1:0 for the finance minister – climate aid for poor countries decreasing

Climate aid from Germany is decreaing, there will be less support for adaptation to climate change © Annie Bungeroth/Oxfam

July 3, 2014 | It’s now official: Germany’s financial support for developing countries in the fight against climate change will decrease significantly in 2014. We saw it coming – bean counters in the Ministry of Finance carried the day, and the 2014 federal budget was adopted by the German parliament last week.

The issue: already in 2009 the industrialized countries pledged to increase their financial support to help developing countries in dealing with climate change to $100 billion per year; and as recently as last year at the Warsaw Climate Change Conference, they agreed to increase levels of climate finance over the coming years.

In Germany, climate finance did in fact increase in recent years. For 2014, however, parliament agreed on heavy cuts. While support for ongoing projects will remain reasonably stable, 2014 will see significantly fewer commitments for new bilateral climate projects than 2013. The degree to which funding will decrease cannot be stated precisely due to incomplete information provided by the German government, but we can say with some certainty that it will be around €250 to €410 million less compared to 2013, as we explain in our analysis. This money will not be available to developing countries for urgent measures to protect their crops against climate change, or to implement climate change mitigation beyond what they can afford without assistance. This does not bode well for Germany’s fair share of the $100 billion promise.

German government removes cuts from the balance sheet

What did the government do? It simply deleted the unsightly cuts from the balance sheet, thus giving the impression that they had not occurred. Environment Minister Barbara Hendricks went so far as to announce that 50 million Euros more would be available in 2014 than in 2013. Come again? To understand this, it helps to know that in the past, the German government funded a portion of its climate aid out of the Energy and Climate Fund (EKF). While the lion’s share of the funding came from the budgets of the development and environment ministries (i.e. from the regular federal budget), which are also subject to a number of changes in 2014, the cuts are related to the EKF. Let’s have a closer look:

The chart illustrates how major commitments via the Energy and Climate Fund (EKF) in 2011-2013 resulted in increasing payments for multi-year climate projects in subsequent years. High payments thus do not mean new or increasing financial resources – they merely reflect the implementation of previous commitments.
* in 2014, payments made to honor commitments from previous years are no longer made via the EKF, but through the budgets of the development and environment ministries.

The chart provides a simplified illustration of the climate aid that the German government finances through the EKF. It shows the commitments made to partner countries by the German government; the pledges (for multi-year climate projects) are made in one year and the funds paid out in subsequent years while the projects are being implemented. The chart also shows the payments.

And here it comes: the volume for new commitments for bilateral climate projects in developing countries decreases drastically in 2014. The reason: the EKF has been poorly funded for years, as it draws from the auction proceeds in emissions trading, and the prices for CO₂ certificates are at rock-bottom. The government has now hit the brakes – as of 2014, there will be no new commitments via the EKF. Furthermore, payments in the implementation of previous commitments will no longer be made via the EKF, but out of the regular federal budget as of 2014. In addition to the funds for these payments, the EKF “successor titles” in the federal budget contain provisions for new commitments (the small, dark 2014 bar in our chart). However, these come nowhere near the levels of the EKF commitments of previous years.

Cuts or not? Who is right?

It’s not hard to see where this is going: the government is not counting commitments, but payments. We are counting commitments. Who is right? We are. One can bicker endlessly over accounting methodology and become lost in numerous technical details. However, that does not change the fact that it’s the commitments made in one year to measure what the government is doing. If commitments decline, pay-outs may remain stable in that particular year – indeed they must, because they a consequence of commitments from previous years. But by 2015 at the latest, pay-outs will also decline unless countered by new commitments (and the consequent increases in payments).

The government is taking advantage of the fact that payments remain high due to the relatively generous commitments made via the EKF in recent years, and climate financing thus seems to remain at a high level – at least according to the government’s accounting methods. However, this does not change the fact that – regardless of how you count it – commitments have been reduced drastically in the 2014 federal budget, thus putting major cuts in place. Depending on your accounting, the cuts can be made visible or invisible, but they do remain.

Will the Green Climate Fund rescue the overall result?

The adopted 2014 federal budget now includes the provisions needed for the German government to make a binding commitment to the new Green Climate Fund (GCF). This new fund is designed to give developing countries far greater support with climate protection and adaptation than other existing climate funds. These provisions were initially missing in the government’s drafts for the 2014 budget. As of June 30^th, the German government has now committed up to €750 million to the GCF for the coming years. This is an important success – and in doing so, Germany is also sending a signal to the other donor countries.

Such a commitment to the GCF does not improve the position of climate finance in 2014, however – simply because contributions to multilateral climate funds are always counted in the years the payments are made. The first such payment will not occur until 2015. The cuts we have criticized therefore remain in place, regardless of how sound and important a commitment to the Green Climate Fund already in this year may be.

Poor preconditions for UN climate talks

A new, comprehensive agreement on climate change – one which is intended to commit the developing countries to greater climate protection efforts as well – is due to be signed at the UN climate change summit in Paris in 2015. It is quite foreseeable that developing countries will balk at this when it turns out that the industrialized countries have not made any progress on their commitments of financial support for climate protection and adaptation to the impacts of climate change by late 2015. That would currently appear to be the case – some countries, such as Australia and Canada, already significantly reduced their support last year. By contrast, Germany has been one of the more reliable actors, and is one of the biggest (albeit wealthiest) climate finance donors – from now on to a lesser extent.

Jan Kowalzig / Oxfam