10 EU
climate finance and external aid
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| European Court of Auditors Special Report No. 17/2013: EU climate finance in the context of external aid
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| Legal base
| Article 287(4) TFEU; —
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| Deposited in Parliament
| 3 January 2014
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| Department
| International Development
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| Basis of consideration
| EM of 28 January 2014
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| Previous Committee Report
| None
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| Discussion in Council
| To be determined
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| Committee's assessment
| Politically important
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| Committee's decision
| Cleared
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Background
10.1 Under Article 287(4) TFEU,
the European Court of Auditors (ECA), via its Special Reports,
carries out audits designed to assess how well EU funds have been
managed so as to ensure economy, efficiency and effectiveness.
European Court of Auditors Special Report No.
17/2013
10.2 In her Explanatory Memorandum
of 28 January 2014, the Parliamentary Under-Secretary of State
at the Department for International Development (Lynne Featherstone)
explains that this European Court of Auditors' (ECA) Special Report
examines the provision of climate finance for developing countries
by the European Union (EU). The Report focuses on two questions:
— has
the European Commission managed climate-related support funded
from the EU budget and the European Development Fund (EDF) well?
— has
the Commission taken appropriate steps to promote coordination
with EU member states in respect of climate finance for developing
countries, and has such coordination been adequate?
10.3 With regard to the first question,
the Report examines whether EU budget and EDF financial resources
allocated to address the challenges of climate change (a) adequately
reflected policy commitments and (b) were tailored to the specific
circumstances of partner countries and regions. This involved
documentary reviews, desk reviews of programmes in sixteen countries
and two regions, interviews and on-the-spot audit visits to four
countries (Bangladesh, Indonesia, Tanzania and Uganda).
10.4 The Report explains that the
Commission's climate finance is provided through thematic programmes
and geographic programmes, and is mainly channelled through bilateral
programmes with partner countries and regional organisations.
Support for adaptation is aimed at helping partner countries
build resilience to the adverse effects of climate change. Support
for mitigation aims to speed up the transition to a low carbon
economy. Programmes are focused on the protection of infrastructure,
industry and agriculture against changing weather patterns and
rising sea levels, as well as investment in water management and
drought-resistant crops; they focus on the development of clean
energy technologies, energy efficiency and reducing greenhouse
gas emissions, including through the sustainable management of
forests and carbon stocks.
10.5 The Report notes that the
Commission has steadily increased climate-related spending for
developing countries through the EU budget and EDF over the ten-year
period ending 2012; over 2007-2013, approximately € 3.7
billion being committed, constituting about 8% of the total development
funding in the EU external budget and EDF.
10.6 The Report notes that, for
the 2014-2020 period, the European Council has endorsed targeting
at least 20% of total EU spending on climate-related action; and
that this 20% target is included in the draft Development Cooperation
Instrument for this period and in the 11th EDF programming instructions.
Assuming that the 20% target was applied to all EU external aid,
this would represent an estimated amount of €11.6 billion
for climate change (based on 2011 prices).
10.7 The Report notes that the
Commission's 2007-13 programming guidelines required analyses
of climate change-related risks and opportunities to be carried
out for each partner country. Additionally, guidelines were issued
to EU delegations in 2009 indicating how climate change should
be taken into account in eight specific sectors (health, infrastructure,
agricultural and rural development, energy supply, education,
water supply and sanitation, trade and investment, and solid waste
management).
Has the European Commission managed climate-related
support funded from the EU budget and the EDF well?
10.8 The ECA's assessment focuses
on the Commission's allocation and management of financial resources,
and does not comment on the outputs and outcomes achieved from
those resources. The Report concludes that the Commission tailored
its climate finance to partner country specific circumstances
based on the sample countries and regions reviewed. It found
that:
— the
Commission gave particular consideration to climate change in
13 (of the 16) countries and the Asian region, where it was addressed
either as a specific priority sector or under another priority
sector related to environment, management of natural resources,
rural development or trade and investment;
— in
five countries, the mid-term review of 2007-13 programmes resulted
in decisions to strengthen climate change related support by adding
new areas of intervention or increasing the amount of funding
allocated.
10.9 A detailed analysis of a further
sub-sample of eight (of the 16) countries and two regions found
that the Commission's climate-related interventions addressed
the priorities identified by partner countries themselves.
Has the Commission taken appropriate steps
to promote coordination with EU member states in respect of climate
finance for developing countries, and has such coordination been
adequate?
