Climate change and development Climate finance: Germany remains a reliable partner
By providing public funding through its development policy, Germany is making a major contribution to the global implementation of the Paris Agreement. Just like all other nations, developing countries and emerging economies will also need to embark on ambitious programmes to reduce greenhouse gas emissions and adapt to the consequences of climate change if the world is to achieve climate resilience and decarbonisation in the 21st century. That means shifting to a low-carbon lifestyle and economy and making societies more resilient to the consequences of climate change.
Yet public funds will not be enough to achieve such a fundamental transformation. What it will take is for all global financial flows, including private investment and foreign direct investment and across all economic sectors and all financial markets, to be aligned with those two goals. That was what all the parties to the Paris Agreement (External link), including Germany, agreed in 2015 (cf. Article 2.1.c).
Indeed, back in 2009 in Copenhagen, the industrialised countries had already committed to mobilise as of 2020 an additional annual 100 billion US dollars from public and private sources for climate change mitigation and adaptation in developing countries. At the 2015 Paris Climate Conference, it was agreed to continue providing 100 billion US dollars annually until, initially, 2025. After that, a new international climate financing goal is to be set. It should be in excess of 100 billion US dollars and reflect in particular the needs and priorities of developing countries.
Germany's contribution to international climate finance
Germany has already considerably increased its climate finance contributions. Between 2005 and 2020, the German government increased budgetary funds for climate action more than tenfold. Since 2017, the grant equivalents from KfW development loans have also been included in calculations. With those sums included, the total amount committed by the German government for climate change mitigation and adaptation measures stood at some 5.1 billion euros in 2020. Over 85 per cent of that came from the budget of the Federal Ministry for Economic Cooperation and Development (BMZ).
This increase goes beyond what Federal Chancellor Angela Merkel announced in 2015, when she said that Germany would strive to double its climate financing from an annual two billion euros in 2014 to four billion euros in 2020. This target had already been met in 2019. In addition to the funding provided from its federal budget, Germany also contributes through public loans (administered by KfW and DEG) and by mobilising private funding.
In this way, KfW Bankengruppe (KfW banking group) together with its subsidiary DEG (German Investment and Development Company) was able to commit an additional 2.55 billion euros in 2020 in the form of development loans, promotional loans, investments and other financing from capital market funds. That brought Germany's public contributions to international climate finance that year up to a total of 7.64 billion euros.
Significantly, Germany has also used public funding to leverage private climate finance, mainly in the shape of revolving credit lines for local (development) banks, investments in structured funds and public-private partnerships (PPPs). (Through DEG and KfW alone almost 192 million euros were mobilised in 2020.) So in 2020, Germany's contributions from all sources totalled 7.83 billion euros.
Background facts Bilateral and international activities
Climate finance goes into measures both to mitigate greenhouse gas emissions and to help countries adapt to climate change. Some climate-related projects also serve to protect forests and biodiversity, for example REDD+ projects.
Germany channels most of its climate finance through bilateral cooperation. The BMZ works together with nearly all its partner countries on the issue of climate change. Activities build on the partner countries’ own efforts to integrate climate change mitigation and adaptation into their national development strategies.
An average of between 80 and 90 per cent of Germany's annual funding for climate finance comes from the BMZ's budget. In addition, the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) supports a broad programme of climate measures through its International Climate Initiative (External link) (IKI). The Federal Ministry for Economic Affairs and Energy (BMWi), the Federal Ministry of Education and Research (BMBF) and the Federal Foreign Office (AA) also contribute to Germany's climate finance.
When it comes to effecting change on a large scale, multilateral organisations like the World Bank Group and the United Nations are important partners. They are able to implement major programmes in developing countries and emerging economies and can coordinate the inputs of various different donors. Multilateral institutions also often play a key role in policy dialogue at national and international level. To complement its bilateral activities in the climate sector, the BMZ therefore has an ambitious multilateral portfolio.
It makes a major contribution to multilateral climate finance. For example, the BMZ is currently the second-largest donor to the Global Environment Facility (External link) (GEF), after Japan. It has paid more than any other donor into the Least Developed Countries Fund (External link), the GEF’s fund for the poorest nations, and into the Special Climate Change Fund (External link). Germany is also one of the largest donors to the Green Climate Fund (External link) (GCF), the Adaptation Fund and the Climate Investment Funds (External link) (CIFs). It is, moreover, an active and committed partner in international institutions, where it defends the development policy positions and values embraced by Germany.
The BMZ is working with the multilateral and regional development banks to help establish the right environment for climate policies to be truly effective. Multilateral banks can act as global pioneers, in particular by channelling global financial flows into low-emission and climate-resilient investment pathways. That means ensuring that their whole range of activities take account of climate change and its consequences. Among other things, the BMZ has successfully pressed for the International Development Association (External link) (IDA), the World Bank’s financing instrument for the poorest countries, to mainstream climate change mitigation and adaptation in its core business.
