Climate finance

With the term climate finance is proper, according to the Climate Change Convention of the United Nations , the financial support of measures to avoid or reduce greenhouse gas - emissions ( "mitigation", climate ) and measures to adapt to the consequences of global warming ( " Adaptation ", adaptation to global warming ). This often includes funds that industrialized countries make available to poorer developing countries . In a broader sense, the term also includes all financial flows for climate protection or adaptation to climatic changes, i.e. H. also private investments or public funds irrespective of the origin and location of the use of the funds. Recently, the term has also been expanded to include financial means to cope with or compensate for inevitable damage and losses as a result of climate change. Climate finance in this sense concerns the three pillars of action in the Paris Agreement, mitigation, adaptation and loss and damage. Climate finance is one of the most important issues in climate policy .

The need is great: developing countries are confronted with the consequences of climate change, such as rising sea levels , changes in precipitation and the more frequent occurrence of extreme weather events. To avoid catastrophic damage, these countries have to adapt to climatic changes. According to an estimate by the United Nations Environment Program, the costs for this will grow to USD 140–300 billion annually by 2030, and to USD 280–500 billion annually by 2050 - assuming that global warming will increase can be limited to a maximum of 2 ° C.

Climate finance should contribute to these costs. Climate finance has its origins in Articles 4.3 and 4.4. the UN Framework Convention on Climate Change, which obliges industrialized countries to provide financial support under international law . The global climate treaty agreed at the UN Climate Change Conference in Paris 2015 (COP 21) confirms (in its Article 9) this obligation. Climate finance is intended to help achieve the goals of the Paris Agreement on Climate Change, including the goal of limiting global warming to well below 2 ° C or to a maximum of 1.5 ° C above pre-industrial levels, and also to limit global financial flows for one reallocate low carbon and climate resilient development. This will require high investments in developing and industrialized countries over the next few decades . However, many of the poorer countries have limited opportunities to finance climate protection, adaptation and coping with inevitable damage from their own resources, which is why financial support from industrialized countries is required here. A special responsibility of the industrialized countries in this regard can be derived from their high level of prosperity on a world scale and the polluter pays principle , since the industrialized countries have so far caused a large part of global warming. In the Framework Convention on Climate Change, this is anchored in the principle of “common but differentiated responsibilities and respective capabilities”.

At the largely failed UN Climate Change Conference in Copenhagen in 2009 , the industrialized countries promised to increase climate finance to US $ 100 billion per year by 2020 and to provide funds from public sources for this purpose, but also to mobilize private investments. According to the OECD, an annual level of around 65 billion US dollars has now been reached in this way (annual mean 2016/2017), but there was also criticism of the calculation method, which allows industrialized countries to present the support provided in a better light than is possibly justified.

Public climate finance is usually provided through the existing channels of bilateral development cooperation. There are also a number of multilateral climate funds (including the Green Climate Fund and the Global Environment Facility ), which are financed by contributions from industrialized countries. The multilateral development banks also finance climate programs in poorer countries. There are also a number of initiatives, facilities and funds that developed countries are using to attract private investment in poorer countries. According to the rules of the Paris Agreement, regular reports are provided on the support provided.

Political milestones in climate finance under the Framework Convention on Climate Change

Questions about the international financing of climate protection as part of the Framework Convention on Climate Change (UNFCCC) have been discussed since the 1990s. Financing for adaptation to climate change was added later. In 2009 at the UN Climate Change Conference in Copenhagen, concrete commitments were made for funding. A number of multilateral climate funds have emerged over the years, and the Paris Agreement continues the industrialized countries' commitment to support.