10.10 In regard to the second question,
the Report assesses five areas:
— Whether
the Commission coordinated its country programmes with those of
EU Member States? The
Report notes the need for coordination in external aid between
the Commission and EU Member States has been regularly highlighted
in Council Conclusions, and in the EU Code of Conduct on Division
of Labour. It recognises that effective division of labour and
complementarity of donor actions are dependent on several factors,
including:
i) donor willingness to cooperate
on aid effectiveness and the fight against corruption;
ii) national authority willingness
to cooperate; and
iii) the presence of a national
climate strategy.
The Report concludes that the quality
of EU donor coordination on climate change varied in the four
countries visited. It was considered to be better in Bangladesh,
Tanzania and Uganda than in Indonesia, though the Report found
that there was scope for improved coordination action by the EU
delegations in all four countries, including in regard to the
fight against corruption. The Report identifies a mixed picture
on national government participation in coordination, with the
government of Bangladesh participating actively in development
partner groups and subsidiary working parties; the governments
of Uganda and Tanzania participating in joint thematic working
groups with development partners but also maintaining bilateral
contacts; and in Indonesia responsibility for coordination on
climate change shared by a number of bodies with accountability
unclear to donors. The Report finds that a lack of prioritisation
within the four governments weakened climate change strategies
and action plans.
The Report recommends that the
Commission and EU Member States intensify their cooperation to
implement the EU Code of Conduct in the field of climate finance,
notably with respect to the exchange of information on allocations
by countries, joint programming and preventing and combatting
corruption.
— Whether
the Commission promoted coordination with EU Member States to
comply with international climate finance long-term commitments?
The Report notes developed countries agreed in 2009 to provide
'new and additional' financing to support developing countries
to cope with the challenges of climate change. This agreement
included the 'Fast Start Finance' commitment of up to 30 billion
US dollars for the 2010 to 2012 period and a longer-term commitment
to provide 100 billion US dollars per year by 2020 from a range
of funding sources in the context of meaningful action on mitigation.
The Report notes that the Commission
has taken several initiatives to identify potential innovative
sources in order to help the EU meet its fair share of the longer-term
commitment. It assesses the progress achieved in developing these
potential sources which include the EU Emissions Trading System,
carbon pricing of international aviation and maritime transport,
a new carbon market mechanism, a financial sector levy, and access
to climate finance through multilateral and other development
banks. The Report recommends the Commission propose a roadmap
to the Council for the scaling up of climate finance towards the
longer-term target, to include a definition on what types of spending
will count as private finance (expected to be a significant source
of climate finance).
Noting the EU's intention to target
at least 20% of total EU spending over 2014-20 on climate-related
action, the Report recommends that the Commission and EEAS report
on the extent to which this commitment is implemented in regard
to EU development aid.
— What
has been achieved in respect of monitoring, verifying and reporting
on climate finance pledged and paid? To what extent it is possible
to verify and analyse the Commission and EU Member States' contributions
to delivering Fast Start Finance?
The Report highlights the importance of an effective monitoring,
reporting and verification (MRV) framework to build confidence
and trust between donor and recipient countries. The Report notes
the introduction in June 2013 of a new EU mechanism for monitoring
and reporting which includes the requirement for EU Member States
to report on their climate finance for developing countries.
The Report notes the most widely-accepted method for tracking
climate change spending is the OECD-Development Assistance Committee's
(OECD-DAC) 'Rio markers' but highlights that OECD-DAC Members
(including EU Member States) take different approaches in their
reporting, including of Fast Start finance. The Report notes
that the Commission was unable to confirm the accuracy of the
Fast Start submissions by EU Member States and thus considers
that the extent to which the EU Fast Start commitment was fulfilled
is unclear. In order to improve the transparency and accountability
of EU climate finance, the Report recommends that the Commission
and EU Member States agree common standards for MRV, notably with
respect to a definition for 'new and additional', and the application
of the Rio markers and reporting on the disbursement of climate
finance.
— Whether
the EU has contributed to simplifying the mechanisms for delivery
of climate finance? The
Report highlights the profusion of climate change-related funds
that exist and are used by the Commission and EU Member States.
It considers that the Commission did not consider reducing the
fragmentation of climate funds when designing its own programmes,
nor did it discuss the issue with EU Member States.
The Report notes that the Commission
created the Global Climate Change Alliance (GCCA) in 2007 as the
'EU answer to the development dimension of climate change'.