Climate finance figures in detail The methodology behind the BMZ’s reporting
Since 2011, the BMZ has calculated its bilateral climate finance using the “Rio markers” defined by the Organisation for Economic Co-operation and Development (OECD). The markers make a distinction between “climate change mitigation” and “climate change adaptation”.
Actions can be assigned three different values, or scores, under each marker. To score “2”, an action should have reduction of greenhouse gases or adaptation to climate change as its principal objective, meaning that the project would not otherwise have been planned. In this case, 100 per cent of the project budget volume is reported as being for the climate sector in question. A score of “1” means that mitigation or adaptation is a “significant” objective of the project. For such projects, 50 per cent of the project budget is reported as being for the climate sector in question. A score of “0” means that the activity does not significantly contribute to climate goals. Funding for such projects cannot be reported as climate finance.
In line with international practice, the BMZ reports its bilateral climate finance in terms of annual funding committed. For its multilateral activities, by contrast, it reports in terms of funding disbursed. Contributions from Germany's Energy and Climate Fund and from its successor budget lines are also reported in terms of disbursements.
The BMZ has, since 2014, included in its calculations of Germany's climate finance that share of the funding provided to the relevant funds of various multilateral organisations that can be counted as climate finance (“imputed multilateral contributions”). This includes contributions to the World Bank’s International Development Association (IDA), the African Development Bank (AfDB) and the Asian Development Bank (ADB). This option became available in 2014 when these funds started publishing data on the proportion of their spending that goes towards climate-related measures.
When reporting on its bilateral climate finance, the German government has since 2013 reported not only public funds provided from the government budget but also on mobilised public climate finance. That covers the climate-relevant loan funding by KfW Development Bank and from Deutsche Investitions- und Entwicklungsgesellschaft (DEG) for which market funds are used. Since 2015, this reporting has been project-specific. Reporting on the figures for individual projects is more transparent than providing an aggregated sum.
In order to make reporting as transparent as possible and guarantee that no funding is counted twice, three categories are applied to development loans. One category is the budgetary funding used to subsidise the interest rates on development loans. The second category is the grant equivalents, which are shown separately. Since the budgetary funds used to subsidise the interest rate of development loans serve to increase their concessionality and are shown separately, those funds are deducted from the grant equivalent total. The third category shows the volume of the development loan minus the interest-rate subsidies and grant equivalents, which have already been reported separately.
For reasons of bank confidentiality, the subsidy elements included in the individual development loans may not be published. The interest subsidies are therefore reported as a total for each region (e.g. Africa). For public climate finance provided by DEG, the figures provided are also aggregated figures for entire regions.
Since the reporting year 2017, the BMZ has also published the grant equivalents of its development loans with a view to measuring the degree of concessionality of these development loans compared with loans at market conditions in a more transparent and precise way than in the past. The grant equivalents are calculated using a mathematical formula. It uses the grant element (a percentage indicating the concessionality of the loan), the volume of the market funds and the Rio markers for the particular project concerned. This is in line with the rules agreed for ODA (official development assistance (External link)) by the OECD Development Assistance Committee (DAC).
Mobilisation of private climate finance
Currently, Germany reports on climate finance mobilised from private funds only in areas for which reporting methods have already been agreed. KfW and DEG apply the instrument-specific DAC methodology. The reporting on private climate finance is therefore incomplete to the extent that there are many other options for mobilising funds that are not yet taken into account, for example capacity-building through Technical Cooperation.
BMZ’s contributions to climate action in figures
In the interests of maximum transparency, the information presented below on the BMZ’s climate finance contributions over recent years is broken down wherever possible by project and presented in the form of tables and graphs. The figures are broken down by region (e.g. Africa) and instruments (e.g. non-governmental agencies). As of 2019, they are also broken down by budget line (e.g. budget line 2301 866 11 – bilateral Financial Cooperation – loans/grants). The figures also show how much funding was made available for mitigation and how much for adaptation.
Further information on the climate projects implemented by KfW and GIZ can be found in the implementing organisations’ own databases (GIZ project database (External link), KfW project database (External link) (in German)).
Germany reports its climate finance figures to the EU (in accordance with Article 16 of the Greenhouse Gas Monitoring Mechanisms Regulation) and also submits the relevant tables (External link). The tables for 2013 to 2019 can be found on this page. As of 2021, reporting obligations to the EU will change in accordance with Article 6 of the implementing regulation (External link) relating to the Regulation on the Governance of the Energy Union and Climate Action (External link).
In additional to its annual reporting obligations to the EU, the German government also, as a party to the UN Framework Convention on Climate Change, submits its climate finance figures to the UNFCCC in the form of a Biennial Report. Germany’s fourth biennial report (External link) outlining the financial support provided for climate action in 2017 and 2018 was submitted in 2019.