The EU has committed to mobilise climate finance to support developing countries in their efforts to combat climate change. However, new research shows that EU institutions fall short on delivering on their financial commitments, write Mattias Söderberg and Floris Faber.
Mattias Söderberg is Chief Advisor at DanChurchAid and climate finance spokesperson of ACT Alliance EU and Floris Faber heads the ACT Alliance EU office in Brussels.
The need for climate action is agreed. But action will only come if there is available finance, especially in developing countries where significant resources are needed to ensure food security, education, health care and a number of other development targets.
The EU has committed to mobilise climate finance to support developing countries in their efforts to combat climate change, and this has been reiterated in a number of European Council conclusions and international agreements. However, new research, covering 2013-2018, shows that EU institutions fall short on delivering on their commitments.
The research, which is presented in a report from ACT Alliance EU, identifies a number of areas where EU institutions – the European Investment Bank, the European Development Fund and the European Commission – could improve, to turn words into deeds.
Loans do not equal grants
Firstly, it should be said that EU climate finance is increasing. That is good news and should be acknowledged. However, the growth has, during recent years, been based on an increase in loans rather than grants. The European Investment Bank offers loans, and the Bank is, as stated in its plans, scaling up the focus on climate change. However, at the same time the support from the European Development Fund, and the European Commission, offering grants, has decreased.
Loans are, for sure, an important modality. However, loans have to be repaid, and in most cases with interest. Climate change is caused by emissions to a large extent originating from the industrialised world, including the EU. It is thus unfair for the EU to benefit financially, through interest, by offering climate support as loans to developing countries. Furthermore, the EU does not distinguish, in its reporting, between grants and loans. The full-face value is counted, including the funds which eventually will be repaid.
The EU should not leave poor and vulnerable countries behind
The researchers have mapped where and how the money has been spent. Looking at the funds which were committed, we are unfortunately noting a decreasing focus on the poorest countries, and on adaptation. This is unfortunate, both because the poorest and most vulnerable communities are the ones needing most support, and because the EU has agreed that climate finance should be balanced between mitigation and adaptation.
The decreasing focus on adaptation, and on least developed countries, seems to be linked with the growing focus on climate change within the European Investment Bank. As mentioned, the Bank offers loans. Loans are more attractive for projects promoting mitigation, and loans are also more relevant for richer countries. In fact, around 15% of the total climate finance reported by EU institutions as support to developing countries, was allocated to European countries.
How much has actually been given?
However, the biggest question that arises from the research is not based on numbers, but on the lack of numbers.
The researchers assessed data from the OECD database. This database should include information about climate finance submitted by the European Commission. However, their data about disbursements seemed to be incomplete, and the question now arises: How much has actually been given? According to OECD, 2,810 million Euro were committed as climate finance from the European commission, including the European Development Fund. However, disbursements only showed 1,185 million Euro. While it is understandable that differences arise between commitments and the funds which are disbursed, the size of the difference is surprising, and indicates that data is missing. This lack of transparency is worrying, as it may undermine trust.
Room for improvement
As shown above, the research points at several problems with the current approach to climate finance delivered by the EU institutions. However, all the points of concern can be addressed, and solved. The European Investment Bank should of course not end its practice to offer loans. However, the EU should consider if the face value should be reported, and if more loans could be offered with favourable terms. The European Commission and the European Development Fund are already focusing on adaptation, and on the poorest countries, and if more grants were delivered through these institutions the total picture would improve. And the question about disbursement should not be difficult to answer. There should be an explanation, and we hope the European Commission will share the numbers soon.
Climate finance should not be limited to a debate about numbers. It should be a debate about climate action. We need action now, and support should be delivered as agreed.