The GCCA aims to strengthen dialogue and cooperation on climate
change with developing countries most vulnerable to climate change
and supporting their efforts to develop and implement adaptation
and mitigation responses. It focuses on the Least Developed Countries
(LDCs) and the Small Island Developing States (SIDS). The Report
notes that, although the Council endorsed the GCCA, it highlighted
the need to make optimal use of existing mechanisms at the EU
and global level and stressed the strictly complementary nature
of the GCCA to ongoing processes and frameworks. The Report considers
that the GCCA has not been integrated into the work of the EU
Member States or into the Commission's own programming; and that
the Commission has struggled to convince EU Member States of its
added value which has contributed to a significant gap between
the ambitions and actual achievements. The GCCA has not been
re-appraised by the Commission in the light of developments in
the international climate architecture, most notably the decision
to establish the Green Climate Fund (GCF). The Report therefore
recommends that an independent evaluation of the GCCA is undertaken.
10.11 The Commission and European
External Action Service (EEAS) response, annexed to the Report,
addresses the ECA's main comments and recommendations. They agree
that coordination of aid allocations at the global level is weak
and undertake to seek to improve EU level coordination of climate
finance and programming in EU expert groups.
10.12 The Commission and EEAS acknowledge
that, by the end of 2011, the EU had not made as much progress
on joint programming as hoped, but highlight a subsequent commitment
to joint programming in 40 countries. In regard to the ECA's
assessment of EU donor coordination in the four countries visited
for the Report, the Commission accepts this can be improved but
highlights subsequent actions in Indonesia and Bangladesh that
have addressed some of the matters identified; e.g., in Indonesia,
bi-monthly EU coordination meetings have been established and
there has been a concerted effort by development partners on anti-corruption
issues through a multi-donor trust fund administered by the World
Bank. In Bangladesh, the Commission plans to synchronise its
future assistance with Bangladesh's Seventh Five-Year Plan 2015-20
and is committed to launching joint programming in selected areas
with interested EU Member States.
10.13 Regarding improving EU coordination
to respond to international climate finance long-term commitments,
the Commission highlights that it is developing an EU vision on
scaling up climate finance by 2020, which will take into account
Member States' submissions to the UNFCCC (United Nations Framework
Convention on Climate Change) in September 2013 that set out their
strategies and approaches for mobilizing scaled-up climate finance.
Further, the Commission agrees to initiate a discussion with
EU Member States on a roadmap for scaling up EU climate finance,
though highlights that the longer-term finance commitment made
at COP16 concerns all developed countries, and that a final decision
on an EU roadmap would rest with EU Member States.
10.14 The Commission acknowledges
the different approaches taken to quantify climate spending based
on the Rio markers; but stresses that the calculation of the aggregate
EU Fast Start Finance total was on the basis of figures reported
by EU Member States, in line with the Commission's mandate. It
highlights efforts underway within the OECD-DAC and the EU to
improve and harmonise reporting where possible; and commits to
work jointly with EU Member States to implement the new UNFCCC
reporting requirements as well as in the OECD-DAC. The Commission
agrees to work with EU Member States towards having a common EU
standard for MRV (Monitoring, Reporting and Verification) of public
climate finance in time for the 2014 Monitoring Mechanism Regulation,
and to continue the previous discussions towards defining what
should count as private climate finance. The Commission and EEAS
undertake to report on progress towards meeting its target of
at least 20% of total EU spending over 2014-2020 on climate-related
action, and will include data in the Commission Annual Reports.
10.15 The Commission highlights
its contribution to attempts to reduce the proliferation of climate
funds, in particular the active role it has played in the initial
work to establish the GCF. The Commission considers that it has
integrated the GCCA into its own programming, highlighting support
through the DCI's thematic programme for Environment and Sustainable
Management of Natural Resources and the 10th EDF. It notes that
five EU Member States have co-financed the GCCA initiative, and
that the GCCA co-finances individual interventions with seven
EU Member States. The Commission explains that it has maintained
the GCCA (i) as a channel for providing financial and technical
support and a platform for dialogue and exchange of experience
with developing countries; (ii) as a means of integrating climate
change into EU regular development aid; and (iii) in recognition
that the GCF is not yet operational. Nonetheless, it agrees with
the recommendation to conduct an independent evaluation of the
GCCA which was planned to start in December 2013.
The Government's view
10.16 The Minister welcomes this
ECA Special Report.
10.17 She continues her comments
as follows:
"The Government notes the
Report's finding that, based on its review, the EC has tailored
its climate finance to partner country specific circumstances.
