and there are indications that it is currently losing track of reaching this objective by 2015. On the other hand, its climate-related finance pledges have been relatively reliable so far. Many pledges to international funds, as well as for bilateral initiatives, were fulfilled by 100%. Examples include the Global Environment Facility, the Least Developed Countries Fund, or the bilateral special support facility for renewable energies and energy efficiency.
Shortcomings in German Climate Finance
Increasing But Insufficient Scale of Climate Finance
While German climate finance for developing countries has increased over the past years, it still lags far behind the scale that a “fair share” of the required climate finance would entail, which is in the order of € 8 billion annually for additional costs.[2] What is currently being perceived as climate-related finance is usually the whole grant element of climate-related projects. While not specified in the German climate finance reporting, the additional costs covered, hereby must be assumed to be significantly lower than the € 1.27 billion, including the fact that some projects coded as climate-related do not stand this test.
Weakening Additionality
Ideally, climate finance should be delivered on top of the 40-year-old commitment to deliver 0.7% of Germany’s GNI for ODA. By counting all climate finance towards the 0.7% objective, those funds are unavailable for other poverty-related purposes, despite the urgent need.
However, the German government is currently risking its reliability by moving further away from an imperfect, but relatively progressive, definition of “new and additional resources” in the context of the fast start finance pledges. In addition to relabeling a number of older promises, it is now likely that for the loans transferred to the World Bank Climate Investment Funds, not only the grant equivalent of the fast start pledges will be counted towards the German overall fast start pledge. The entire volume of the concessional loans tends to be included, which is in line with the ODA requirements, but marks a concerning change from what the government indicated earlier this year, just weeks before the decisive climate summit in Cancún.
Need for Improving the Way of Reporting
The way Germany reports its climate finance and marks ODA projects as climate-related (in particular through the OECD DAC Rio Marker) creates similar transparency and coding problems to those in other developed countries. It reflects the problems that have become apparent throughout the UNFCCC climate finance history.
Both the OECD data, as well as the National Communications submitted to the UNFCCC, give only a rather vague approximation of the amounts actually spent on climate related activities. Furthermore, they depict total spending, and not only the amounts used to cover incremental costs. Therefore, they are not an adequate means to assess compliance with the UNFCCC criteria on both counts.
Lack of a Coordinated Climate Finance Strategy
Overall, climate finance is expected to be scaled-up by the German government, through bilateral programmes, as well as multilateral ones. With the BMU’s International Climate Initiative, a second significant player emerges alongside the BMZ. This creates challenges in order to effectively integrate and coordinate “conventional” ODA and climate finance, including aspects such as considering the principles of the Paris Declaration on Aid Effectiveness, advancing monitoring and evaluation of the resources, etc. So far, there is no coordinated, coherent strategy on how to address these challenges. Even the BMZ itself lacks a coherent climate strategy. Nevertheless, a recently adopted guideline to examine and consider environmental and climate aspects in the entire bilateral development cooperation, may mark a significant milestone toward such a strategy. Also, there is not yet an institutional place to continuously consider the upcoming challenges and exchange with non-governmental stakeholders, although there are frequent, informal consultations among NGOs and ministry representatives.
Mixed Performance in Qualitative Criteria
With regard to key qualitative development policy criteria, such as country ownership, a focus on the poorest and the most vulnerable in adaptation, effectiveness and coherence, several general conclusions can be drawn. However, the limited scope of this study does not allow for a fully comprehensive analysis of all projects financed through German climate aid. These conclusions include:
