Climate finance in Germany’s 2017 federal budget: more creative accounting than a true doubling

With its adoption of the 2017 federal budget, Germany’s governing coalition has also defined the outlook for climate finance in the coming year: climate aid for poor countries is on the rise. On closer inspection however, the growth will not be enough to fulfill Chancellor Merkel’s pledge to double the public funds earmarked for climate finance by 2020. In addition, the current figures are the product of creative accounting.

Outlook for 2017: not enough growth

The 2017 federal budget does indeed provide 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? Only at first glance.

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, however, and the growth planned for 2017 falls short as an intermediate step.

With regard to the doubling of climate finance between 2014 and 2020, the 2017 federal budget marks halftime. The Chancellor’s pledge is based on the €2 billion allocated in the 2014 budget, which makes for a €4 billion target in the 2020 budget. A steady increase until 2020 would thus require a climate finance allocation of €3 billion in 2017. The planned figures for the year fall €300-500 million short, however (as Table 1 of this Oxfam briefing shows). The (at any rate not overly generous) increase in climate finance in the 2017 budget is therefore inadequate as a first step toward the promised doubling.

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. However, only budget funds were taken into account to establish the 2014 baseline. 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.

2020 goal: too modest

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.

Other unresolved issues

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 also at least doubles its annual volume of commitments by 2020 would be a sound move.

Additionally, the 2017 federal budget perpetuates one of the existing problems of German climate finance: As before, only a small share 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.

Room for improvement also exists with regard to reporting on climate finance: the climate relevance of the funded programs is being overstated to a significant degree. This does not in itself reduce quality of the measures, because development cooperation has a wide range of priorities that generally do not lend themselves to being teased apart. However, the German government is giving its partners in poor countries the unfounded impression that its climate aid (in terms of its obligations under the UN Framework Convention on Climate) is higher than in actual fact.

While Germany remains one of the biggest donor countries, its 2017 budget will only permit slower progress with regard to climate finance. We can only hope that the next government – and its first budget for 2018 – will demonstrate the political will to fulfill Germany’s pledges in a more ambitious manner.

Continue reading: Oxfam-Briefing zum Bundeshaushalt 2017 (PDF) (in German only).

Jan Kowalzig, Oxfam