What you need to know about European climate finance

When it comes to helping poor nations cope with the effects of climate change, money is a central issue. As the world’s largest climate finance donor, the European Union plays a pivotal role in shaping how the global community combats climate change. In 2014, the European Commission and the 28 European Union member states jointly provided 14.5 billion euros ($15.8 billion) worth of grants and loans for global climate action. Commitments from EU member states also make up almost two-thirds of all pledges so far signed by the United Nations Green Climate Fund. So where does the bloc stand on the question of climate finance? Over the past two weeks, Devex was on the ground at the COP21 summit in Paris to bring fresh and practical perspectives on what this conference means for global development. Here is what we know about Europe’s contributions to the global finance architecture. Climate contributions are on the rise Europe is generally ahead of the global curve when it comes to climate finance. Between 2010 and 2012, the EU and its member states disbursed 7.4 billion euros worth of “fast start” funds to help developing countries take immediate climate action. And that was just the beginning. “European countries are also seeking to mainstream attention to low-carbon opportunities, scale back investment in high-carbon development, and increase attention to climate risks in development spending,” Smita Nakhooda, a climate finance expert at the Overseas Development Institute, told Devex. More recently, European governments made headlines through a series of high profile climate announcements. Over the next five years, the United Kingdom will set aside 5.8 billion pounds ($8.7 billion) to help poor nations cope with climate change. France promised to increase its annual climate finance effort from 3 billion euros currently to more than 5 billion euros by 2020. Meanwhile, German Chancellor Angela Merkel announced her intention to drive up the country’s annual climate finance spending to 4 billion euros, a financial push which will result in an additional 8.3 billion euros being spent between 2016 and 2020. The European Commission is also expected to dedicate at least 20 percent of its entire budget to climate actions by 2020. According to the European Court of Auditors, an estimated total of 11.6 billion euros for climate-related activities would be made available under external aid between 2014 and 2020, or an average of 2 billion euros a year. Implementation is still a challenge Although the Paris climate talks set the stage for many generous pledges, environmental campaigners denounce the lack of transparency surrounding the promises made. “Donors keep announcing the same amounts of money. They don’t explain whether it is grants or loans. Sometimes it’s unclear whether it’s five-year or one-year,” Celine Charveriat, head of advocacy and campaigns at Oxfam International, previously told Devex on the sidelines of the COP21 summit. European donors have often been equally vague on what their pledges are made of, running the risk of undermining both their climate action and foreign aid spending. “Announcements on climate finance often do not specify whether they are made from within growing aid budgets or not,” explained Lies Craeynest, Oxfam’s policy adviser on climate change. All climate finance increases must therefore be treated with caution, she said, as they could come at the expense of development aid. In some cases, the growing focus on climate-related issues seems to have already diverted money away from other, but no less important sectors. Aid programming under the 11th European Development Fund — the EU’s financing instrument for African, Caribbean and Pacific countries — is a case in point. “It is important to ask whether pressure on the EU to deliver on its climate finance commitments is already diverting EU aid away from social sectors,” Alisa Herrero Cangas, policy officer at European Center for Development Policy Management, underlined. “Our research on the 11th EDF shows that although the EU spends around 20 percent of its budget in social sectors, only half of ACP countries have a social sector as a priority.” There are also doubts over whether the EU and its member states are ready to go the extra mile to change their ways. Mainstreaming climate into budgets and activities is more than a simple tick-boxing exercise — it requires deep, sustained engagement with partner governments. “If the EU wants to be truly climate smart … it will need to ensure that EU support is mainstreamed across all sectors of intervention at the country level,” Herrero Cangas said. “[For example] it is quite worrying to see that only half of the ACP countries that prioritize agriculture have a specific climate resilience focus and that only 30 percent aim at a low-carbon transition in the sector.” Finally, European climate contributions continue to be scattered across a range of instruments and programs, ODI’s Nakhooda told Devex. This fragmentation poses significant coordination, ownership and accountability challenges. According to an official EU document, the Commission and member states used no less than 22 multilateral channels in 2010 to disburse climate finance. The most vulnerable are receiving more attention The EU recently announced it would make an extra 350 million euros available to least developing countries and small island developing states through its Global Climate Change Alliance by 2020. This is welcome news considering that poorer nations have historically struggled to access climate finance. Created in 2007 as a tool for climate policy dialogue and technical cooperation between the 28-member bloc and developing countries, the alliance has funded 51 national and regional programs across 38 countries. Now the priority is to achieve impact at scale — hence the new acronym GCCA+. “The GCCA+ builds on the successes of the first phase,” Fernando Frutuoso de Melo, director general of EuropeAid, told Devex in an exclusive interview. “It will focus on moving from pilot actions to actions which have a wider impact: Scaling up successful projects and best practices. It will also help to broaden the partnership and cooperation with EU member states, non-state actors and civil society organizations, as well as possibly the private sector.” Along with the United States, European governments are also the main contributors to the Least Developed Countries Fund, which recently received $248 million in new money for adaptation support to the most vulnerable countries. “The GCCA+ builds on the successes of the first phase … scaling up successful projects and best practices.” --— Fernando Frutuoso de Melo, director general of EuropeAid Development groups warn however that EU climate funds for the poorest remain a drop in the ocean. The needs are huge: The United Nations Environment Program recently found that African countries alone stand to face adaptation costs of at least $50 billion a year. More worrying still, middle income countries are concentrating the lion’s share of public climate finance. According to a report released by the International Institute for Environment and Development, six emerging economies — Brazil, China, India, Morocco, South Africa and Turkey — currently receive as much money as all 48 least developed countries together. Investment in adaptation is still insufficient The EU and its members states support climate-resilient, low-carbon development through a variety of means, including the GCCA+, the LDCF, the GCF, the Adaptation Fund and the Global Environment Facility. But the bulk of European public finance for climate adaptation activities in developing countries is channeled through bilateral assistance programs. Collectively, the EU and its member states represent the most generous donor to climate adaptation. According to the latest data published by the Organization for Economic Cooperation and Development, adaptation-relevant commitments from the EU’s member states and institutions amounted to $6.9 billion in 2013, or more than 60 percent of all public bilateral adaptation finance commitments. But like many other donors, European climate finance demonstrates a clear preference for mitigation. In 2014, only 16 percent of the 14.5 billion euros worth of European climate finance went to adaptation initiatives, versus 63 percent for mitigation. Few European countries have made steps to address the imbalance in support. The U.K. has committed to dedicate half of its most recent climate finance pledge to building the resilience of vulnerable communities. Meanwhile, France has promised to set aside a notable portion of its climate funding for adaptation activities. To help bridge the gap, some African countries have proposed a global target of $32 billion by 2020. The EU has so far turned down this proposal, despite the lack of any viable alternative. “Guaranteeing a quantitative goal for climate adaptation could be the only way to regain some credibility on donor accounting, as the numbers currently have been inflated by adding loans and some private sector leveraging, which are less easy to be used for adaptation,” Oxfam’s Craeynest said. Check out more funding trends analyses online, and subscribe to Money Matters to receive the latest contract award and shortlist announcements, and procurement and fundraising news.