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Climate finance

Meeting room of the international donor conference of the Green Climate Fund, hosted by the German Federal Government in Berlin on 20 November 2014.

Germany remains a reliable partner

Climate change is already posing a threat to the development of the world's poorest countries and will be making it far more difficult to achieve progress in the future. Climate action and development policy are thus inextricably linked. Assistance for developing and emerging economies with regard to financing measures for climate change mitigation and adaptation is an important area of Germany's development cooperation.

Development cooperation has an important part to play in enabling the global objective of decarbonisation – the transition to a low-carbon economy and lifestyle – to be achieved in the course of the 21st century. To this end, public funds for climate change mitigation must be deployed in ways that serve to reduce greenhouse gas emissions and increase climate resilience – that is, resilience to the consequences of climate change.

The same applies to all other financial flows (including private investment and within that foreign direct investment), all sectors of the economy and all financial market transactions. The parties to the Paris Agreement, which include Germany, all committed themselves to this in 2015.

Germany's contribution to international climate finance

In 2009, the industrialised countries made a commitment to provide, from 2020, an annual 100 billion US dollars from public and private sources for climate change mitigation and for adaptation in developing countries to the consequences of climate change. That commitment was confirmed and expanded at the climate summit in Paris. Accordingly, a new financing target that exceeds the original sum of 100 billion dollars is to be adopted before 2025.

Germany has significantly increased its contributions to climate finance in recent years. In 2017 the German government committed a total of around 3.65 billion euros in official budget funds – including grant equivalents – for climate change mitigation and adaptation. Eighty-four per cent of this sum came from the budget of the Federal Ministry for Economic Cooperation and Development (BMZ).

This increase is in line with the announcement made by Federal Chancellor Angela Merkel in 2015 that Germany would strive to double its climate financing compared to 2014 levels. By 2020, the 2014 commitment of two billion euros a year is to be increased to four billion euros. In addition, Germany is making further contributions through public loans (via KfW and DEG) and by mobilising private funds.

Germany is thus providing not only money from official budget funds but also funds raised on the capital market. In 2017, KfW Bankengruppe (KfW banking group) together with its subsidiary DEG (German Investment and Development Company) was able to commit an additional 3.08 billion euros in the form of development loans and promotional loans, investments and other financing from capital market funds. Germany's official contributions to international climate finance in 2017 thus totalled 6.73 billion euros.

Last but not least, Germany has also mobilised private climate funding, mainly involving revolving credit lines for local (development) banks, and investments in structured funds and public-private partnerships (through DEG and KfW alone almost 500 million euros was mobilised in 2017). Thus in 2017, Germany's contribution from all sources amounted to 7.23 billion euros in total.

Infographic on the topic of "Climate finance"

Bilateral activities

Between 80 and 90 per cent of Germany’s climate funding each year comes from the BMZ’s budget. Germany’s climate financing focuses on bilateral cooperation. In 2017, 84 per cent of climate finance from BMZ budget funds was for bilateral activities.

The BMZ supports climate change mitigation and adaptation projects in almost all its partner countries. Its activities are aligned with partner countries’ efforts to incorporate climate action into their national development strategies. In addition, the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) supports extensive climate action through its International Climate Initiative (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 climate finance.

Climate finance is being used for adaptation to climate change, reduction of emissions, and forest and biodiversity conservation, including REDD+.

Glacier in Iceland

Multilateral activities

Multilateral organisations are important partners in upscaling change: they implement programmes of significant scale and reach in developing countries and emerging economies and can coordinate inputs from different donors. In addition, multilateral institutions often play a key part in policy dialogue at the national and the international level. To complement its bilateral activities in the climate sector, the BMZ therefore has an ambitious multilateral portfolio. The Ministry is a dynamic player in international institutions, voicing Germany's positions and values in the field of development.

The BMZ is working with the multilateral development banks to help put in place an enabling environment for effective climate policies. Multilateral banks can act as global pioneers, in particular by channelling global financial flows into low-emission and climate-resilient investment pathways. To achieve this, they need to take climate change issues into account in all their operations. Among other things, the BMZ has successfully campaigned for the International Development Association (IDA), the World Bank’s financing instrument for the poorest countries, to mainstream climate change mitigation and adaptation in its core business.

