Glossary on climate finance

Climate finance has grown into a field of its own in both development finance and international climate policy – one with numerous institutions, processes and its own jargon. Our glossary will help keep you on track.

0.7% target:

An agreement by the OECD countries to increase the share of official development assistance (ODA) to 0.7 percent of gross domestic product (GDP) by 2015. In 2011, Germany’s share of ODA was 0.39 percent.

$100-billion pledge:

A commitment made by the industrialized countries at the Copenhagen climate conference in 2009 to increase the level of international climate finance for developing and newly industrialized countries to $100 billion by 2020. The details of how the pledge will be realized and the contributions of the individual countries have not yet been specified; unofficially, a share of ten percent (i.e. $10 billion or €7-8 billion) has been deemed appropriate for Germany, however.

Adaptation:

Measures to protect regions, populations, ecosystems or economic sectors against current and future impacts of climate change and to strengthen their resilience. These include infrastructure projects, changes in agricultural techniques, climate risk insurance against extreme weather events, and civil protection. From a civil society perspective, adaptation should receive the same share of climate finance as mitigation; in practice, however, resources available for adaptation are considerably lower.

Adaptation Fund (AF):

A fund to finance concrete adaptation measures in developing countries that grants recipient countries direct access to financing (more…)

Bilateral Financial Cooperation (FC):

Promotion of investment in developing countries through low-interest loans, equity or grants provided by the Federal Ministry for Economic Cooperation and Development (BMZ). FC is implemented by the KfW Development Bank.

Bilateral Technical Cooperation (TC):

Promotion of capacity building in partner countries through consultation services and the provision of material goods, studies and appraisals. These services are provided as grants that do not have to be repaid by the recipient countries. TC is carried out mainly by the German Association for International Cooperation (GIZ) and in some cases through specialized institutions such as the Federal Institute for Geosciences and Natural Resources (BGR) and the German National Metrology Institute (PTB).

Clean Development Mechanism (CDM):

A mechanism created under the Kyoto Protocol through which industrialized countries can finance climate protection projects in developing countries to obtain emissions allowances that they can use to achieve their emission mitigation targets under the Kyoto Protocol. Two percent of the revenues from the emissions allowances go as a mandatory contribution to the Adaptation Fund.

Climate finance:

Financial support by industrialized countries to help developing countries mitigate greenhouse gas emissions, protect tropical forests and adapt to the effects of climate change. Climate finance was established by the UN Framework Convention on Climate Change.

Commitment appropriation:

An earmark in the German federal budget that permits financing commitments to be made for projects in partner countries that will lead to expenditures or payments in later financial years. Commitment appropriations can be understood as an anticipation of future financial years; their realization will depend on the available budget, however.

Conference of the Parties (COP):

An annual gathering of the parties to the United Nations Framework Convention on Climate Change. At the same time, it serves as a meeting of the states that have ratified the 1997 Kyoto Protocol as a legally binding climate agreement (Meetings of the Parties, MOP).

Direct access:

An option for developing countries to submit project proposals directly to an international climate fund without going through a multilateral institution such as the UNDP or UNEP, as is required for most climate funds. The UN Adaptation Fund was the first fund to offer direct access, but the Green Climate Fund (GCF) has followed its example.

Emissions trading:

One of the three mechanisms for transactions with emission allowances created under the Kyoto Protocol that can be used by the Parties to reach their CO2 reduction goals. The European Union created the EU Emissions Trading System (ETS) for this purpose in 2005. Around 20 percent of the emissions allowances in the EU are currently being auctioned under the ETS. The German government uses these auction revenues to finance climate protection measures – from 2008 to 2011 they went partly toward the International Climate Initiative (ICI), and since 2012 almost entirely toward the Energy and Climate Fund (EKF).

Energy and Climate Fund (EKF):

A special fund created by the German government in 2010 to financially support the country’s energy transformation and provide funds for international climate finance. Since 2012, nearly all auction revenues from CO2 allowances go toward the EKF. At present the EKF is seriously underfunded due to the fall in prices of CO2 allowances in emissions trading.

Fast Start Finance (FSF):

A pledge by the industrialized countries at the Copenhagen climate conference in 2009 to provide a total of $30 million in new and additional funds in the years 2010 to 2012 to finance mitigation and adaptation measures in developing countries.

Global Environment Facility (GEF):

A United Nations program to support developing and newly industrialized countries in implementing international goals related to climate change and other environmental topics (more…).

Green Climate Fund (GCF):

The newly established fund that is intended to become the most important element in international climate finance, aimed at promoting mitigation and adaptation in developing countries on a large scale. Most of the details have been worked out, and the fund has approved its first measures in November 2015 (more…).