occasion	year	milestone
Adoption of the United Nations Framework Convention on Climate Change (UNFCCC)	1992 (in force in 1994)	Formulation of the legally binding obligation of the industrialized countries listed in Annex II to support developing countries in climate protection and adaptation to climate change with "new and additional" funds.
Founding of the Global Environment Facility (GEF)	1994	Multilateral Facility to provide financial support to developing countries to implement the Rio Conventions stemming from the United Nations Conference on Environment and Development ; d. H. the UNFCCC , the UNCBD and the UNCCD .
Kyoto protocol	1997 (in force in 2005)	Agreement on a levy on projects of the Clean Development Mechanism as an innovative source of funding for adaptation measures.
UN World Climate Conference in Bonn (COP6.5)	2001 (COP6.5)	In a joint declaration, the European Union and its member states, together with Canada, Iceland, New Zealand, Norway and Switzerland, set the goal of increasing financial support to 410 million US dollars per year by 2005.
Marrakech chord	2001 (COP7)	Establishment of the Least Developed Countries Fund's Special Climate Change Fund and the Adaptation Fund .
Bali Action Plan	2007	Creation of a negotiating mandate for a comprehensive agreement, including financial support.
Copenhagen Accord	2009	Promises by the industrialized countries to provide US $ 30 billion as short-term start-up financing in the years 2010–2012 and to provide US $ 100 billion annually from 2020 ("100 billion target").
Cancun agreements	2010 (COP16)	Decision of the Conference of the Parties to the establishment of the “ Green Climate Fund ”; Formalization of the financial pledges made in Copenhagen.
Paris Climate Agreement	2015 (COP21)	International law obligations of industrialized countries for climate finance, in continuation of the existing obligations under the UNFCCC . The 100 billion target will be expanded to 2025, after which a new, joint financing target is to be agreed.

Fundamental questions of climate finance

Donors and recipients of climate finance

The UN Framework Convention on Climate Change of 1992 stipulates that in principle those countries are obliged to provide financial support that are listed in Annex II of the Convention. Essentially, these are the western industrialized countries. No obligation was imposed on the countries of the former Eastern Bloc against the background of the drastic economic challenges that these countries faced after the end of the Cold War. In principle, all developing countries are entitled to financial support.

At that time it was not clarified whether and how countries would switch from the recipient side to the donor side in the course of their development. Although the economic realities have changed significantly in the meantime, the 1992 breakdown still applies. In the 2015 Paris Agreement, the developed countries also accept an obligation to provide financial support to the developing countries. On the one hand, this should be done in continuation of the existing obligations from the UN Framework Convention on Climate Change; on the other hand, no explicit reference is made to Annex II of the Framework Convention on Climate Change, but only the term “developed countries”. It is not clear under international law whether all industrialized countries, i. H. Even the industrialized countries of the former Eastern Bloc are obliged to provide climate finance, or this obligation continues to apply only to the western industrialized countries. In addition, the Paris Agreement generally encourages all other countries to provide support on a voluntary basis.

When mobilizing private investments or reallocating all financial flows for climate-friendly and resilient development, all countries are called upon to act according to the Paris Agreement, but here too, the industrialized countries should take the lead.

Current provision of climate finance

Climate finance is currently mainly provided through private and public financing instruments such as grants, concessional loans , equity capital and the project-based implementation mechanism of the Clean Development Mechanism (CDM) . Under the UNFCCC mandate, funds are provided through the Global Environment Facility (US $ 2.55 billion since 1994), the Adaptation Fund and the CDM (US $ 18 billion so far). All in all, around 8 billion US dollars have been made available annually for climate finance.

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Around 2010 almost all of the climate finance was provided within the framework of development cooperation; The only exceptions were the CDM and the Adaptation Fund . The crediting of climate finance as development aid is controversial. On the one hand, there are large overlaps between development aid and, in particular, adaptation measures; on the other hand, there are concerns that climate finance will not be provided in addition to existing development aid, but will replace it in part.

In the future, there will be an urgent need for innovative sources of finance to close the gap in international climate finance. Given the plethora of proposals that already exist, a review of new funding sources for effectiveness, efficiency and equity is necessary. The main questions here are what size the financial resources should have, over what period (short, medium or long term) they should be made available, whether the money should be generated on a national or international level, which states should pay and how much they should pay should pay. The distribution of the burdens among donor countries raises ethical questions; it is an essential part of the discussion about climate justice . One proposed source of finance is the international sale of government emission permits ( emissions trading ). With the appropriate design, it could generate sufficient funds in total with the existing instruments.

