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 23.4 billion in 2020.
They are also the world’s top provider of official development assistance (a total EUR 67 billion in 2020), with climate action being increasingly integrated into the assistance.
Making finance flows consistent with climate goals
Under the Paris Agreement, countries committed to make finance flows consistent with a low-emission, climate-resilient pathway, to help achieve the long-term climate goals.
In this context, the EU has launched an ambitious Action Plan on Financing Sustainable Growth as well as a strategy for financing the transition to a sustainable economy in July 2021. The EU also supports developing economies in improving their conditions for mobilising low-carbon finance.
In October 2019, the EU together with relevant authorities from Argentina, Canada, Chile, China, India, Kenya and Morocco (further countries have now joined), launched the International Platform on Sustainable Finance. The Platform aims to scale up the mobilisation of private capital for environmentally sustainable investment.
European Commission contribution
In 2020, the European Commission provided EUR 2.6 billion to developing economies, the majority of which tackles climate adaptation activities.
Furthermore, 20% of the whole EU budget for 2014-2020 was spent on climate-related actions – this target has become 30% for 2021-2027 and 35% for the Neighbourhood, Development and International Cooperation Instrument (NDICI)..
In addition, the European Investment Bank provided EUR 2.7 billion in climate finance to developing economies in 2020. It finances, for example, energy efficiency and renewable energy projects in Africa and other regions, and often blends funds with Commission and EU Member State agencies.
An EU flagship initiative - Global Climate Change Alliance+
The main channel for EU support to 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 €317.5 million in the first phase (2007-2014) to €420 million in the second phase (2014-2020).
The GCCA+ had a strong focus on Least Developed Countries and Small Island Developing States (SIDS) as they are most vulnerable to climate change.
The overall objective was to foster policy dialogue and cooperation on climate change between the EU and developing economies.
- mainstream climate change into national development strategies
- increase resilience
- support the formulation and implementation of adaptation and mitigation strategies
to support the preparation and financing of bankable 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 external action. It ensures world-wide coverage for blending, guarantees and other 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:
- grants provided through ‘blending’ (a mix of EU grants with bank loans)
- technical assistance to help improve the quality of projects and the implementation of reforms
- other tools to support the development of partner countries.
EFSD+ will raise financial resources for sustainable development from the private sector for inclusive economic development. It will support investment in partner countries to promote decent job creation, strengthen public and private infrastructure, foster renewable energy and sustainable agriculture, and support the digital economy.
The investment framework also includes the External Action Guarantee and together, the two components deliver a firepower of EUR 53,45 billion for sustainable development.The External Action Guarantee has a capacity of EUR 130 billion to guarantee EFSD+ operations. Together with the private sector and thanks to the leverage effect, this may mobilise more than half a trillion euros in investments for 2021-2027.
Contributing to the $100 billion goal
The EU remains committed to contributing towards the developed economies’ goal of jointly mobilising from different sources USD 100 billion per year by 2020 to support developing economies.
The goal was extended until 2025 before a new collective goal is set.
The funding will come from a wide variety of sources – public and private, bilateral and multilateral, and alternative sources of finance – in the context of meaningful mitigation action and transparent implementation by developing economies.
The EU is calling for existing and potential contributors to also finance climate action in developing economies in line with their respective capabilities and responsibilities.
In September 2021, the OECD published a report on developed economies’ climate finance for climate action in developing economies. It shows that developed economies are making progress on climate finance and the indications are that the upward trend will continue. Climate finance to developing economies reached USD 83.3 billion in 2020, up from USD 58.6 billion in 2016.
Capitalising the Green Climate Fund
The Green Climate Fund was set up in 2010 to support developing economies in reducing their greenhouse gas emissions and adapting to climate change.
Since 2014, it has gathered initial pledges worth USD 10.3 billion. EU Member States have pledged nearly half of these: USD 4.7 billion.
In the first Green Climate Fund replenishment in October 2019, 27 countries (of which the vast majority are EU Member States) pledged to replenish the fund with an additional USD 9.78 billion equivalent for the next four years.
Some EU Member States and regions also contribute about 95% of the annual voluntary pledges to ensure the functioning of the Adaptation Fund. The European Commission pledged support to the Adaptation Fund of EUR 100 million at COP26 in 2021.
Leveraging climate-friendly investments
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 investments, 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 Member States have established a number of blending facilities that combine grant funding with loans, covering different regions.
- 06/03/2015 - Shifting Private Finance towards Climate-Friendly Investments
- 28/11/2012 - European Union fast start funding for developing countries. 2010-2012 Report
Economic and Financial Affairs Council
- 29/10/2020 - Council conclusions on climate finance
- 08/11/2019 - Council conclusions on climate finance
- 06/11/2018 - Council conclusions on climate finance
- 10/10/2017 - Council conclusions on climate finance
- 11/10/2016 - Council conclusions on climate finance
- 10/11/2015 - Council conclusions on climate finance
- 07/11/2015 - Council conclusions on climate finance
- 15/10/2013 - Council conclusions on climate finance
- 14/05/2013 - Council conclusions on climate finance – fast start finance
- 09/03/2010 - Communication 'International climate policy post-Copenhagen: Acting now to reinvigorate global action on climate change
- 10/09/2009 - Communication 'Stepping up international climate finance: A European blueprint for the Copenhagen deal'