German federal budget 2023: Government ignores climate finance pledge – again!

With its draft federal budget for 2023, the German government wants to keep climate finance for developing countries down at the 2021 level – thus moving further away from its 2021 pledge and eroding the carefully crafted balance of trust between developing and developed countries. How will Germany explain that at the upcoming UN climate talks COP27?

At the G7 summit in 2021, Germany pledged to increase financial assistance to support cutting emissions and adaptating to the worsening climate crisis in developing countries from the 2021 planned level of around 4.3 billion euros to at least 6 billion euros per year by 2025. The pledge was made alongside pledges by other countries against the backdrop of the looming embarrassment that rich countries had not kept their promise from 2009 to increase climate finance to 100 billion US dollars per year by 2020. As we now know, in 2020 climate finance amounted to only 83 billion US dollars – on the basis of a generous, self-granted accounting methodology by donor countries that incentivises gross overestimation of, for instance, the climate-relevance of provided funds.

Based on the pledges made in 2021 ahead of the UN climate talks COP26, rich countries presented their Climate Finance Delivery Plan, according to which the level of 100 billion US-Dollar a year would be reached in 2023. This delay caused a lot of disgruntlement at COP26, but was ultimately accepted by developing countries – the bird in the hand greets the two birds in the bush. Alas, that the promise will only be fulfilled three years late mean that the under-fulfilment in the years to 2023 may accumulate to several tens of billions of dollars that are not provided to fund important projects and programmes, for example to make communities more resilient to climate change – to start with, in 2020, this gap amounted to 17 billion US dollars.

Figure 1: Climate finance allocations in the federal budget 2019-2025 (in billion Euro)

Deliberate disregard? Despite the 2021 pledge, climate finance is not to increase. Shown above are the planned allocations of climate finance (in billions of euros) for bilateral commitments and multilateral contributions. The green or green-hatched bars show the planned budget allocations (including the grant equivalents of loans, according to the Federal Government’s counting method regarding the pledge). The funds mobilised on the capital market for climate loans by the development bank KfW and its subsidiary DEG are shown in orange (planned figures for 2021 and subsequent years are not available) but are not relevant for the fulfilment of the 6-billion-euros pledge. For orientation purposes, a level of 8 billion euros for 2025 is also shown, which in our view would correspond more to a fair contribution by Germany to international climate finance instead of the 6 billion euros pledged. Source: Federal Government data.

Yet the German Federal Government seems to have a rather puzzling understanding of its own 6-billion-Euro pledge. Already the 2022 federal budget does not provide for any growth in climate finance compared to 2021. We might let that pass as a slightly embarassing accident; perhaps the new government was still in its warming-up phase after the 2021 general elections. To be sure, shortly after the budget was passed, including no increases for climate finance, the Federal Government reiterated its pledge (German only) on the fringes of the G7 summit in Elmau. And yet, with his draft for the federal budget 2023, German finance minister Christian Lindner aims to ensure that climate finance is kept down at the 2021 level – again. In a response to a parliamentary enquiry by MP Ralph Lenkert (German only), the federal government confirmed that climate finance in 2023 is to remain at the levels of 2021 and 2022, at around 4.3 billion euros (cf. Table 1).

Table 1: Planned allocation for climate finance 2021-2023 (in bn Euro)

* Including special initiatives, funds for civil society etc. as well as the grant equivalents of concessionary loans.
** The ICI was administered by the environment ministry until 2021 and has since been relocated to the economy and climate ministry.
Figures in billion euros. Despite the 6-billion-euro pledge, allocations for climate finance are expected to stagnate in 2023 at the 2021 planning level, the year the pledge was made. This has now been confirmed in the federal government’s answer to a parliamentary enquiry. Source: Federal Government data.

It is difficult to avoid the impression that at least the German finance minister is deliberately disregarding Germany’s pledge. One reason why all other members of the Federal Government seem to go along may be their fear that engagement for international solidarity and climate justice would win them no bouquet in the German public at present – despite the important contribution that climate finance can make, for example, to securing people’s livelihoods in the face of the steadily worsening climate crisis and its threat to long-term global stability and thus ultimately also for Germany.

It is ironic that Germany, of all countries, is currently working with Canada on behalf of the donor countries on an update to the Climate Finance Delivery Plan mentioned above. This update would have to acknowledge that the optimism of 2021 may be no longer justified, because the scenario of reaching the 100 billion US-Dollars a year by 2023 is also based on (in addition to all other pledges) the assumption that Germany will gradually move towards its 6-billion-Euro pledge over the period 2021-2025. (To be sure, whether 2023 can be kept is not only up to Germany. The USA is also considerably lagging behind its commitment.)

For steady progress towards the 6-billion-Euro pledge, climate finance budget allocations in 2023 would have to be around 820 million euros higher than currently foreseen in the government’s 2023 federal budget draft. This growth would have to be achieved through increased contributions and new pledges for the various multilateral climate funds, but mostly through a lasting increase in the future commitments appropriations in the relevant budget titles, such as those related to bilateral financial and technical assistance, as it is these future commitments appropriations that are the budgetary base for offering bilateral multi-year support programmes to developing countries.

Table 2: Underachievement compared to linear growth towards pledge (in bn Euro)

In the growth scenario, a linear increase is assumed over 2021-2025, from the 2021 planning levels to the 6-billion-Euro pledge for 2025. Source: Federal Government data and own calculations.

Compared to a linear growth scenario towards the 6-billion-Euro pledge, the under-fulfilment in 2022 and 2023 already adds up to around 1.2 billion Euro. Not only are those funds urgently needed in developing countries, the growing underachievement and the unwillingness to abide by its own pledge is no particularly praiseworthy testimony regarding Germany’s solidarity and leadership in the international climate crisis. To be sure, this act of negligence will not do much good to the carefully crafted balance of trust between developing and developed countries ahead of the upcoming UN climate talks COP27 in November.

The Bundestag can fix it and pass the corresponding increases in the coming budget negotiations. Yet, hopes are not too high. Already in 2022, only minor improvements on climate finance allocations were passed by parliament, just enough to avoid the originally planned slight decrease (!) in German climate finance. At the time, it was impossible to find a majority even within the government coalition in parliament to turn Germany’s internationally acclaimed pledge into action. It would be more than desirable for this to change for the 2023 federal budget.

Jan Kowalzig, Oxfam