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Significant financial resources will be needed to help developing countries deal with climate change.

The EU is the world's largest contributor of climate finance to developing countries and increasingly integrates climate change into its broader development strategy.

The EU and its Member States are also the world's leading aid donor, with collective official development assistance representing 0.51% of EU Gross National Income in 2016.

Scaling up climate finance

Coins and green plant isolated on white © iStockphoto

While continuing to invest in domestic climate action, the EU is scaling up climate finance to help the poorest and most vulnerable countries mitigate and adapt to climate change.

In particular, in the period 2014-2020:

  • At least 20% of the EU budget will be spent on climate action.
  • At least €14 billion, an average of €2 billion per year, of public grants will support activities in developing countries.
  • Compared to the average level in 2012-2013, funding for international climate action will more than double.

In 2016, total contributions from the EU, its Member States and the European Investment Bank (EIB) amounted to €20.2 billion, a significant increase compared to 2015. This includes climate finance from public budgets and other development finance institutions.

An EU flagship initiative – Global Climate Change Alliance+

The main channel for EU support to policy dialogue and specific, targeted climate action in developing countries is the Global Climate Change Alliance Plus (GCCA+).

Active since 2008, GCCA+ has invested so far close to €450 million in more than 60 country-based and regional actions.

The overall objective is to foster policy dialogue and cooperation on climate change between the EU and developing countries.

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

Priority areas:

  • Mainstream climate change into national development strategies
  • Increase resilience
  • Support the formulation and implementation of adaptation and mitigation strategies

EU External Investment Plan

The EU will mobilise innovative financial instruments, with particular focus on the EU External Investment Plan, to support the preparation and financing of bankable climate relevant development projects.

The plan will encourage investment in the EU's partner countries in Africa and the EU Neighbourhood region.

With a contribution of €4.1 billion from the European Commission, the plan is expected to leverage more than €44 billion of investments by 2020.

It will promote inclusive growth, job creation and sustainable development and so tackle some of the root causes of irregular migration.

European Fund for Sustainable Development (EFSD)

  • Will provide a "one-stop-shop" management for proposals from public development finance institutions
  • EFSD guarantee will have a number of thematic or geographic investment windows
  • Key objective is to leverage additional financing, in particular from the private sector
  • In addition, technical assistance will be provided and EU Delegations in partner countries will engage with governments and business to address key constraints and support for regulatory coherence

Contributing to the $100 billion goal

The EU remains committed to contributing towards the developed countries’ goal of jointly mobilising from different sources USD 100 billion per year by 2020 to support developing countries.

As part of the Paris Agreement, this goal was extended until 2025, prior to which a new collective goal will be 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 countries.

The EU is calling for emerging economies to also contribute in line with their respective capabilities and responsibilities.

In 2016, the EU and its Member States together with the other donors presented a Roadmap to US$100 Billion. According to the roadmap, the public finance together with private finance it directly mobilises will increase to close to USD 100 billion in 2020, compared to an average of USD 41 billion over 2013-14.

Capitalising the Green Climate Fund

The Green Climate Fund (GCF) was set up in 2010 to support developing countries in reducing their greenhouse gas emissions and adapting to climate change.

Since 2014, it has gathered pledges worth USD 10.3 billion. EU Member States have pledged nearly half of these: USD 4.8 billion.

Some EU Member States and Regions also contribute about 95% of the annual voluntary pledges to ensure the functioning of the Adaptation Fund.

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 countries.

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.

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