New data on German climate finance in 2021: a brief analysis

The federal government has now presented its official figures on climate finance in 2021, showing that amounts have indeed increased. Here is a closer look at the figures.

According to the German Federal Ministry for Economic Cooperation and Development, budget allocations (plus grant equivalents of loans) for supporting mitigation and adaptation to climate change in developing countries stood at €5.34 billion in 2021. Additional finance mobilised by the German development bank KfW on the capital market, primarily for public loans, amounted to €2.59 billion. Public climate finance from Germany thus reached €7.93 billion in 2021. (With just under €170 million in mobilised private investment coming on top.) For a detailed breakdown of German public climate finance, see Fig. 1.

Fig. 1.: German climate finance 2021

The diagram shows public climate finance in 2021, broken down by the various categories. The green or greenish areas show finance from the federal budget. The orange field shows funds mobilised on the capital market, primarily for public climate finance loans via the German development bank KfW and its subsidiary DEG.

The growth in 2021 (a little compared with 2020, considerable compared with 2019) is in itself a positive message, continuing a trend of the past years. Yet, these new figures are no reason for rest on one’s laurels. The roughly 5.34 billion euros in budget allocations (plus grant equivalents of loans) were a billion euros above the 2021 planning figures (4.28 billion euros). The situation was similar already in 2020 (5.09 billion euros versus 4.12 billion euros), and the level achieved in 2019 was also significantly higher than the planning figures for that year. More on the discrepancies later.

The level now reached for 2021 contrasts with the planning figures for 2022 and 2023 that both amount to around 4.3 billion euros. If the federal government sticks to these figures, climate finance is expected to take on a significantly lower level in 2022 and 2023 (see Fig. 2) than what has been reached in 2021, despite the German pledge to increase budget allocations for climate finance to at least six billion euros per year by 2025, confirmed by Chancellor Olaf Scholz at this year’s G7 summit. The refusal by the government to increase climate finance in 2022 and 2023 is unlikely to help trust-building with developing countries and instead sends a problematic signal from the German government just days ahead of the upcoming UN Climate Change Conference COP27 in Sharm El Sheikh, Egypt.

Fig. 2: German climate finance 2017-2025

If the federal government sticks to its current planning figures, cliamte finance would decrease in in 2022 and 2023 if compared to achieved levels in 2021. Clarification on government plans is urgently needed here. In any case, however, the federal government is not on a growth path toward its 6 billion euros pledge. Also shown is a 2025 target of eight billion euros in budgetary allocations for climate finance, a target that we consider more adequate given Germany’s economic capabities.

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The discrepancy between the planning figures and the realised amounts of the past years is somewhat surprising – especially as the government does not provide any reasons for the phenomenon. Perhaps the forecasting tools used to prepare the planning figures are too conservative, or the ex-post reporting system is too lax – it is no secret that the climate relevance of reported projects and programs is often credited too generously in the reporting. Or, the conspicuous overshooting over the planning figures may also mean that increasing climate finance levels come, at least in part, at the expense of other development priorities. While often different goals can be combined – for example, if the expansion of basic energy supply is based on renewable energies from the outset – this is not always possible. If, for example, adaptation measures are put in place to maintain past yields in agriculture, provided funds may merely keep the status quo for people and their livelihoods at the backdrop of the worsening climate crisis, without any additional development dividend.

Fig. 3: Thematic Focus 2021

The government’s claim that it has achieved a balance between adaptaiton and mitigation refers to the budgetary allocations (plus grant equivalents of loans) shown in the diagram on the left, i.e. only part of overall climate finance from Germany. Just over 26 percent of all German climate finance goes decidedly to adaptation; the extent to which “cross-cutting” also contributes to adaptation cannot be measured.

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Adaptation remains underfunded

Back to the 2021 figures: The development ministry states that 49% of the budget allocations for cimate finance was earmarked for adaptation and therefore a balance between adaptation and mitigation has been achieved. However, this statement refers only to the 2021 budget allocations (i.e. the 5.34 billion euros) and not to total climate finance from Germany (i.e. the 7.93 billion euros). Also, teh high percentage is only achieved under the assumption that halöf of those budget allocations mared as “cross-cutting” indeed benefited adaptation. A more detailed picture is provided in Fig. 3, showing that in 2021, only about 26 percent of total German climate finance was specifically available for adaptation. The German government is therefore still a long way from achieving a true balance between mitigation and adaptation.

Less than half in the form of grants

When looking at instruments, the picture for 2021 is slightly better than in previous years: Around 47 percent of bilateral funds reached recipient countries in the form of grants (in 2020 and 2019, the figures were 43 and 41 percent, respectively). It is impossible to say whether this is the result of deliberate action or a random occurence. To be sure, the German government continues to provide about half of its bilateral climate finance in the form of climate loans and similar instruments (see Fig. 4).

Fig. 4: Bilateral climate finance by instrument

The diagram only shows the instruments for bilateral climate finance. Contributions to multilateral climate funds and to multilateral development banks are usually (albeit with exceptions) made in the form of grants. However, these institutions (especially the development banks) often also issue loans, backed up by the grant contributiosn they reeceive. Include Germany’s multilateral contributions simply as grants in the above diagram would hence be misleading.

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Recipient countries, which may have contributed little or nothing to the climate crisis, thus end up paying for the fund programs and projects to a considerable extent themselves, namely when they repay the loans. This blatantly contradicts the principles of climate justice and increases the debt burden for countries whose fiscal space is also severely impaired due to other crises (e.g., the consequences of the Corona pandemic), a situation that is likely to further exacerbate the impacts of the climate crisis in the future.

No data on loss and damage

Germany does not report provide any information on possible support for covering the cost of unavoidable losses and damages as a result of the worsening climate crisis, e.g. when adaptation is no longer possible, livelihoods erode or communities need to recover after extreme climate-related disasters. Such support exists, for example, in the form of (usually completely inadequate) humanitarian aid. Yet, this support is not recorded separately in the reporting.

What next?

From the 2021 figures now published and their wider context, some conclusions can be drawn as to how the German government could now advance the cliamte finance agenda:

The German government should not rest on the figures it has just published, but should, if not in 2022, at least in 2023 and 2024, noticeably increase annual budget allocations for climate finance to make progress on its own pledge to reach at least six billion euros annually by 2025.

In addition, it should increase the pledge itself – to at least eight billion euros per year in budget allocations for climate finance. This would be a more appropriate target given the worsening impacts felt in the developing countries and Germany’s economic capabilities.

The German government should increase the share of funding for adaptation to climate change. True balance (which in principle is agreed internationally) will only be achieved with a 50/50 split of total climate finance (i.e. not just the budgetary allocations) between mitigation and adaptation, which the German government is still far from achieving.

Future increases in climate finance from Germany should focus primarily on providing grants so as not to further exacerbate the debt burden in poorer countries. This will require correspondingly more budgetary resources in the coming years and less reliance on market funds from KfW.

Finally, the German government should follow Denmark’s example and make a substantial commitment to financial support for addressing unavoidable loss and damage. Even if the road to the establishment of an appropriate facility or other arrangement to reliably and adequatly provide loss and damage finance is still ahead of us, an early German pledge would be an important signal – to vulnerable countries as well as other developed countries.

Jan Kowalzig, Oxfam

The data underpinning the above analysis can be found in the federal government’s regular reporting to Brussels – most recently for 2021, submitted on September 30, 2022. The data is publicly available here.