Significant financial resources will be necessary to support efforts by developing countries to address climate change, both to reduce greenhouse gas emissions and to adapt to the consequences of climate change. In designing and implementing climate policies, it is essential to seek coherence and synergy between national development plans and strategies, Low Emission and Climate Resilient Development Strategies (LECRDS), National Adaptation Plans (NAPs), and REDD+ strategies. Likewise, the respective national and international financing instruments should be well coordinated.

Country ownership and coherence of domestic and international financing instruments should be guiding principles of climate finance. This essay gives a short overview of fast-start climate finance by the EU and its Member States in 2010 and 2011, and of EU international climate finance instruments.

Fast start finance. Fast start finance supports action by developing countries to strengthen their capability for adaptation to climate change, mitigate their greenhouse gas emissions and reduce deforestation (REDD+). In the climate change conferences in Copenhagen (2009) and Cancun (2010), the EU and its Member States pledged € 7,2 billion in fast start finance for 2010-2012, which is about a third of the funding pledged by developed countries. In 2010 and 2011, a total of € 4,59 billion in fast start finance was mobilised for specific climate actions in developing countries. To ensure its timely and efficient delivery, the greater part of the fast start finance from the EU is being implemented via the already existing and operating cooperation instruments and initiatives.

Preliminary data for EU fast-start finance in 2012 indicate that the EU and its Member States are on track to meet their overall commitment of €7,2 billion for the period 2010-12. 

Climate finance as of 2013. The EU will continue to provide climate finance support after 2012 maintaining a range of financing instruments, which are tailored to different needs. These include a) grant financing for climate change as an integral part of the EU’s bilateral and regional support programmes, and through dedicated facilities, b) concessional loans in particular via the EU’s regional investment facilities and c) the promotion of low-carbon and climate resilient equity investment. In addition, the European Investment Bank (and bilateral development banks by EU Member States) will continue to provide climate finance. 

Using different sources of financing. Work is ongoing to identify ways to increase global climate financing between 2013 and 2020, including efforts to mobilise private financing and innovative sources of finance. In this context carbon pricing plays an important role: increasing the price of carbon is an incentive for investment in low-carbon technologies and at the same time has the potential to generate additional public climate finance.

Using specific instruments. In recent years, the following specific instruments have been set up by the European Commission to enhance climate financing and mobilise concessional loans by the European financial institutions and private sector contributions:

• The Global Climate Change Alliance (GCCA) provides financial support and technical assistance to less developed countries and Small IslanDeveloping States (SIDS) to develop adaptation and mitigation strategies and projects.

• The Global Energy Efficiency and Renewable Energy Fund (GEEREF) provides risk capital for small and medium scale investments in sustainable energy in developing countries, with an emphasis on ACP countries (Africa, Caribbean and Pacific).

• EU Regional Investment Facilities have been created, such as the Latin America Investment Facility (LAIF), the Africa Infrastructure Trust Fund (EUAITF), and the Investment Facility for Central Asia (IFCA).

• Clean Development Mechanism (CDM): the European Emissions Trading System (ETS) has created the largest demand for certified emission reductions (CERs) from CDM projects. From 2008-2011, 450 million CERs were used for compliance in the EU ETS implying very significant financial flows.

The combination of grants and loans. Grants and loans both have an important role to play in climate finance. The combination of grants and loans helps to maximise the amount of financing available by mobilising private sector investment and co-financing. EU loans for climate actions are offered under very favourable conditions, these can include a significant grant element. There is demand for these loans, especially for mitigation. EU loans are consistent with the Debt Sustainability Framework. In 2010, the European Investment Bank (EIB) invested € 21 billion in climate relevant actions representing about a third of its total lending portfolio, of which € 2 billion outside the EU. During the years 2009 and 2010 the EIB signed loans in Latin America for a total of more than € 1,1 billion, inter alia for renewable energy projects:

http://www.eib.org/infocentre/publications/all/eib_factsheet_latin_america.html

Increasing the transparency of international climate finance. International climate finance will remain a priority with the objective to reach US$ 100 billion a year in 2020. It is essential that transparency is provided in terms of mitigation of greenhouse gas emissions and concrete actions in developing countries, and in terms of finance mobilised by developed countries. Transparency is an important tool for building confidence between developed and developing partner countries and for improving the efficiency of climate finance.