Hermes guarantees:

Export credit guarantees by the German government awarded by decision of a federal inter-ministerial committee for exports to markets entailing higher risk. Various types of guarantees are available depending on the nature of the export transactions. In 2013, the German government provided export credit guarantees worth €27.9 billion. Projects thus secured included the construction of coal-fired plants.

International Climate Initiative (ICI):

A climate protection instrument by the Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB) created in 2008 to finance measures in developing and newly industrialized countries (more…).

Least Developed Countries Fund (LDCF):

One of the oldest UN climate funds, used primarily to finance the most urgent adaptation measures in least-developed countries (LDCs) (more…).

Long Term Finance (LTF):

Long-term finance covers the period from 2014 to 2020 under the United Nations Framework Convention on Climate Change. The objective of this is to increase climate finance by the Parties to achieve the $100-billion pledge. Current activities to this end at the UN include reports that the countries must submit every two years in which they explain their approaches and strategies to ensure a long-term increase of climate finance.

Mitigation:

Measures to reduce emissions responsible for climate change. These include technological and policy measures for the development of renewable energy, the promotion of energy efficiency and the introduction of new climate technologies. Mitigation projects make up the bulk of German climate finance. Measures to improve carbon sequestration through afforestation under REDD+ are to some extent also categorized as mitigation.

Multilateral climate funds:

International funds that manage financial resources for mitigation and adaptation in developing and newly industrialized countries. Germany realizes a part of its climate finance through payments to multilateral climate funds.

New and additional climate finance:

A principle in Article 4 of the United Nations Framework Convention on Climate Change that states that funds for climate finance must be additional to those allocated to development finance. An internationally valid definition has not yet been established. In the German government’s definition of Fast Start Finance (FSF), it deems funds that were allocated after 2009 or originate from innovative funding mechanisms (in particular the auction revenues from emissions trading) to be new and additional.

ODA:

Official development assistance of developing and newly industrialized countries by Germany. While ODA overlaps with German climate finance to a considerable degree, they are not identical, as the International Climate Initiative (ICI) and other programs operate climate finance projects in countries not eligible for ODA.

Private climate finance:

Funding of mitigation and adaptation measures in developing and newly industrialized countries provided by companies rather than state actors. Private climate finance is also to be credited toward achieving the $100-billion pledge of the United Nations Framework Convention on Climate Change. The types of private climate finance and the details with which this will be implemented have not yet been specified, however.

Public climate finance:

Climate finance realized with funds from the Federal Ministry for Economic Cooperation and Development (Section 16) and the Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (Section 23). The funds are generally awarded to partner countries as technical and financial cooperation through the implementing organizations. Public climate finance is the basis for German climate finance reporting to the United Nations Framework Convention on Climate Change.

REDD+:

The Reducing Emissions from Deforestation and Forest Degradation (REDD+) concept has been discussed under the UN Framework Convention on Climate Change (UNFCCC) since 2005 with the goal of rendering the protection of forests financially attractive. The basic concept is to offer financial compensation to countries for emissions reduction achieved by avoiding deforestation (or forest degradation). The implementation of this simple idea has turned out to be a rather thorny issue. Still, the so-called “REDD Readiness” process is heavily pushed and financed by the World Bank, UNDP and bilateral actors like the KfW and the Norwegian government. A current discussion is to enlarge this concept into a “landscape approach” which would include agriculture. Many communities affected by REDD+ projects complain about unkept promises and an increase in social conflicts.

Section 16:

Individual budget of the Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB) through which measures in Germany and developing countries are funded and payments are made to multilateral funds. Funds for climate finance in developing and newly industrialized countries are provided through the International Climate Initiative (ICI).

Section 23:

Individual budget of the Federal Ministry for Economic Cooperation and Development (BMZ) through which measures in partner countries are funded and payments are made to multilateral funds. It includes funds earmarked for German climate finance.

Special Climate Change Fund (SCCF):

One of the oldest UN climate funds, used to finance mitigation and adaptation measures in developing countries (more…).

Standing Committee on Finance (SCF):

A body established under the United Nations Framework Convention on Climate Change to monitor climate finance. Its activities include communication between the organizations responsible for climate finance, advising the negotiating bodies on financial issues, and the presentation and discussion of the biennial reports of the Parties on long-term finance.

UN Framework Convention on Climate Change:

The UNFCCC is a climate convention which was adopted at the Rio Summit in 1992. In Article 4, the industrialized countries pledge to assist developing countries in the fight against climate change with new and additional financial resources.