Key topics in climate finance

Climate finance is rapidly evolving in numerous national and international processes and closely linked to development cooperation. This section covers a number of topics currently relevant to German and international climate finance that this website monitors and comments on. The debate on climate finance can be broken down into three broad topics:

International climate finance

Developments in international climate finance provide the framework for German climate finance.

The $100 billion promise

The industrialized countries’s committment to increase climate finance to $100 billion per year by 2020 is a quite vague promise. At least industrialized countries have recently agreed at the international climate conference in Warsaw  to a decision which requests them to continually raise public climate finance in the coming years and also to submit their current strategies on how to achieve the necessary scaling up every two years. Despite this, climate finance has not been rising. After the ending of the fast start financing, public means have decreased or stagnated in many countries. No country has yet been able to prove that they are acutally increasing climate financing. For Germany, public means are supposed to sharply decrease in 2014. Plans from the government on how to achieve Germany’s fair share until 2020 have not yet been prepared.

Additionality of climate finance

Article 4 of the UN Framework Convention on Climate Change (UNFCCC) not only sets out the obligation of industrialized countries to support developing countries in climate change mitigation and adaptation, but also requires them to do it with new and additional financial resources. Many developing countries therefore demand that climate finance should be additional to development cooperation, not least because according to article 4 the resources should be destined to the additional costs caused by combating climate change. Thus, climate finance for the reduction of greenhouse gas emissions can be understood as part of an international equitable burden sharing in climate change mitigation. Industrialized countries on the other hand consider climate finance as part of their development cooperation and fully account it towards their promise of raising their official development assistance (ODA) to 0,7 percent of their gross national income (GNP). In consequence, climate finance is increasingly competing with development cooperation in the „traditional“ fields of poverty reduction, e.g. in the health or ecucation sectors. This happens especially if (as is the case in Germany) ODA-means are not or not sufficiently increasing. In consequence, climate finane does not lead to an increase, but to a redirection of financial resources.

The role of the private sector within climate finance

A big question mark in the 100 million US-dollar promise of the industrialized countries is the role of private finance in this commitment, for the realization of which public, private and alternative sources shall be mobilized. Many industrialized countries hope that a generous accounting of private investments towards their share will enable them to keep financing from public sources as small as possible and limit the restraints on the already stretched public budgets. The German government also promotes this field of climate finance, e.g. through the Global Climate Partnership Fund. While it is out of the question that a large proportion of the investments needed to achieve global transformation must come from the private sector, the question of how to account private finance towards the 100 million U-Sdollar promise is not yet answered.

Innovative sources of finance

The development of new and innovative sources of finance will be essential to fulfilling the $100 billion pledge. Very little progress can be made out in this controversial issue, however. So far, sales revenues from the auctioning of emissions allowances and the levy on transactions in the Clean Development Mechanisms (CDM) have been used to provide resources for international climate finance. However, both sources suffer from chronically low prices arising from less-than-ambitious climate protection targets. Civil society has been calling for the introduction of an aviation tax and a financial transaction tax as additional sources of revenue for climate finance.

The international climate finance architecture

This site closely follows the development of the new Green Climate Fund (GCF), the largest current fund, which is set to play a major role in shaping the future of climate finance. Meanwhile, the Adaptation Fund continues to provide important impulses for climate finance in poor developing countries, with the aim of benefitting the most vulnerable populations.

German climate finance

The German government is a major player in international climate finance. Both Germany’s role in shaping climate finance at the international level and the country’s contributions require critical monitoring.

The volume of German climate finance

Germany has systematically increased its climate finance over the last years. It now is an important part of its official development assistance (ODA). When analyzing German climate finance there are two approaches. From the national perspective climate finance is one of many development aid priorities and could always be cut back in times of scarce public resources. Looking at the international picture Germany has to meet its international obligations and contribute a fair share to international climate finance.

Coal finance vs. climate finance

Germany is one of the biggest donors for international climate finance. At the same time, Germany is also financing coal-fired power plants in developing coutries, especially though the German development bank KfW (Kreditanstalt für Wiederaufbau). This contradicts all efforts for more climate protection in order to achieve the 2°C goal. There is an urgent need for Germany to put a stop to the financing of coal projects.

Implementation of climate finance

An aspect currently neglected in the climate finance debate is the quality of the funded measures. Yet without sound climate projects it will not be possible to limit global warming to less than 2°C and to support people in developing countries in adapting to climate change. A basic precondition for quality assurance is the transparency of climate finance. A public debate is not possible without information about what Germany is financing and who is involved in the implementation.

At the same time, the quality and impact of climate finance in projects must be critically monitored from a development perspective to ensure that key development criteria are being met. In particular, the participation of local communities and civil society is a vital prerequisite to aligning climate projects with the needs of people and establishing them locally over the long term.

Puplications
  • 10 things to know about climate finance (2024)The publication by Heinrich-Böll-Foundation provides an overview of the most important developments and facts on international climate finance in 2024.
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  • Seeing Double: Decoding the 'Additionality' of Climate FinanceAn analysis by CARE on industrialized countries' climate finance (2011-2020) highlights the close linkage to already strained public ODA budgets.
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