Germany also makes significant monetary contributions to multilateral climate financing. For example, the BMZ is the third-largest donor to the Global Environment Facility (GEF), after Japan and the United States. The BMZ has so far paid more than any other donor into the Least Developed Countries Fund, the GEF’s fund for the poorest nations, and into the Special Climate Change Fund.

Opening of the World Climate Conference COP23 in Bonn in November 2017

Priority areas of multilateral engagement

The Green Climate Fund

The central instrument for multilateral climate finance is the Green Climate Fund (GCF). The BMZ contributes to the activities of the Fund through strategic input, financial support and human resources. The mission of GCF is to facilitate the transition to low-emission, sustainable development. To this end, the Fund supports programmes that promote low-carbon economic development or make a substantial contribution to adaptation to climate change. Furthermore, it is intended that the Fund will encourage the private sector to invest additional funds in mitigation and adaptation activities.

The BMZ and the BMU share responsibility for the GCF within the German government. Germany has committed 750 million euros for the Fund's initial capitalisation. All this funding came from the BMZ budget. Germany plans to make another significant contribution when the Fund is replenished. The replenishment process was launched in 2018.

Logo: Green Climate Fund

Global Environment Facility

The Global Environment Facility (GEF) was founded in 1991 in response to a German-French initiative. It is one of the most important funds for the protection of the global environment.

The GEF is a bridge between the Bretton Woods institutions and UN institutions. It is based on a partnership with the three implementing organisations the World Bank, UNDP and UNEP and seven other implementing agencies (EBRD, ADB, AfDB, IADB, FAO, IFAD and UNIDO). The GEF Secretariat is hosted by the World Bank in Washington D.C.

For the seventh replenishment period (July 2018 until June 2022)  the GEF will be able to draw on 4.1 billion US dollars for new projects and programmes. Germany is the second largest donor after Japan for this replenishment period. Within the German government, the BMZ has the lead responsibility for the GEF and represents Germany on the GEF Council.

The GEF finances measures in developing countries to protect the global environment in the areas of:

  • Biodiversity
  • Climate action
  • Combating land degradation
  • Protection of international waters
  • Chemicals (protection of the ozone layer and protection against persistent organic pollutants).
  • Forest protection
Logo: Global Environment Facility (GEF)

Using climate finance to maximum effect: The Climate Finance Readiness Programme

The funding available for climate change adaptation and mitigation is growing constantly. Yet many developing countries are finding it difficult to access international funding or to make effective use of such funding. The countries in this position are often the poorest and smallest states with weak government structures, such as the small island states, which feel the impacts of climate change particularly harshly. This challenge is addressed by the BMZ's Climate Finance Readiness programme (CF Ready). It supports countries in building the organisational, technical and human resource capacity needed to apply for international funding from organisations such as the Green Climate Fund and to use these resources strategically.

The CF Ready programme is jointly administered by KfW Development Bank and GIZ. Since early 2017, GIZ has also been acting as an implementing partner for the Readiness and Preparatory Support Programme of the GCF.

The CF Ready Programme works closely with the secretariats of the major climate funds, such as the GCF and the Adaptation Fund. It operates in the following 13 countries: Bangladesh, Cambodia, Grenada, Jamaica, Morocco, Namibia, Peru, South Africa, Tajikistan, Tanzania, Uganda, Viet Nam, and Zambia. GIZ is implementing GCF readiness funds in Bangladesh, Georgia, Grenada, Laos, Pakistan, Peru, Thailand and Vanuatu, more countries are to follow.

 

Solar installation in Bangladesh
Replenishment of the Green Climate Fund

Concrete climate figures – the methodology behind the BMZ's reporting

Since 2011, the BMZ has been calculating its bilateral climate finance on the basis of the "Rio markers" defined by the Organisation for Economic Co-operation and Development (OECD). A distinction is made between markers for 'climate change mitigation' and those for 'climate change adaptation'.

Using the Rio markers, activities can be assigned three different significance scores. A score of 2 means that mitigation or adaptation is a 'principal' objective of the project. In this case, the full 100 per cent of the project's financial 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, only 50 per cent of the financial volume 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. The funding for such projects cannot be reported as climate finance. The German procedure thus differs from the approach of the OECD, which still counts the full volume of such projects even if mitigation or adaptation is only a 'significant' objective.