Institutional design

There are currently six active large multilateral funds and a large number of bilateral funds that focus on climate finance. With a few exceptions, most of these funds operate outside the UNFCCC mandate. Under the UNFCCC mandate, the CDM , which is not a fund, and the Adaptation Fund are the most important institutions that provide funds to avoid greenhouse gas emissions and to adapt to climate change . The founding of the Green Climate Fund at the Cancún climate summit laid the foundations for the establishment of a new instrument under the UNFCCC, to which the expectation is that it will provide much more money than the previous instruments. Outside the UNFCCC process, climate finance is provided through bilateral and multilateral initiatives. The multilateral GEF operates outside the UNFCCC, but must be accountable to it. The “Cool Earth Partnership” of Japan, the Norwegian “Climate and Forest Initiative” and in Germany the German Initiative for Climate and Environmental Protection (IKLU) and the International Climate Protection Initiative (IKI) should be mentioned as bilateral funds outside the UNFCCC mandate . IKLU is a special facility for investments in areas relevant to the climate and the environment. The KfW Development Bank manages IKLU on behalf of the Federal Ministry for Economic Cooperation and Development (BMZ). The IKI is under the direction of the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) and is organized by a special program office. It is fed from auction proceeds in EU emissions trading. The newly established Energy and Climate Fund (EKF) will also play a growing role in the future .

This very diverse fund and financing landscape has led to a fragmentation and decentralization of climate finance, as a result of which developing countries are confronted with a multitude of uncoordinated financial resources. This multitude of financial sources with different underlying approaches and different administrative structures makes it very difficult for them to manage these financial flows.

Climate fund (excluding bilateral funds). Own representation from climatefundsupdate.org

abbreviation	Name of the fund
African DB	African Development Bank
AF	Adaptation Fund
AFB	Adaptation Fund Board
CBFF	Congo Basin Forest Fund
CIF	Climate Investment Funds
CTF	Clean Technology Fund
FCPF	Forest Carbon Partnership Facility
FIP	Forest Investment Program
GEF	The Global Environment Facility
GEF TF	Global Environment Facility Trust Fund
GEEREF	Global Energy Efficiency and Renewable Energy Fund
LDCF	Least Developed Countries Fund
MDGF	Millennium Development Goals Fund
PPCR	Pilot Program for Climate Resilience
SCF	Strategic Climate Fund
SCCF	Special Climate Change Fund
SPA	Strategic Priority on Adaptation
SREP	Scaling-Up Renewables Energy Program for Low Income Countries
UN-REDD	United Nations Collaborative Program on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries

Status of climate finance after Copenhagen, Cancun and Durban

The opening session of COP 15 on December 7th, 2009.

At the UN climate change conference in Copenhagen , climate finance was one of the few areas where progress could be recorded. In the Copenhagen Accord , the industrialized countries pledged for the first time concrete sums for both short-term and long-term financial support for developing countries . Like the entire Copenhagen Accord, however, these commitments are not legally binding. The resolutions of the Conference of the Parties in Cancún (COP16) and Durban (COP17) have formalized some of these promises and further specified them in the area of the Green Climate Fund.

Quick start funding

In paragraph 8 of the Copenhagen Accord, the industrialized countries pledged to provide “expanded, new and additional, predictable and adequate funding and improved access” for greenhouse gas reduction, adaptation measures , REDD +, technology transfer , development of new technologies and capacity building for developing countries . A balanced distribution between the two areas of climate protection and adaptation to climate change is planned. Particularly vulnerable states such as Least Developed Countries , Small Island Developing States and Africa should be given priority in adaptation financing. In total, the donor countries pledged a total of US $ 30 billion for fast-start finance over the years 2010–2012. At that time, Germany contributed 1.26 billion euros.

