German climate finance / Federal budget

Climate finance in Germany’s 2018 federal budget: is the promised doubling quietly being dropped?

German parliamentWill the new German government take the country’s responsibility for providing financial support for climate protection and adaptation to the impacts of climate change in developing countries seriously? The coalition agreement between the conservative CDU/CSU and social democrat SPD contained some positive general statements on the topic, but ultimately remained far too vague to answer this question, as we already noted in February 2018.

On May 2nd, the federal cabinet adopted the second government draft for the 2018 budget, the key figures decision for 2019 and the financial plan containing guidelines for budget planning and allocations to individual budgets until 2022. It is now becoming clearer what the German government is planning for international climate finance in the coming years, and it’s not looking good. The plans would not only fall short of Chancellor Merkel’s promise to double climate financing by 2020, they would also not amount to a fair overall contribution by Germany toward reaching the international target of $100 billion in annual climate finance. The Bundestag will have to make significant adjustments in the budget discussions.

Ups and downs in the BMZ budget, no increase for climate finance

The total budget of the Federal Ministry for Economic Cooperation and Development (BMZ) is to be expanded over the current legislative period, as established in the coalition agreement. This overall increase will be distributed in such a way that significant growth can be expected in 2018 as compared to 2017. While around €8.4 billion was budgeted in 2017, an increase to €9.4 billion is now proposed for 2018. This is a further €741 million on top of the old government’s first budget draft for 2018.

However, BMZ funds are expected to decline significantly from 2019 onward, and in the years 2021 and 2022 they would only be slightly above the level of 2017. No increase at all appears to be slated for climate finance. In 2017, the BMZ budget earmarked €2.3 billion for climate-related measures (including interest subsidy projects). The exact same amount is foreseen in the 2018 budget.

The assumption that there should suddenly be less need for development finance after 2018 – a question raised by the envisaged drop back to the 2017 level – is puzzling. This contradicts all political and scientific analyses and all expectations of the international community for the implementation of the UN’s Sustainable Development Goals (SDGs) and of the Paris Agreement, which must be supported over the long term by rich countries such as Germany. This aspect of the plan has already been heavily criticized. VENRO has pointed out that many programs need to be set up quickly, and that their further financing is not assured. This is a disaster for the planning of sustainable development projects. And it is simply disgraceful that the BMZ budget, through which the lion’s share of Germany’s international climate finance is handled, does not include any increase at all for climate finance.

Increase in the BMU’s International Climate Initiative (ICI)?

At first glance, the total budget of the Federal Ministry for the Environment (BMU) has shrunk considerably, but this is mainly due to the diversion of significant national funds in the construction sector to the Ministry of the Interior arising from changes in departmental structures. According to the Federal Ministry of Finance (BMF), the total BMU budget will increase by €97 million over the first draft budget of the old government. The BMF document states that the International Climate Initiative continues to be a priority in the environmental sector, with around €437 million earmarked for 2018. An increase of €50 million is thus envisaged. However, provision for this had already been made in the previous budgets and it is not expected to continue in 2019 and 2020. The BMU budget is nevertheless expected to grow even further in 2019 (from €1.9 billion to about €2.2 billion) and then remain roughly at the same level until 2022. A further increase in ICI funds would definitely make strategic sense.

Even though proceeds from the auctioning of CO2 allowances in European emissions trading do not flow directly into the ICI, the recent significant increase in prices could be useful in the medium term to further increase German climate finance. In the context of the nationally oriented special Energy and Climate Fund (EKF), the BMF document also recognizes that “the recent welcome development of allowance prices” allows an adjustment of the revenue expectations compared to the assumptions of the first government draft. How lasting these will be remains to be seen. In any case, however, international climate finance should benefit as well.

Other unresolved issues: additionality, adaptation, future needs

At the same time, there is still other unfinished homework with regard to climate finance. The additionality of German climate finance is insufficient, as it is almost entirely credited to the ODA quota, i.e. to official development assistance. According to international agreements, however, climate finance should be “new and additional”. This problem is exacerbated by the fact that reaching the 0.7% goal, to which the new federal government has also committed itself, is being pushed far into the distance by fiscal planning.

As several studies – for example Adaptation Watch 2015 or, most recently, our own analysis – show, the federal government overestimates the adaptation relevance of many funded projects. Nevertheless, according to reports to the UN Climate Change Secretariat, Germany’s share of adaptation financing is still well below 50%. If accounting were appropriately stricter, the contribution of many projects declared as adaptation would be significantly lower, and thus also the total amount of funding provided. Urgent countermeasures are needed to ensure that at least half of the financial resources provided are earmarked for adaptation.

Further climate finance demands are also becoming apparent. It can be assumed that the multilateral Green Climate Fund (GCF), to date strongly supported by Germany, will initiate the first formal replenishment round at the end of 2018 and that more funds should therefore be earmarked for 2019 and subsequent years. Germany had pledged €750 million toward the GCF’s initial funding in 2014, and the 2018 budget contains €140 million for that purpose. In light of higher demand, larger contributions will be required when replenishing the fund. The promise of doubling must also apply to Germany’s contribution to the GCF.

In addition, the Paris Agreement states that post-2020 climate finance should be given a new funding target that must not fall short of $100 billion. Germany’s contribution will therefore need to continue growing in the future. Currently, the community of industrialized countries is still nowhere near even the $100 billion pledge, and not just because of U.S. backsliding. This pledge is a key element of the Paris Agreement, however, and non-compliance could have serious consequences for international climate diplomacy and the willingness of other countries to abide by their commitments. The industrialized countries, and not least Germany, therefore urgently need to step up their climate finance efforts.

Doubling by 2020: what will become of the Chancellor’s pledge?

In the run-up to the Paris conference, Chancellor Angela Merkel pledged to double the budget to support poor countries in the fight against climate change from €2 billion in 2014 to €4 billion in 2020. Even if, from the point of view of civil society, this figure is still far too low to be Germany’s fair and appropriate share of the $100 billion promised by the industrialized countries as a whole, the direction is clear and correct: In view of the profound consequences of climate change and the many climate protection measures that numerous developing countries have initiated as part of their national climate plans, Germany’s contribution must continue to increase. However, an Oxfam analysis has shown that as early as 2017, the German government was not on a path that would lead to keeping its promise of doubling. According to the report, there was already a funding shortfall of around €300-500 million in 2017.

It is in the nature of things that actual figures can deviate from target figures. The figures recently submitted by the German government to the UN Climate Change Secretariat for 2016 paint a picture of significantly higher climate finance than originally planned. A total of just over €3.1 billion was reported. This increase is mainly due to higher crediting of the climate shares of bilateral projects. The lack of coherence with the €2.3 billion in the BMZ budget for 2017 and 2018 for climate-related measures still needs closer investigation, yet it could also increase the figures in subsequent years after the fact.

The current government drafts, however, indicate that despite a significant increase in the BMZ budget for 2018, climate finance from this source is apparently not going to increase further in the medium term, while the BMU is planning an increase of €50 million. Overall, the plans involve almost no increase, which would send out a terrible climate policy signal. The Bundestag must therefore press for an expansion of climate finance for 2018 and the following years in the current budget negotiations and anchor this in a BMZ budget that continues to expand. This is the only way that Germany can live up to its responsibilities and fulfill its international pledges.

Sven Harmeling / CARE