Climate finance in the 2022 federal budget: Is Germany shirking its commitments?

Things are not looking good for climate finance in the 2022 German federal budget. Instead of gradually increasing funding to achieve annual budgetary allocations of around six billion euros for climate finance by 2025 as promised, Finance Minister Christian Lindner’s draft budget is planning for levels to stagnate, completely ignoring Germany last year’s pledge.

The implementation of the Paris Agreement is based on an implicit commitment of all countries to a new dimension of global cooperation – one for which mutual trust is probably the most important ingredient. This includes being able to rely on set goals being achieved and given promises kept. This especially holds true for commitments made by rich countries to provide financial support for cutting emissions and adapting to the changing climate in poorer countries – to which the rich countries have accepted legal obligations under the Paris Agreement.

Figure 1: Climate finance in the 2022 federal budget, forecast

Shown are climate finance resources for bilateral action commitments and multilateral contributions, based on budgetary funds as well as grant equivalents of development loans, according to the accounting method usually practiced by the German government. Funds mobilized on the capital market for climate-related loans, which the German government usually still counts as climate finance, are not shown here because they are not relevant for fulfilling the six-billion-euro pledge. The German government’s forecast is shown for 2022. As an orientation, the eight-billion-euros mark is also shown for 2025, which in our view would be more in line with a fair German contribution to international climate finance. Source: German government data

The German government’s pledge at the 2021 G7 summit to increase its budget allocations for climate finance to six billion euros annually by 2025 at the latest (up from the current level of around four billion Euros per year) does not yet amount to a fair contribution by Germany, but at the time was a very welcome statement of direction. It came about – as did similar pledges by other developed countries – against the backdrop of the unsurprising admission that the developed countries had been unable to keep their 2009 promise to increase climate finance to 100 billion US dollars a year by 2020. This threatened to seriously damage the basis of trust that had been painstakingly built up over the years. In the run-up to the COP26 UN climate conference in Glasgow in late 2021, a climate finance delivery plan based on the new pledges was intended to counteract this. According to this plan, the level promised for 2020 would now be reached three years later – still a disappointment, as the COP26 also noted in a resolution, but nevertheless an important basis for the outcome of the UN climate conference.

In order not to undermine this achievement, it is now of paramount importance that the German government now takes steps to actually implement its pledge of six billion euros and to gradually increase funding for German climate finance – starting with the 2022 federal budget. Based on the planning figures for 2021 (around 4.3 billion euros as of March 2021), funding would have to increase by around 450 million euros each year over 2022-2025 to reach the level of six billion euros in 2025. For 2022, the overall volume of bilateral commitments and contributions to multilateral climate funds would have to add up to around 4.8 billion euros.

Is Finance Minister Christian Lindner deliberately ignoring the pledge?

According to the draft budget presented by German Finance Minister Christian Lindner, no increase is planned for 2022. While this cannot be seen directly from draft budget draft because climate finance is largely implemented via more general titles – including, but not limited to those for bilateral technical and financial co-operation in the budget of the Ministry for Development (BMZ). Yet, the German government forecasts a level of around 4.2 billion euros for 2022. This is even below the level attained in 2019 and the planned figures for 2021 – and well below the 4.8 billion euros that would be needed in 2022 for steady growth until 2025. (The forecast for 2022 is also significantly below the level reached in 2020 (5.09 billion euros), which, however, is well above the original planned figures for 2020 (4.12 billion euros). Since the reasons for the strong deviation are not yet clear, comparisons with 2020 should be treated with caution.)

A similar forecast for subsequent years has not yet been released; however, the medium-term financial planning for the years 2023 to 2025 shows a slight decrease in the overall development ministry’s budget – through which most climate finance is channeled. It is thus hard to imagine that the shortfalls now planned for 2022 will be made up for in subsequent years, or that any growth at all is planned up to 2025.

That is a grim outlook. If this remains so before the budget is approved by parliament, the German government would be planning a serious breach of trust, which could cause embarrassment at the upcoming G7 summit under the German presidency, not to mention the negative signal that Germany would be sending out for the upcoming COP27 UN climate conference in Egypt. Lack of available resources is certainly not the issue, as shown by the 100 billion euros currently under discussion and about to be made available to the German armed forces at the drop of a hat. This begs the question of whether the new German government – or its finance minister – actually stands by the pledge made by the old government?

This is not solely a matter of trust and reputation on the international stage. The poorer countries need support in very concrete terms, in order to put their economic development on a climate-compatible course and enable them to phase out fossil fuels, which – in addition to avoiding the catastrophic scenarios of the climate crisis – is a goal that has taken on new significance against the backdrop of the war in Ukraine. Societies in poorer countries must also adapt to the changes and secure people’s livelihoods against the impacts of the climate crisis – not only for a life in dignity and free from poverty, but also to prevent or defuse regional conflicts over increasingly scarce resources such as usable land and water or increasingly threatened food security.

German parliament must increase climate funding in the 2022 budget

In the ongoing budgetary negotiations, the Bundestag should now ensure that the corresponding budgets and titles – such as the titles for bilateral technical and financial cooperation in the BMZ budget, the planned contributions to multilateral climate funds, and also funds for the International Climate Initiative (now, newly, anchored into the budget of the Federal Foreign Office) – receive a suitable increase. For bilateral titles, it is the forward-looking commitment appropriations that need to be increased, as it is mainly through them – and to a lesser extent through cash appropriations – that new commitments on multi-year programs and projects are covered. For multilateral aid, the increase can be implemented through both cash and commitment appropriations. There is some leeway when it comes to distributing such an increase across the relevant titles – but overall, an additional 450-500 million euros would be needed compared to the draft presented.

In the medium term, however, the German government should not be content with merely fulfilling its old pledge, even though doing so would represent the very lowest bar for a first move. For a fair contribution to climate finance, the German government should increase its pledge in view of Germany’s share in responsibility for causing the climate crisis and its great economic power, and to this end announce – at the G7 summit, for example – that it intends to increase funding from the federal budget to around eight billion euros annually by 2025. In view of the multiple current crises, Germany would thus once again assume a leadership role, at least regarding the climate crisis.

Jan Kowalzig, Oxfam