The 100 billion goal of climate finance

In the Copenhagen Accord, the developed countries have also committed to the goal of increasing climate finance to US $ 100 billion annually by 2020. To this end, they want to provide public funds, for example within the framework of development cooperation, but also to credit those private investments that they claim to have mobilized (for example through inexpensive co-financing instruments). “Alternative sources” are named as the third pillar, but have not been specified any further since 2009. The financing is to be implemented through a variety of channels, bilaterally as well as multilaterally. The 100 billion target was given a formal status by the resolutions of Cancún (COP16), but ultimately remained a voluntary goal of the donor countries, which also ensure that only they define what can be counted towards target achievement and how. Demands by the developing countries to define intermediate goals remained inconclusive, as did the attempt to define the “alternative sources” in more detail. In order to advance some of these questions politically, among other things, at the 17th climate summit in Durban, South Africa, a work program on questions of long-term financing was decided. While z. If, for example, a tax on shipping and air traffic or an emissions trading system is not explicitly included in the resolution text on the work program, various reports are named as the basis for the analysis of these and other innovative financial sources. The G20 summit in 2011 also dealt with such sources of funding, but remained without concrete decisions.

At the UN World Climate Conference in Paris, the resolutions accompanying the Paris Agreement stipulated that the annual level of US $ 100 billion to be achieved in 2020 should be maintained until 2025. For the time after that, a new target is to be negotiated that builds on the 100 billion target.

The terms "new and additional"

A long-discussed but unsolved problem, also after the Copenhagen Accord, is the generally applicable and legally binding definition of “new and additional” funding. So it happens that there are many different views of “new and additional” on the part of the states. For example, Germany counts as “new and additional” all funds that were paid after the base year of 2009. Most other countries, on the other hand, have no official definition at all. The UK only committed short-term funding that had previously been pledged as development aid until 2013. It was only after 2013 that British climate finance was supposed to be added to development aid. So far, a major concern of developing countries seems to be coming true: Short-term financing does not seem to be new and additional, but existing development aid is being reallocated from aid programs for health, education, water supply or agriculture to climate change or commitments made in the past to protect the environment "Recycled" d. H. pronounced and credited again.

The concept of “additional costs” assumes that often only part of the investments that flow into a project cover additional costs caused by climate change. For example, well construction is not always an adaptation project in itself. But if climate change means that those who build the wells have to drill three meters deeper to get access to water, then this deeper drilling causes additional costs. In reality, it is therefore often difficult to distinguish between climate finance and development cooperation financing . The concept of “additional costs” becomes important when comparing the magnitudes of climate-related development aid with the demand for funding to cover additional costs.

The question of what is “new and additional” in climate finance is therefore fundamentally difficult to answer. The boundaries between climate finance and development aid are fluid.

Green Climate Fund

At the Cancún climate summit, the establishment of the new Green Climate Fund (GCF), which was already included in the Copenhagen Accord, was formally decided. The GCF is to finance measures for climate protection and adaptation to the climate impacts in developing countries, and to a much larger extent than before. Much of the new multilateral funding for adjustment is expected to flow through it. A specific order of magnitude for the fund - it is only one element among several for the implementation of the US $ 100 billion - has not yet been determined; it will depend on its specific form and, above all, on the level of financial contributions from the industrialized countries. With the decision of Cancún a committee ("Transitional Committee") was set up, which in 2011 developed the so-called "Governing Instrument", the founding instrument of the GCF. The committee consisted of 15 representatives from the industrialized countries and 25 representatives from the developing countries. With the final agreement at the climate summit in Durban, the GCF was finally launched and operationalized.

Germany's role in international climate finance

Climate finance from Germany 2014–2020, divided into grants for bilateral measures in poorer countries and contributions to multilateral climate funds and development banks.

The Federal Ministry for Economic Cooperation and Development (BMZ) has been funding projects and measures in poorer countries related to climate change for a long time, even before the term climate finance was coined. Since 1998 the Development Aid Committee (DAC) of the OECD has been monitoring donor countries' spending on avoiding greenhouse gas emissions by recipient countries with their “Rio markers”.

German climate finance has increased significantly over the past ten years. There was an increase particularly in the years up to 2016. Bilateral grants and development loans through KfW had reached a level of around 8.5 billion euros by 2016. Since then, however, the funds from Germany have declined again. The funds that the federal government makes available from the federal budget are an important parameter. By 2020 the level of around four billion euros is to be reached. In addition, there are further funds from development loans, for which there is no information about the budgeted figures.

