German climate finance: a “doubling” only on paper?

We wrote about it previously, and now the German government has confirmed that the Chancellor’s commitment to double German climate finance by 2020 seems to be subject to some fairly creative accounting. It’s worth a closer look.

At the Petersberg Climate Dialogue in May 2015, German Chancellor Angela Merkel announced that Germany would double its climate finance contribution between 2014 and 2020. Coming just a few short months before the adoption of the Paris Agreement at the UN climate summit, the pledge was carefully placed as a signal to developing countries that the industrialized countries would stand by their promise to raise the volume of climate finance to an annual $100 billion by 2020. Other donor countries were suddenly under considerable pressure. And that’s been a good thing.

Shortly after the announcement, Environment State Secretary Jochen Flasbarth tweeted a clarification that the doubling would be based on the approximately €2 billion in public funds projected for climate finance from budgetary resources in 2014. Specifically, this would include (1) bilateral climate grants (mostly via the GIZ or KfW, but also non-state actors such as churches or political foundations); (2) funding for KfW, which in turn grants climate-related concessional loans to developing countries; and (3) contributions to multilateral climate funds such as the Green Climate Fund and the Adaptation Fund.

A “doubling” only on paper?

In its explanatory notes on the 2017 federal budget, however, the government revealed (and later confirmed in response to a Bundestag inquiry) that the target level of around €4 billion in 2020 would not just encompass a doubliung of the above three items (as one would have expected), but also the grant equivalents of climate-related concessional loans to developing countries (minus the budgetary funds allocated to KfW for this purpose (to prevent them from being counted twice) in item (2) above). Moreover, the share of German payments to multilateral development banks corresponding to the share of climate finance in the banks’ respective overall portfolios would also be counted towards the 2020 target (but not be included in the 2014 baseline). The following table shows the different accounting methods for 2014 and 2020:

Table 1: What does the doubling encompass?

To be clear: German public climate finance is set to increase, and that is welcome. And, as such, there is nothing wrong with counting the relevant share of Germany’s contributions to climate finance by development banks or the grant elements of climate-related concessional loans toward German climate finance. But: These items werent included in the 2014 baseline level. Or: Funds counted towards the baseline level in 2014 are set to reach 3-point-something billion Euros in 2020, and the gap will be plugged by counting additional items that weren’t included in (but came on top of) the baseline level in 2014. A true filfilment of the pledge to “double” would require that those budget items that came to around €2 billion in 2014 were to reach around €4 billion in 2020. The grant elements of climate-related loans and contributions to development banks would have to be additional to this, as they were in 2014. The following chart illustrates this:

Fig. 1: Genuine and “creative” doubling of climate finance

“Doubling”, German government style: For a proper implementation of the Chancellor’s pledge, the budgetary funds for bilateral climate projects and payments to multilateral climate funds would have to be around €4 billion in 2020 – all other funds and items would have to come on top. Instead, German contributions to development banks, and in the case of climate-related concessional loans, the grant elements of the loans are to be counted toward the 2020 target level, and not just (as is the case for the 2014 baseline level) the budgetary resources to make those loans possible.

Starting level of 2014 based on projected figures, 2017 growth falls short

Three other aspects come into play in the “creative” doubling: Firstly, projected 2014 budget figures in effect at the time were used for the starting level. As it later turned out, Germany’s climate finance volume in 2014 was not €2 billion, but nearly €2.5 billion. Fair enough, Chancellor Merkel could not have been aware of this when she made the pledge. However, this means that the necessary growth (from €2.5 billion in 2014 to €4 billion in 2020) would not have to be as steep – consequently, a real doubling (counting purely budgetary resources towards this pledge) would be easier to achieve if the German government had the political will.

Secondly, the growth in climate finance envisaged for 2017 falls short – for either a “creative” or a genuine doubling. 2017 marks halftime between 2014 and 2020, and climate finance should thus reach around €3 billion. It is not projected to do so, however, as we can see here.

Thirdly, it is questionable whether a doubling by 2020 is even an adequate increase if Germany is going to shoulder its fair share of the $100 billion pledge by the industrialized countries. In our view, that is not the case. To meet this goal, Germany would have to roughly quadruple its climate aid from the federal budget, as explained here.

What now?  We are not without hope. If not the 2017 federal budget, then its 2018 version provides a new opportunity for a more robust growth of climate finance so that Germany can better meet its responsibility to support poor countries in coping with climate change. We will know more after the federal elections in September.

Jan Kowalzig, Oxfam