The German Fast-Start Finance Contribution

Summary

Industrialized countries have repeatedly committed to provide new and additional finance to help developing countries transition to low-carbon and climate-resilient growth. This assessment addresses German efforts to provide “fast start finance” (FSF) as a contribution to the pledge by developed countries to provide USD 30 billion from 2010 to 2012 under the United Nations Framework Convention on Climate Change (UNFCCC). It is part of a series of studies scrutinizing how developed countries are defining, delivering, and reporting FSF.

Germany has increased climate finance in recent years and met its self-defined FSF pledge. According to the government’s FSF reporting, from 2010-2012 Germany provided a total of EUR 1.29 billion (approximately USD 1.7 billion) for climate action in developing countries that was counted towards FSF. Germany has therefore slightly exceeded its FSF pledge for the period 2010-2012. Even before the start of the FSF period, Germany was already providing significant funding for climate change-related activities in developing countries, particularly for renewable energy and energy efficiency. It therefore started from a relatively high climate finance baseline. Moreover, FSF is only a part of what the German government provides in climate-related finance for developing countries. Overall, Germany has increased delivery of international climate finance when compared to climate-related spending prior to the FSF period: In 2011, Germany committed about EUR 1.8 billion in total for climate finance, an increase from EUR 470 million in 2005.

Germany’s FSF is roughly evenly distributed be¬tween bilateral and multilateral cooperation. Out of the EUR 1.29 billion, EUR 585 million was channelled through multilateral funds. The largest single channel is the World Bank-administered Climate Technology Fund (CTF), which received EUR 375 million from Germany from 2010-2012. Substantial amounts of funding were also transferred to adaptation-related multilateral funds and the Forest Carbon Partnership Facility. Two federal ministries, the German Federal Ministry Economic Coop¬eration and Development (BMZ), and the German Federal Ministry Environment, Nature Conservation and Nuclear Safety (BMU), are responsible for the disbursement of FSF resources. Nearly half of this funding has been channelled through the German development cooperation agencies GIZ and KfW. Relatively few resources were delivered directly to developing country domestic institutions.

Germany FSF has primarily supported general mitigation (45 percent), and efforts to reduce emissions from deforestation and degradation (26 percent), while 28 percent supports adaptation. Germany aimed to provide 50 percent of its climate finance for mitigation, 33 percent for adaptation activities, and 27 percent (EUR 350 million) for REDD+. The Copenhagen Accord sought a balance between adap¬tation and mitigation (including REDD+) during the FSF period. Adaptation has received less finance than expected at the outset of the FSF period. Overall, most German FSF resources have been allocated to the regions of Africa (34 percent) and Asia (29 percent). Additionally, roughly 60 percent of all adaptation finance and 50 percent of bilateral adaptation finance has been allocated to Small Island Developing States, Least Developed Countries, and African countries.

The majority of Germany’s FSF is provided through grants. Loans are provided to the CTF, and account for about 29 percent of the overall FSF contribution. Germany is relatively transparent about its FSF. Through BMU and BMZ, the German government publishes lists of the FSF projects it supports, reporting on the recipient country, project name, project description, objective, amount, implementing agency, financial instrument, and expected project duration. It also reports to the European Commission (EC) on an annual basis. In addition, Germany has commissioned a study on lessons learned from FSF for long-term finance. However, official reporting would be strengthened through the inclusion of information on the actual disbursements and on project impact.

Germany is one of the few countries which has applied and published a specific definition of “new and additional” for its FSF. Germany only counts those funds towards FSF which were committed in addition to a 2009 baseline (as part of Official Development Assistance, or ODA, spending) and/or which are generated by new financing sources, namely the auctioning revenues under the EU ETS. Nonetheless, some of the financial resources counted as FSF were pledged before the FSF period: for example, Germany pledged finance to the CIFs in 2008, but only funding delivered from 2010 onwards was counted as FSF. All German FSF is counted towards ODA. However, Germany has yet to meet its commitment to provide 0.7 percent of its Gross National Income as ODA, and in fact its ODA contributions have recently declined. Also, Germany’s climate finance is committed in the context of a complementary commitment to scale up finance for biodiversity under the Convention on Biodiversity (CBD). It will be important to monitor reporting against both of these commitments in order to understand whether pledges have been duplicated or recycled.

Most of the projects counted towards FSF seem to have a principal or at least significant climate objective. An independent application of the Organisation for Economic Development (OECD) climate markers to the FSF projects suggests that the vast majority of projects seems to have a clear climate element, based on limited project informaiton. However, a focus on only bilateral projects reveals that the share of principally climate-driven projects may be lower than bilateral projects committed to other climate objectives. Furthermore, an assessment of the incremental climate change costs that are covered through the projects is not available.

Germany is one of the few developed countries to have committed climate finance beyond the FSF period. At COP18, Germany pledged to deliver EUR 1.8 billion in climate finance in 2013, an increase from the EUR 1.4 billion delivered in 2012.1 These funds will come from the general budget and from the “Sondervermögen Energie und Klimafonds” (“Special Energy and Climate Fund”). This separate budget structure is financed by auctioning revenues from the EU Emission Trading Scheme (EU ETS). The current low prices of carbon, however, may reduce available climate finance beyond 2012.

With regard to reporting on international climate finance, we suggest the following actions to further in¬crease transparency:

• Continue to publish annual, project-level information after the close of the FSF period. Reporting systems could be updated to reflect the parameters of the new United Nations Framework Convention on Climate Change (UNFCCC) common reporting format (for example, by specifying the sectors to which funding is directed). It could also seek to improve reporting on the actual state of implementation of projects, and actual disbursement of committed funds. Therefore, Germany may explore practical options for providing some project-level information on the results of at least the larger programs funded in real time, e.g on the basis of the project reporting that is required of implementers (such as through annual or evaluation reports).

• Provide additional information on which projects are funded by which ministries.

• Provide more detailed financial information on projects that meet commitments to increase both climate and biodiversity finance to provide greater clarity on synergies, and assure that finance has not been double-counted. Such reporting can also be related to climate finance reporting under the OECD climate markers, in order to ensure consistency with FSF reporting.

• Further strengthen and harmonize reporting and transparency standards for implementing institutions, in particular dedicated multilateral climate funds. Ger¬many can support progress to this end as a member of the governing bodies of these funds.

With regard to Germany’s international climate finance approach as a whole, we offer the following recommendations:

• Continue to work to increase support for adaptation, with the goal of achieving a greater balance between adaptation and mitigation.

• Explore ways to work more closely with recipient country-based institutions through its delivery of climate finance. This may need to be accompanied by capacity building support in order to increase these countries’ capacity to access such funding and use it effectively.

• Explore options to ensure that increasing climate finance as part of efforts to deliver ODA does not reduce support available to help countries address development challenges as a whole. In the German case, the fact that ODA has been declining while climate finance increases at a relatively rapid rate presents a particular challenge.

• Consider options to find more reliable sources of climate finance. The German climate finance approach has been largely sourced through the revenues from emission-trading. Nevertheless, there is a need for all countries to further scale-up climate finance in order to meet agreed goals of mobilising USD 100 billion from a mix of public and private sources by 2020. Options might include multilateral efforts to strengthen the EU ETS through increased EU mitigation targets, as well as the deployment of other innovative sources, such as financial transaction taxes or revenues from international transport. A clear pathway for scaling up climate finance would help create greater predictability of finance, and help generate trust and ambition in developing countries.