Most of the German climate finance funds come from the Federal Ministry for Economic Cooperation and Development (BMZ). The Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) has also been involved with its “International Climate Initiative” (IKI) since 2008 .

As in many other countries, German climate finance is guaranteed through grants and loans, with more than four fifths of the funds flowing through bilateral channels, and Germany only provides a small part of climate finance through multilateral channels such as the Green Climate Fund or the multilateral development banks. The bilateral cooperation takes place through financial ( KfW ) and technical cooperation ( GIZ ). Most of Germany's climate finance is also development cooperation funds and is therefore also offset against the existing goal of using 0.7 percent of gross national income for development cooperation.

criticism

Deficits in the UNFCCC climate finance process

Deficits in the UNFCCC climate finance process lie in the lack of a legal definition of the term “climate finance”. Furthermore, there is no generally accepted definition of the terms “new and additional”. This leads to a tendency for most states to count their climate finance against development aid or to relabel older commitments. For example, in the past Germany listed many projects as “climate-relevant” at the OECD , even though they had a very questionable relation to climate protection. One example of this is the protection of archaeological sites that Germany has reported to the OECD as being climate-relevant.

Last but not least, the quantification of the financing obligations is inadequate. This is generally due to the small number of quantified funding targets. In addition, where there are quantified announcements, it is extremely difficult, if not impossible, to clearly trace them and verify that these commitments are being met. For example, with the “Bonn Declaration” in 2001, 20 industrialized countries (including Germany and a further 14 EU countries) made commitments of US $ 410 million by 2015 for international climate finance. Monitoring the commitments, however, proved very difficult. There was not a single official document issued by the EU that contained reliable and verifiable figures.

Criticism of the Copenhagen Accord

The commitments made by the industrialized countries in the Copenhagen Accord fall far short of the sums demanded and required by the developing countries (see also Stern Report ) and are not legally binding. So it remains to be seen to what extent the commitments will actually be fulfilled. In particular, the need for long-term funding is likely to be well above the funds promised.

Criticism of German climate finance

Germany has committed an average annual amount of € 420 million for the years 2010 to 2012 under the Copenhagen Accord. For 2010, € 350 million was committed. Of this, however, only € 70 million are “new” commitments. All other amounts were promised beforehand in other contexts, e.g. E.g. at the UN Biodiversity Conference in 2008.

literature

Kowalzig, J. (2020): Climate Finance: An Overview - Origins, Concepts and Construction Sites of Climate Finance. Oxfam, Berlin ( online ).
OECD (2019), Climate Finance Provided and Mobilized by Developed Countries in 2013-17 , OECD Publishing, Paris ( Online ).
UNFCCC Standing Committee on Climate Finance (Ed.): 2018 Biennial Assessment and Overview of Climate Finance Flows Report . 2018 ( Online [PDF; 7.7 MB ]).
Oxfam (2018): Climate Finance Shadow Report 2018, Assessing progress towards the $ 100 billion commitment ( Online ).
Charlie Parker, Jessica Brown, Jonathan Pickering, Emily Roynestad, Niki Mardas and Andrew W. Mitchell: The Little Climate Finance Book: A guide to financing options for forests and climate change . Ed .: Global Canopy Programs. December 2009 ( Online [PDF; 2.6 MB ]).

Web links

deutscheklimafinanzierung.de : Critical support for climate finance from Germany by Bread for the World, Germanwatch, Oxfam, and the Heinrich Böll Foundation
climatefinanceoptions.org: World Bank and UNDP website on climate finance
climatefundsupdate.org
greenclimate.fund

Individual evidence

↑ ^a ^b ^c ^d ^e ^f Charlie Parker, Jessica Brown, Jonathan Pickering, Emily Roynestad, Niki Mardas, Andrew W. Mitchell: The Little Climate Finance Book . Ed .: Global Canopy Program. 2009 ( odi.org ).

^ Harrison Hong, G Andrew Karolyi, José A Scheinkman: Climate Finance . In: The Review of Financial Studies . tape 33 , no. March 3 , 2020, doi : 10.1093 / rfs / hhz146 .

