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Financing

Financing

Climate finance is critical to addressing climate change because large-scale investments are required to significantly reduce emissions, notably in sectors that emit large quantities of greenhouse gases. The EU has demonstrated its commitment to achieving the EU’s climate objectives by dedicating at least 20% of its entire budget from 2014-2020 to climate-related actions.

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In addition to this, the EU and its Member States have long been the world's leading provider of climate finance support to developing countries. It remains committed to scaling up the mobilisation of climate finance and contributing to developed countries' goal to jointly mobilise USD 100 billion per year by 2020.

EU domestic action and its international impact

20% of EU budget dedicated to climate-related actions

European Heads of State and Government have taken up the Commission's suggestion that at least 20% of the entire EU budget from 2014-2020 be spent on climate-related actions. Climate action will be integrated into all the major EU policies. This represents around €180 billion and is a threefold increase from the 6-8% share in 2007-2013. This is a major step forward in the EU’s efforts to handle the climate crisis and a significant move towards transforming Europe into a low-carbon and climate resilient society. 

Under the LIFE programme (the EU's Programme for the Environment and Climate Action) €864 million will be dedicated to co-funding climate action in all Member States during 2014-2020. This will be directed towards projects focusing on mitigation, adaptation and better governance.

Support for partners outside the EU

The 20% climate-spending objective applies also to spending outside the EU through the development and external action instruments. In 2014-2015, the EU plans to commit about €1.7 billion of public grant funding from the EU budget and the European Development Fund to support climate-relevant activities in developing countries. This is a first step to achieving the objective of committing at least 20% of the EU's external assistance budget to climate relevant actions during the period 2014-2020.

EU supporting adaptation, mitigation and REDD + through international initiatives

The Global Climate Change Alliance (GCCA) is an EU initiative, launched in 2007 and coordinated by the European Commission, which relies on funding from the EU budget, the European Development Fund and contributions from several EU Member States. It supports the integration of climate action into development planning, by providing technical and financial support with a focus on integrating climate change into poverty reduction strategies; adaptation; reducing emissions from deforestation and forest degradation (REDD+); and disaster risk reduction. By the end of 2013, the GCCA had implemented national programmes in more than 35 Least Developed Countries and Small Island Developing States (SIDS) and supported 8 regional interventions in Africa, Asia (Lower Mekong Basin), the Caribbean and the Pacific. To date, almost €300 million worth of grants have been allocated to GCCA activities, €47 million of which was in 2013.

The GCCA will contribute to increased resilience at local, national and regional levels through technical and financial support for national and regional programmes. Dialogue and exchange among the EU and poor developing countries most vulnerable to climate change will further the integration of climate change and disaster risk reduction in development planning and inform the development of a new climate agreement under the UNFCCC.

The EU has made sustainable energy access a priority and supports the UN initiative Sustainable Energy for All (SE4All). Sustainable energy is central to providing opportunities for inclusive, equitable and environmentally-friendly economic growth that creates job opportunities and contributes to poverty eradication while moving towards low-carbon and resource-efficient energy models. Over the past two years, the EU has mobilised more than €600 million in grants for sustainable energy actions in partner countries.

The EU has provided REDD+ support to multilateral initiatives (e.g. Forest Carbon Partnership Facility) and via the EU REDD Facility. This initiative, established by the European Forest Institute at the end of 2010, with €8 million funding from the European Commission and additional funding from several EU Member States, aims to address the underlying drivers of deforestation and forest degradation, and foster sustainable forest management in developing countries. The facility is currently engaged in five countries (Democratic Republic of Congo, Guyana, Indonesia, Republic of Congo and Vietnam).

The role of the European Investment Bank (EIB)

A key actor in EU public policy, the European Investment Bank is a market leader in the financing of projects tackling climate change worldwide, lending EUR 19bn in 2013 alone − €2.2 billion of which was invested outside Europe, mainly in developing countries.

The EIB supports renewable energy and energy efficiency, as well as sustainable transport, land use and forestry, adaptation, meaningfully contributing to the EU’s climate change and energy sustainability objectives. Since 2011, there has been an acceleration in the EIB's climate operations in countries within the EU's Eastern and Southern Neighbourhoods, Africa, the Caribbean and the Pacific.

The EIB’s 2014 to 2016 Corporate Operational Plan sets an annual target of over 25% of finance directed to climate action. In 2014, the EIB is expected to meet its target of allocating 25% of its planned total lending of €67 billion to climate action.

The EIB will continue to finance climate-relevant projects in developing countries. In the period 2014-2016, the EIB is expected to provide climate finance of around €2 billion per year to developing countries

EU mobilising private finance internationally

Since 2007, the EU has set up a range of EU Regional Investment Facilities: the EU-Africa Infrastructure Trust Fund (ITF), the Neighbourhood Investment Facility (NIF), the Latin America Investment Facility (LAIF), the Investment Facility for Central Asia (IFCA), the East Asia Investment Facility (AIF), the Caribbean Investment Facility (CIF) and the Investment Facility for the Pacific (IFP).

In 2010, Climate Change Windows were established in all the facilities with the aim to improve the project design, so that low-carbon and climate resilience considerations are incorporated in strategic infrastructure areas such as transport, energy and environment. Through the facilities, EU grants are "blended" with financial instruments to leverage financing for infrastructure and private sector development (e.g. SME access to finance). Blending aims to make projects with a large development and climate impact financially viable in order to unlock non-grant financing for development. Since 2007, total EU grant for climate contributions of around €1 billion has been combined with additional public and private financing, including more than €6 billion of loans from European public finance institutions and regional development banks. This led to total project financing of more €25 billion benefiting both low and middle income countries and to more than 120 climate-relevant projects.

The Global Energy Efficiency and Renewable Energy Fund (GEEREF) is a Public Private Partnership initiated by the European Commission as an equity fund-of-funds to accelerate the transfer, development and use of environmentally sound technologies for emerging markets. It helps bring secure, clean, efficient and affordable energy to local people. It is set up as an innovative global equity/risk capital fund that will use limited public money to mobilise private investment in small-scale energy efficiency and renewable energy projects. It is both a development tool and a contribution to global efforts to fight climate change. The European Commission, Germany and Norway, have so far committed about €127 million of public grant funding to GEEREF and it is envisaged that further financing from other public and private sources will be forthcoming. A fundraising campaign is currently on-going and seven GEEREF investments have been approved, focusing on projects in Sub-Saharan Africa, Asia, Latin America and the Caribbean. More than €5 billion could be mobilised through the funds in which GEEREF participates and the final projects in which these funds invest.