German climate finance

Climate finance in Germany’s 2017 federal budget: what happened to the doubling of climate funds?

Last year, Chancellor Angela Merkel promised that German climate finance would double by 2020. It is now apparent that the increase in climate aid in the 2017 federal budget will not only fall short, but that the government is resorting to creative accounting, as the Oxfam briefing on the 2017 budget shows.

With her pledge – months before the Paris summit, no less – the German chancellor certainly stirred up the community of donor countries. Some criticized that making such promises so early on amounted to giving away bargaining chips, while others felt themselves put under considerable pressure. Ultimately, however, Germany’s strategy was the right move, signaling to developing countries that it is not only taking the industrialized countries’ pledge to raise $100 billion a year for vulnerable countries by 2020 seriously, but that it is also putting it into practice. Paris was a success and is considered a milestone in international climate diplomacy.

Outlook for 2017: not enough growth

Is the doubling going to happen? At any rate, the draft of the 2017 federal budget that is currently being debated in the Bundestag provides for an increase over 2016 levels at least with regard to bilateral climate funds, for example in technical and financial cooperation by the Federal Ministry for Economic Cooperation and Development (BMZ) and the International Climate Initiative of the Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB). So, everything’s fine, right? Not at all.

The German government considers ten percent of the $100 billion pledge to be its fair contribution. The amount is to be raised via budget allocations to the BMZ and BMUB, German ‘shares’ of climate finance by multilateral development banks, loans by KfW and DEG (for which no target figures exist for 2016 and subsequent years), and in the form of mobilized private resources. The fulfillment of Chancellor Merkel’s pledge to double climate funds by 2020 is being fudged: While the approximately €2 billion in budget funds in 2014 serve as the base level, the target level (€4 billion) is to include the grant equivalents of concessionary KfW loans. Furthermore, the projected figures for 2017 fall short as an intermediate step toward doubling, as they are €300-500 million too low.

Firstly, the planned increase in climate finance is taking place within decreasing overall financial resources for development cooperation. While expenditure and outflows are set to increase in 2017, this is merely a consequence of bilateral commitments of the previous years that are now being implemented. The volume of potential new pledges in 2017 over 2016 will be cut by hundreds of millions of euros, however – through reductions of commitment appropriations in the relevant budget items (e.g. for technical and financial cooperation) covering such pledges. This is not only a serious blow to development cooperation – it also increases the ‘competition’ between climate finance and development finance for other concerns.

Secondly, the planned increase in climate finance is inadequate as a first step for the promised doubling. The German government’s explanations of the draft budget state that the doubling is based on the €2 billion of planned funds of the year 2014, and that the level of €4 billion will be reached in 2020. Since next year is ‘half time’, climate funds would have to reach roughly €3 billion in 2017 to ensure an even increase. The planned figures for 2017 fall €300-500 million short, however (as Table 1 of this Oxfam briefing shows).

Creative accounting

A further issue is that the German government intends to reach the promised €4 billion in 2020 not solely via the budget, but also by counting the grant equivalents of low-interest KfW loans. They are not, however, being factored in for 2014, hence the increase is not a true doubling. An honest implementation of the pledge would require the €4 billion to be raised entirely via the budget in 2020. Anything else is ultimately creative accounting.

And it is questionable to begin with whether a target of €4 billion in budget funds (and grant equivalents) in 2020 would be adequate, as this would mean that the shortfall in Germany’s fair share of the $100 billion pledge (which the German government generally states as ten percent) would be made up by counting funds mobilized on the capital market or as private investment. While low-interest loans are a common instrument in development finance, the actual contribution to which the rich countries had committed themselves in the UN Framework Convention on Climate Change is embodied in the interest rebate on the loan and not the loan itself. For an ambitious interpretation of the $100 billion pledge, it would therefore be appropriate to draw exclusively on deployed budgetary resources and the grant equivalents of low-interest loans and other concessionary instruments. Germany would have to not double, but roughly quadruple its climate aid from the federal budget.

Moreover, it is regrettable that medium-term financial plans until 2020 do not provide for adequate increases in the BMUB’s International Climate Initiative (see Table 2 here). The ICI not only supports projects with a strong climate focus, it is also a strategic tool of the German government for establishing alliances with countries that take a progressive stance in global climate protection and in international negotiations being led by the BMUB. Directing the work of the ICI to ensure that it at least doubles its annual volume of commitments by 2020 would be a sound move.

Finally, the draft of the federal budget perpetuates one of the existing problems of German climate finance: as before, barely one tenth of the resources are disbursed via multilateral climate funds (although Germany commendably makes regular contributions to the Adaptation Fund and the Least Developed Countries Fund, and is also among the biggest donors to the Green Climate Fund). Unfortunately, contributions to multilateral funds are actually slated to decrease in 2017.

The German government’s position regarding climate finance could therefore be better during the current UN Climate Change Conference in Marrakesh. It is true that Germany remains one of the biggest donor countries, which should make it all the more important for it to show more ambition in implementing previous commitments. We can only hope that the governing coalition in the Bundestag will demonstrate the political will this requires, also with regard to the 2017 budget.

Jan Kowalzig, Oxfam