Germany’s 2020 federal budget: Merkel’s climate finance pledge wobbles

Germany’s draft federal budget for the coming year currently lacks at least 500 million euros needed to fulfill the Chancellor’s pledge to double climate finance by 2020. A further shortfall is being minimized by creative accounting. Will the current budget negotiations in the Bundestag improve matters?

In 2015, Chancellor Angela Merkel pledged to double Germany’s financial support for poor countries in their fight against climate change to around four billion euros between 2014 and 2020. Germany received quite a bit of acclaim at the time – and the promise put pressure on other donor countries. And until 2016, federal budget resources for climate finance had indeed risen steadily. Since 2017, however, climate aid has been falling again – initially in the year-on-year comparison between 2016 and 2017, and there are indications that it has fallen further in 2018 (the final figures have not yet been released). According to the projected figures, the level of 2016 will not be reached in 2019 either.

Fig. 1: Climate finance development – 2014-2020

The green-shaded bar segments show the budget funds deployed for bilateral subsidies, payments into multilateral funds and similar purposes. The red-shaded segments indicate funds raised (“mobilized”) by KfW/DEG on the capital market for loans within the context of development cooperation. 2017 was the first year that the German government provided separate figures for grant equivalents in low-interest instruments – and assigned them to the green-shaded categories in its external communications to give the appearance of growth in budget funds. For 2018 and 2019, only the projected figures are available at present, and these only cover the budgetary resources as a whole, i.e. without allocation to individual categories. A further decline was scheduled for 2018, and the 2016 level will not be reached in 2019 either. Source: author’s presentation based on German federal government data

2020: a €500 million shortfall

At least the Ministry for Economic Cooperation and Development (BMZ) now appears to be assuming that, for 2020, a minimum of an additional 500 million euros will be needed to fulfill the Chancellor’s promise. The figures cannot be found directly in the draft federal budget for 2020 because the climate finance funds are distributed over numerous individual items, most of which also pursue other development cooperation objectives. Development Minister Gerd Müller had already called for these 500 million euros in additional funds from the special Energy and Climate Fund (EKF). That would be an obvious source since the EKF is funded by the auction proceeds from emissions trading, which should also be used for international climate finance as stipulated by European legislation. Nonetheless, the idea has apparently been dropped since – perhaps because the German government now wants to show more ambition in climate protection and therefore needs EKF resources for the transformation of Germany’s national energy system.

The €500 million shortfall will thus remain a fact for the time being – and this in the run-up to the UN climate summit in New York on September 23rd. Chancellor Angela Merkel is flying to New York for the summit, and her agenda will likely include announcing the decisions of the Climate Cabinet in Berlin three days earlier. She would, however, also have to concede that she may not be able to keep her climate finance promise.

To prevent this from happening, she would have to convince her finance minister to increase if not the EKF, then the budgets of the relevant ministries accordingly.  Part of the additional funds should go to the BMZ, because the lion’s share of climate aid is provided via the development budget. Another part, however, should go to bolster the International Climate Initiative (IKI) of the Ministry for the Environment (BMU), which provides the BMU with a key strategic resource to fund alliances with climate policy pioneers among developing countries.

A “doubling” only in the pocket calculators of the German government?

In truth, the shortfall is much greater. In order to fulfill the pledge with less money, the German government has come up with the idea of crediting the grant equivalents of concessionary loans (i.e. the calculated financial advantages of low-interest loans over loans at market conditions) and, pro rata, funds for the multilateral development banks, toward the target level of around four billion euros. These two budget items already existed in 2014, of course, but they were not counted toward the 2014 starting level, which at that time consisted of around two billion euros in budget funds for bilateral technical and financial cooperation, funds for civil society and support for multilateral climate funds that was then to be doubled.  The German government applied this changed accounting method for the first time in 2017 – thus suggesting growth over 2016 when funding was in fact reduced – and will be applying it again for 2018 and 2019.

Fig. 2: How the “doubling” works

An honest fulfillment of the Chancellor’s pledge would require the doubling of funds for bilateral subsidies (including interest subsidies and funds for civil society) and contributions to multilateral climate funds, as their initial level of around two billion euros in 2014 was the basis for the doubling promise. Source: author

The scope of this sneaky little move is considerable: In 2016 and 2017, the pro rata funds for multilateral development banks amounted to around 140 million euros. The German government appears to be putting the calculated grant equivalents of development loans in 2019 at around 400 million euros. If we assume that these figures for 2020 will remain roughly the same, then the German government’s creative bookkeeping is also concealing a further gap of around half a billion euros that would be needed for the honest fulfillment of the 2015 pledge – in addition to the officially lamented shortfall described above.

We can only hope that the Bundestag will remedy the situation in its deliberations. The ongoing budget negotiations offer more than enough opportunity – provided the political will exists.

Further reading (in German): “Gelingt eine ehrliche Verdoppelung der Klima-Hilfen? Klimafinanzierung aus Deutschland im Bundeshaushalt 2020”, Oxfam briefing, September 2019, (PDF, 6 pages)

Jan Kowalzig, Oxfam