↑ Barbara Buchner, Angela Falconer, Morgan Hervé-Mignucci, Chiara Trabacchi, Marcel Brinkman: The Landscape of Climate Finance . Ed .: Climate Policy Initiative. October 2011, p. 1–2 ( climatepolicyinitiative.org [PDF; 1.6 MB ]).

^ Julie-Anne Richards, Liane Schalatek: Financing Loss and Damage: A Look at Governance and Implementation Options . A discussion paper. Ed .: Heinrich Böll Foundation. May 2017 ( deutscheklimafinanzierung.de [PDF; 3.7 MB ]).

↑ UNEP: UNEP report: Cost of adapting to climate change could hit $ 500B per year by 2050. UNEP, May 10, 2016, accessed on April 6, 2020 .

↑ OECD (2019): Climate Finance Provided and Mobilized by Developed Countries in 2013-17

↑ Kowalzig, J .: OECD report on climate finance: On the way to the 100 billion? September 15, 2015, accessed October 13, 2017 .

↑ Oxfam 2018: Climate Finance Shadow Report 2018: Assessing progress towards the $ 100 billion 36 commitment. Oxfam International, 2018, accessed April 6, 2020 .

↑ Overview of the UNFCCC on the Special Climate Change Fund

↑ Overview page of the UNFCCC on the Least Developed Countries Fund

↑ Alexander Zahar: Climate Change Finance and International Law (= Routledge Advances in Climate Change Research ). Taylor & Francis, 2016, ISBN 978-1-134-61749-4 , 3 Legal obligations of states relating to climate finance.

↑ ^a ^b www.climatefundsupdate.org

↑ ^a ^b Harmeling et al. (2009): Sources of International Climate Finance. A criteria-based analysis of the options discussed in the UNFCCC framework. ( Memento of the original from March 8, 2016 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. Germanwatch, Bonn. (PDF; 57 kB) @1@ 2

^ Federal Ministry for Economic Cooperation and Development : Initiative for Climate and Environmental Protection (IKLU). Retrieved November 18, 2016.

↑ KfW : IKLU. Retrieved August 6, 2010.

↑ ^a ^b BMU: International Climate Protection Initiative. Retrieved November 18, 2016.

↑ Copenhagen Accord, paragraphs 8 to 10.

↑ ^a ^b ^c ^d ^e ^f Liane Schalatek et al. (2010): Where's the Money? The Status of Climate Finance Post Copenhagen. Heinrich Böll Foundation North America. (PDF; 223 kB)

↑ United Nations Framework Convention on Climate Change (2009): Copenhagen Accord (PDF; 187 kB). Retrieved August 5, 2010

↑ Fast-start Finance (FSF). In: Glossary. UNFCCC, accessed November 21, 2016 .

↑ Jan Kowalzig: Almost-start- confirmation expired - how is Germany doing ? April 9, 2013, accessed April 8, 2020 .

↑ UNFCCC: Report of the Conference of the Parties on its twenty-first session, held in Paris from 30 November to 13 December 2015, Addendum, Part two: Action taken by the Conference of the Parties at its twenty-first session. UNFCCC, January 9, 2016, accessed April 8, 2020 .

↑ UK government (ed.): The Road to Copenhagen: The UK Government's case for an ambitious international agreement on climate change . 2009, ISBN 978-0-10-176592-3 ( Online [PDF; 2.1 MB ]).

^ UNFCCC: Transitional Committee for the design of the Green Climate Fund

↑ OECD (Ed.): OECD DAC Rio Markers for Climate Handbook . ( oecd.org [PDF; 1000 kB ]).

↑ Michaelowa / Michaelowa (2010): Coding Error or Statistical Embellishment? The Political Economy of Reporting Climate Aid. CIS Working paper no.56. (PDF; 313 kB)

↑ Jan Kowalzig: Almost-start- confirmation expired - how is Germany doing ? April 9, 2013, accessed April 8, 2020 .

[Parker-1] ↑ ^a ^b ^c ^d ^e ^f Charlie Parker, Jessica Brown, Jonathan Pickering, Emily Roynestad, Niki Mardas, Andrew W. Mitchell: The Little Climate Finance Book . Ed .: Global Canopy Program. 2009 ( odi.org ).