Annual reporting

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 Special Energy and Climate Fund and from its successor budget lines are also reported in terms of disbursements, as has been agreed with the German Environment Ministry.

The BMZ has, since 2014, been including in its calculations of Germany's climate finance the share of the funding it provides to various multilateral organisations that can be counted as climate finance ('imputed multilateral contributions'). The organisations concerned are the World Bank’s International Development Association (IDA), the African Development Bank (AfDB) and the Asian Development Bank (ADB). Since the end of 2014, these Funds have been publishing figures showing the share of climate-related activities in their portfolios, enabling Germany and other countries to calculate their individual shares for reporting purposes. Germany is following here the practice agreed by donors within the OECD whereby these reported figures are then used as a basis for calculating how much of the donors' contributions can be regarded as climate-related.

Since 2015, the BMZ has also been reporting on a project-by-project basis the climate finance mobilised by KfW from public funds. In order to avoid double-counting, the development loans reported do not include the interest subsidy from budget funds or the grant equivalent. 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. For public climate finance provided by DEG, the details given indicate climate finance per region.

Workers are stabilising the dunes to protect the city of Nouakchott in Mauritania from rising sea levels due to climate change.

Mobilisation of private climate finance

Currently, Germany only reports on climate finance mobilised from private funds in the areas for which reporting methods have already been agreed. KfW applies the instrument-specific DAC methodology. Private climate funding that is mobilised through DEG loans or investments is calculated using the basis of a separate method. The funding provided by public actors, especially development banks, is deducted from the total project investment volume. The reporting on private climate finance is incomplete in so far as there are many other options for mobilising funds that are not taken into account. The German government is currently working to establish internationally agreed criteria for taking climate finance delivered through Federal guarantees (Euler Hermes) into account.

From 2018 on, i.e. starting with the reporting year 2017, the BMZ will also publish the grant equivalents of its development loans with a view to measuring the degree of concessionality of these development loans transparently and more precisely than has been done in the past. They will appear under the BMZ budget funds. The amount of the grant equivalents is calculated on the basis of each grant element (a percentage that indicates the concessionality of the loan), the volume of the market funds and the Rio markers for each intervention. This is in line with the rules agreed for ODA (official development assistance) by the OECD Development Assistance Committee (DAC).

  • Dam road to protect a residential area at the port of Khulna in Bangladesh
    Bangladesh: Cooperation in action

    First climate change effects evident

    In order to meet the climate change-related financing needs of countries like Bangladesh, industrialised countries committed in 2009, during the UN climate conference in Copenhagen, to jointly mobilise an annual 100 billion US dollars by 2020.

Dam road to protect a residential area at the port of Khulna in Bangladesh
Cooperation in action

Bangladesh is "CF Ready"

Bangladesh can count on support. In order to meet the climate change-related financing needs of countries like Bangladesh, industrialised countries committed in 2009, during the UN climate conference in Copenhagen, to jointly mobilise an annual 100 billion US dollars by 2020.

In order to raise its efficiency in applying for and managing international climate finance more efficient, the Government of Bangladesh is drawing on specialised technical support. This is where the programme Climate Finance Readiness (CF Ready) comes into play. On behalf of the Federal Ministry for Economic Cooperation and Development (BMZ), the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) is providing expertise to assist this climate-impacted country.

CF Ready specifically supports developing countries that are working to establish the necessary enabling environment for successfully accessing international climate finance. The Green Climate Fund (GCF) features prominently in CF Ready's work, because a significant portion of climate finance grants comes from its budget.

The programme is already bearing fruit in Bangladesh. In the Finance Ministry, the National Designated Authority (DNA), the focal point for the GCF, has been established and, with support from CF Ready, has developed a procedure through which projects can be selected on the basis of national priorities. The aim is to make it possible for climate projects which are being implemented by national organisations to be able to access international climate finance.

This is intended to help the country adapt to the impacts of climate change. Because: "It is very expensive to build and repair dykes. We are talking about no less than at least 3,300 kilometres of coastline," says Ms Hussain.

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