German climate finance / Federal budget

Climate finance in Germany’s 2019 federal budget: a growing gap

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Only a few months after the belated adoption of Germany’s 2018 federal budget, consultations for 2019 are on the home stretch. Draft legislation for the 2019 federal budget was published on August 10, 2018, and was first discussed in the Bundestag during the finance debate on September 11. In the coming weeks, the budget committee will hold consultations on the individual budget sections of the various ministries before they are once again debated in a plenary session. The final budget is likely to be adopted in the week of November 19 to 23. While the federal government’s draft is available, it is likely to be adjusted during the parliamentary deliberations. In doing so, the MPs should consider revising the budget for international climate finance to prevent a widening gap between pledges and actual resources.

Climate finance stagnates in BMZ budget

The total budget of the German Federal Ministry for Economic Cooperation and Development (BMZ) is expected to increase significantly (to €9.7 billion) in 2019, but will then – incomprehensibly – fall again, as if global challenges such as reaching the Sustainable Development Goals (SDGs), tackling climate change and addressing the causes of flight are going to disappear into thin air in 2020. A steady increase will be necessary in order to attain the long-promised 0.7% target. According VENRO, the German umbrella organization of development and humanitarian aid NGOs, this will require around €6 billion in additional funding.

As in 2017 and 2018, the draft BMZ budget (Section 23) earmarks €2.3 billion for financing climate-related measures, including interest subsidy projects. In addition to climate-specific budget items, it includes above all the accounting of various bilateral development cooperation items via the OECD climate markers. Since the amount earmarked for 2019 is the same as for 2017 and 2018, there will be no de facto growth, despite the German government’s promise to double climate finance by 2020 over 2014 levels. Chancellor Merkel had renewed this pledge at the Petersberg Climate Dialogue in July of this year.

According to our estimates, there was already a shortfall in 2017 relative to a linear increase of around €300-500 million until 2020 for German climate finance in total – one that grew further in the 2018 budget (see Figure 1). In order to fulfill the doubling promise, an increase of the combined volume of commitment appropriations of the relevant bilateral financial and technical cooperation (FC and TC) budget items in 2020 by nearly €1.5 billion over today’s level would be urgently needed. The relevant commitment appropriations in the 2019 budget would therefore have to increase by at least €800 million relative to 2017 within the framework of a significant overall increase in the BMZ budget.

Fig. 1: Climate finance growth until 2020 (schematical)

Climate finance federal budget 2019

Source: own illustration based on Oxfam 2018

The increase in multilateral aid – about €370 million compared to €348 million in the 2018 budget – is mainly due to a higher contribution to the InsuResilience G7 initiative and initial payments within the 7th replenishment of the Global Environment Facility (GEF). As in previous years, the Least Developed Countries Fund (LDCF) is set to receive €25 million. Last year at COP23, however, Germany pledged €50 million for the LDCF. This level should also be maintained in the 2019 budget and the earmarked amount should therefore be doubled.

Doubling of the Green Climate Fund (GCF), but funds block should be lifted

On the positive side, the German government stated in the BMZ budget that it intended to contribute up to €1.5 billion to replenishing the Green Climate Fund (GCF). This would amount to the doubling of the €750 million that Germany contributed between 2014 and today in the establishment phase of the GCF as called for by nongovernmental organizations (NGOs) – if the funds are provided over a comparable period, at any rate.

Made prior to the climate summit in Paris, Germany’s substantial pledge proved a strategically adept move that put other donors under pressure and played a major role in attaining around $10 billion in total pledges for the GCF at that time. Since then, the GCF has taken up its work and has already committed billions toward climate protection and adaptation programs – and demand far exceeds the available funds. At the Katowice Climate Change Summit (COP24) in December, developed countries must be in a position to give clear signals for an ambitious first replenishment round to facilitate a successful adoption of the Paris rulebook. With this draft budget, Germany would be in a position to do so.

€140 million of the €1.5 billion is already anchored in the draft budget for 2019; this amount, however, is still part of the old commitment to the GCF and is not slated to go to the GCF as cash until next year. However, the blocking of a large part of the commitment appropriations in the BMZ budget – €750 million out of €1.875 billion in commitment appropriations – seems to relate to the GCF contribution. Apart from the overall increase in the BMZ budget that is still subject to debate, this could also be due to the fact that the release is to be made dependent on the contributions of other donors. This block should be lifted as far as possible, as this would be crucial to ensuring that the German government has sufficient political leeway to once again assume a leading role in the replenishment negotiations.

Further increase for International Climate Initiative (IKI)

According to the draft budget, the funds for the International Climate Initiative (IKI) of the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) are set to increase by a further €30 million after the increase of €80 million in 2018. A further increase of €50 million would have been more appropriate in order to reduce the climate finance gap and strengthen this strategic instrument. However, the IKI’s most recent tendency to invite only much larger project proposals (starting at approx. €12-15 million, depending on the proposal) must be seen critically. It severely restricts the number of actors who can submit proposals as lead managers and thus exercise decisive control over them. At least part of the funds should also be accessible to smaller initiatives in order to facilitate the participation of civil society and maintain the innovative capacity of the IKI. The proposed commitment appropriations – which allow the IKI to make new commitments for projects and programs – appear to be extremely low, at a mere €500,000. In addition, the BMU should once again provide €50 million for the Adaptation Fund, which is now also to be anchored under the Paris Agreement.

Stagnation in climate foreign policy in the German Foreign Office

The German Foreign Office has a budget of €7.35 million for energy, climate and environmental foreign policy. This corresponds to the funds thus earmarked in 2018 and 2017.

Unfortunately, this business-as-usual approach seems to completely ignore the content and recommendations of the motion for a resolution on climate diplomacy that the European Parliament adopted with a large majority in July 2018. Germanwatch had welcomed this resolution. Even though the motion mainly addresses the Commission and the European External Action Service (EEAS), Germany should expand its own climate diplomacy capacities on the basis of the recommendations, and this should be reflected in the draft budget.

Overall, the budget for 2019 urgently needs improvement, and further significant increases will be necessary for 2020 in order to fulfill the crucial doubling pledge.

Sven Harmeling / CARE
Lutz Weischer  Germanwatch