The ECA Report does not comment on the outputs and outcomes achieved
by the EC programmes. We have actively encouraged the EC to improve
the reporting of the impact and results of its development aid.
The EC has committed to putting in place a comprehensive results
framework in 2014, with a view to reporting against it from 2015.
"We note the Report's suggestions
for improved coordination between the EC and the EU Member States
at the country level. The UK is a supporter of country-led aid
effectiveness work and our key recommendation on EU Joint Programming
has been to ensure that this is country-owned with a flexible,
pragmatic and open partnership approach. The Report noted that
the EU had not made much progress on Joint Programming by the
end of 2011. However, we agree that the EC and EEAS have made
a big push on this since then. We have called on the EC to provide
a realistic assessment of the costs/benefits from countries where
this has been piloted and to continue to review as this is further
rolled-out.
"The Government notes the
EC's intention to improve EU efforts on longer-term scaling-up
of climate finance. We will engage in the discussions on the
draft EU roadmap. Further analysis by the EC could provide a
shared understanding of the potential of different options for
delivering the commitment, though it is for individual EU Member
States to decide their future levels and means of mobilising climate
finance towards meeting the 2020 commitment.
"The Government welcomes the
EC's intention to work with EU Member States towards a common
EU minimum standard for MRV of public climate finance. In particular,
we support improving the OECD-DAC Rio Markers system, and the
consistency of its application within the EU, as the basis for
common reporting. The Government is actively participating in
the discussions in the OECD-DAC and within the EU on improving
the use of the Rio markers. The Government also welcomes the
EU's intention to continue the discussions towards defining private
climate finance.
"The Government notes the
EC and EEAS intention to report on progress towards meeting its
target of having at least 20% of total EU spending over 2014-2020
directed to climate-related action.
"The Government welcomes the
EC's intention to commission an independent evaluation of the
GCCA. The UK is contributing to the GCCA initiative through its
assessed contribution to the EU budget, but has chosen not to
provide additional co-financing, prioritising support for existing
international climate funds, such as the Climate Investment Funds
and Least Developed Countries Fund."
Conclusion
10.18 It is in the nature of
such audits that there is always room for improvement. None of
the areas identified appears to be serious, and the Commission/European
External Action Service (EEAS) have responded constructively.
In such cases, we would not normally consider that a substantive
Report to the House would be warranted.
10.19 However, tackling the
impact of climate change in the developing world is high on the
political agenda. Building resilience to it is increasingly central
to the EU's humanitarian work. It will have a higher profile
in the next EIB external lending mandate. Climate-related action
will consume at least 20% of EU spending in the 2014-20 financial
perspective: this would mean €11.6 billion (in 2011 prices)
under external aid, compared with €3.7 billion in the previous
financial perspective. Spending targets is the easy part. The
ECA report points up areas in which the EU and its Member States'
activity could be more efficient. But it has nothing to say on
how effective it has been because — as both the Report and
the Minister note — it does not comment on the outputs and
outcomes achieved by the programmes examined. This is because,
both here and more widely, the Commission/EEAS — despite
what the Minister says is active encouragement to improve the
reporting of the impact and results of its development aid —
has only now committed to putting in place a comprehensive results
framework in 2014, with a view to reporting against it from 2015.
With a trebling of expenditure in this area, such a results framework
is more than ever vital (and all the more so to the over €50
billion of total external action funding).
10.20 As of now, what was clearly
to be regarded as the EU's "flagship" initiative —
the 2007 Global Climate Change Alliance — is found not to
have been integrated into the work of the EU Member States or
into the Commission's own programming: that the Commission has
struggled to convince EU Member States of its added value, which
has contributed to a significant gap between the ambitions and
actual achievements. This would appear to be borne out by the
Minister, who both welcomes the proposal for independent evaluation
and says that, for its part, though contributing to the GCCA initiative
through its assessed contribution to the EU budget, the Government
has chosen not to provide additional co-financing, instead prioritising
support for existing international climate funds, such as the
Climate Investment Funds and Least Developed Countries Fund.
We accordingly ask that the Minister deposits this evaluation,
once completed, and at the same time sets out her views on how
EU and Member State support for this increasingly important pillar
of EU development assistance should best be taken forward.
10.21 In the meantime, we clear
this Court of Auditors' Special Report.
10.22 We are also drawing this
chapter of our Report to the attention of the International Development
Committee.
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