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Climate Action

International climate finance

How the EU supports climate action in developing economies across the world.

The climate crisis is a global phenomenon. We need to cut emissions all over the world – lowering them in the EU alone is not enough. As such, the EU is proud to partner with developing economies to provide them with the support they need to mitigate and adapt to climate change.

The EU, its Member States and the European Investment Bank are together the biggest contributor of public climate finance to developing economies, providing EUR 23.04 billion in 2021.

They are also the world’s top provider of official development assistance (a total EUR 67 billion in 2020), with action to combat climate change being increasingly integrated into this assistance.

Making finance flows consistent with climate goals

Under the Paris Agreement, countries around the world committed to make finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development. This commitment serves as a key driver for mobilising finance, supporting the urgent economic transformation needed to achieve the Paris Agreement objectives while pursuing sustainable development.

This report by the European Commission provides an overview of the current international context, as well as the policies and measures already in place in the EU to align finance flows with the Paris Agreement. The report demonstrates the EU’s commitment to fully implementing the Paris Agreement, including the goal embedded in its Article 2.1c on climate finance. It also highlights the challenges and opportunities faced by EU governments, businesses and financial institutions, while laying the foundation for a political reflection on how this critical effort could be further strengthened, both in the EU and globally.

To enhance the alignment of finance flows with global climate objectives and improve the mobilisation of climate finance, the EU engages with its international partners. For instance, together with Argentina, Canada, Chile, China, India, Kenya and Morocco (additional countries have now joined), the EU launched the International Platform on Sustainable Finance. The Platform aims to scale up the mobilisation of private capital for environmentally sustainable investment. In addition, the High-Level Expert Group (HLEG) on scaling up sustainable finance in low- and middle-income countries (LMICs) was set up in 2022 to identify challenges and opportunities related to sustainable finance in those countries. In April 2024, the HLEG prepared a report to provide recommendations on this topic to the European Commission.

Furthermore, the EU’s Sustainable Finance Framework supports the alignment of finance flows with the ambitious climate policies of the European Green Deal and the objectives set by the European Climate Law. The EU has also taken significant steps to make sure a significant part of the EU budget contributes to climate action.

European Commission contribution

The European Commission committed EUR 4.03 billion of public finance to developing economies in 2022, with over 50% of that amount being targeted to fund climate adaptation activities.

In addition, while 20% of the EU budget was dedicated to climate-related projects between 2014 and 2020, the target was increased to 30% for the 2021-2027 period. Furthermore, 35% of the EU external budget for 2021-2027 is set to be allocated to climate related projects through the Neighbourhood, Development and International Cooperation Instrument (NDICI) - Global Europe.

For its part, the European Investment Bank (EIB) contributed EUR 2.52 billion in climate finance to developing economies in 2022. This financing supports energy efficiency and renewable energy projects in Africa and other regions, among other initiatives. In EU countries, EIB funds are often blended with those from the Commission and national agencies.

An EU flagship initiative - Global Climate Change Alliance+

The main channel for EU support for policy dialogue and specific, targeted climate action in developing economies was the Global Climate Change Alliance Plus (GCCA+). This initiative ran from 2014 to 2020 and projects are currently being finalised.

Grant funding for this initiative increased from EUR 317.5 million in the first phase (2007-2014) to EUR 420 million in the second phase (2014-2020).

The GCCA+ had a strong focus on the Least Developed Countries and Small Island Developing States (SIDS), as these are most vulnerable to climate change.

The overall objective was to promote policy dialogue and cooperation on climate change between the EU and developing economies.

Priority areas:

  • incorporating climate change into multiple aspects of national development strategies
  • increasing resilience to climate change impacts
  • helping countries formulate and implement adaptation and mitigation strategies
  • helping them prepare and finance bankable (that is, cost-effective) climate-relevant development projects.

European Fund for Sustainable Development Plus (EFSD+)

The European Fund for Sustainable Development Plus (EFSD+) is part of the EU’s investment framework for countries outside the EU. It ensures world-wide coverage for a range of financial operations. It is included in the EU’s long-term budget programme for external action: Global Europe – NDICI.

It is a comprehensive instrument that includes various means to support the development of partner countries, like:

  • guarantees
  • grants provided through ‘blending’ (a mix of EU grants and commercial bank loans)
  • technical assistance to help partner countries improve the quality of their projects and implement reforms

EFSD+ will raise financial resources for sustainable and inclusive development from the private sector. It will support investment in partner countries to promote decent job creation, strengthen public and private infrastructure, promote renewable energy and sustainable agriculture, and support the digital economy.

The investment framework also includes the External Action Guarantee, which boosts EU funding for sustainable development to EUR 53 billion.

The External Action Guarantee has a capacity of EUR 39.8 billion to guarantee EFSD+ operations. Together with the private sector and thanks to the leverage effect, this may mobilise 200 billion euros in investment in 2021-2027.

The USD 100 billion goal

The EU remains committed to working with other developed countries to mobilise USD 100 billion per year until 2025 to help developing economies cope with the climate crisis. This funding comes from diverse sources – including public and private, bilateral and multilateral, as well as alternative financing options – in the context of meaningful mitigation action and transparent implementation by developing economies.

In 2022, the EU and its Member States contributed EUR 28.5 billion – approximately USD 30 billion – in public finance to support climate action in developing economies. The EU is calling for existing and potential contributors, in line with their respective capabilities and responsibilities, to also finance climate action in developing economies.

According to a report published in May 2024 by the Organisation for Economic Co-operation and Development (OECD), developed countries provided and mobilised USD 115.9 billion in climate finance for developing economies in 2022. Such contribution, which had not been expected before 2025, marks the first time the USD 100 billion/year goal collectively committed by developed countries has been surpassed.

Capitalising the Green Climate Fund

The Green Climate Fund was set up in 2010 to help developing economies reduce their greenhouse gas emissions and adapt to climate change.

Since 2014, it has gathered initial pledges worth USD 10.3 billion. EU countries have pledged nearly half of this: USD 4.7 billion.

In the first Green Climate Fund replenishment in October 2019, 27 countries (most of which are EU countries) pledged to replenish the fund with an additional USD 9.78 billion equivalent for the next 4 years. By 31 May 2022, USD 5.5 billion of the pledged funds have been disbursed by the EU countries.

Some EU countries and regions also contribute about 95% of the annual voluntary pledges to ensure the functioning of the Adaptation Fund, which helps developing countries adapt to climate change. The European Commission pledged support for the Adaptation Fund worth EUR 100 million at COP26 in 2021.

Leveraging climate-friendly investment

Countries need to attract additional public and private financing to transition to a climate-friendly economy and drive sustainable economic growth.

International climate finance should be used as a lever to incentivise climate-resilient and low-carbon investment, complementing domestic resources in developing economies.

The EU's approach is twofold:

  • provide grant funding directly to the poorest and most vulnerable countries
  • use grant funding to leverage private investment by combining grants with loans and equities from public and private sources, including bilateral and multilateral development banks

For example, the EU and its member countries have established a number of blending facilities that combine grant funding with loans, covering different regions.

Documents

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