Assessing the State-Of- Play of Climate Finance Tracking in Europe

Assessing the state-of- play of climate finance tracking in Europe

Final Report

Contract details Framework Service Contract No EEA/ACC/13/003/Lot-2 Assessing the state-of-play of climate finance tracking in Europe

Presented by Trinomics B.V. Westersingel 32a 3014 GS Rotterdam The Netherlands

Authors Lisa Eichler Koen Rademaekers Carmen van den Berg Jeroen van der Laan Hans Bolscher

Date Rotterdam, April 2017

Acknowledgements We would like to thank all EIONET contact points, as well as other Member State representatives who have participated in the data and knowledge survey. These responses form a core part of the analysis. We would also like to thank the organisers (Ian Cochran, Hadrien Hainaut) and all participants of the I4CE-EEA expert workshop held in October 2016 for the useful discussions and outcomes that have been incorporated in this report. Finally, we would also like to thank the European Environment Agency, in particular Andreas Barkman, for the continuous engagement, support and feedback throughout the course of this project.

Disclaimer The views expressed in this report are purely those of the writer and may not in any circumstances be regarded as stating an official position of the European Environment Agency.

Rotterdam, April 2017

Client: European Environment Agency (EEA) Framework Contract EEA/ACC/13/003/LOT-2

Assessing the state-of-play of climate finance tracking in Europe

Final Report

TEC6112EU

TEC6112EU State-of-Play of Climate Finance Tracking in Europe

CONTENTS

Executive Summary ...... viii The importance of an improved knowledge base for domestic climate finance tracking .. ix

Key messages from the stock-taking of European domestic climate finance data and information ...... x Roadmap towards closing identified data and knowledge gaps ...... xvi 1 Introduction ...... 1 1.1 Context ...... 1 1.2 Objectives ...... 2 1.3 Scope ...... 2 1.3.1 What is domestic climate finance? ...... 3 1.3.2 What are Landscapes of domestic climate finance? ...... 6 1.3.3 What climate action areas to track? ...... 7 1.3.4 What sources of finance to track? ...... 8 1.3.5 What type of climate finance flows to track? ...... 11 1.3.6 When to track? ...... 14 1.4 Methodology ...... 16 1.4.1 Overall approach...... 16 1.4.2 Detailed methodological steps ...... 17 1.4.3 Important caveats ...... 21 1.5 Reading Guide ...... 22 2 Stock-taking of European mitigation finance information ...... 23 2.1 Introduction ...... 23 2.2 Estimated investment needs ...... 24 2.2.1 EU level ...... 24 2.2.2 National level ...... 30 2.3 Actual spending ...... 44 2.3.1 EU level ...... 48 2.3.2 National level ...... 56 2.4 Planned expenditure ...... 69 2.4.1 EU level ...... 69 2.4.2 National level ...... 74 2.5 Remaining financing gap ...... 79 2.5.1 EU level ...... 80 2.5.2 National level ...... 87 3 Stock-taking of European adaptation finance information ...... 94

TEC6112EU State-of-Play of Climate Finance Tracking in Europe

3.1 Introduction ...... 94 3.2 Estimated investment needs ...... 95 3.2.1 EU level ...... 95 3.2.2 National level ...... 101 3.3 Actual spending ...... 108 3.3.1 EU level ...... 109 3.3.2 National level ...... 109 3.4 Planned expenditure ...... 113 3.4.1 EU level ...... 114 3.4.2 National level ...... 115 3.5 Remaining financing gap ...... 120 3.5.1 EU level ...... 121 3.5.2 National level ...... 123 4 Roadmap towards closing current data and knowledge gaps ...... 126 4.1 Synthesis of findings regarding European mitigation finance data and knowledge gaps 130 4.1.1 Overview of data accessibility ...... 130 4.1.2 Prioritisation of mitigation finance related data gaps ...... 135 4.2 Synthesis of findings regarding European adaptation finance data and knowledge gaps 142 4.2.1 Overview of data accessibility ...... 142 4.2.2 Prioritisation of adaptation finance related knowledge gaps ...... 146 4.3 Building blocks for improved European climate finance tracking ...... 148 4.3.1 Building block # 1: Developing a common terminology and definitions ...... 151 4.3.2 Building block # 2: Reviewing and learning from existing tracking methodologies and data collection processes ...... 152 4.3.3 Building block #3: Leveraging existing reporting procedures for gathering improved domestic climate finance information ...... 155 4.3.4 Building block #4: Training and capacity building on climate finance across stakeholders . 157 4.3.5 Building block #5: Setting up a European expert network on domestic climate finance tracking 158 5 Annex A: EIONET survey ...... 160 A1: The EIONET survey ...... 160 A2: First-entry (face value) survey results ...... 170 6 Annex B: Additional information from the mitigation stock-taking exercise ...... 172 6.1 Supporting evidence on estimated investment needs ...... 172 6.1.1 EU level: comparative analysis of available literature ...... 172 6.1.2 RES-electricity investment needs exercise ...... 181 6.2 Supporting evidence on actual spending ...... 184 6.2.1 Actual RES-electricity investment spendings exercise ...... 184

TEC6112EU State-of-Play of Climate Finance Tracking in Europe

6.2.2 Underlying assumptions for the EU Budget split between mitigation and adaptation spending 185 7 Annex C: Additional information from the adaptation stock-taking exercise ...... 190 7.1 Supporting evidence on estimated investment needs ...... 190 7.1.1 EU level: comparative analysis of available literature ...... 190 8 Annex D: Additional information on existing terminologies, scope and methodologies...... 199 8.1 Additional literature on relevant mitigation and adaptation sectors ...... 199

TEC6112EU State-of-Play of Climate Finance Tracking in Europe

Executive Summary

The transition to a low-carbon and climate-resilient economy requires an unprecedented redirection of social and economic activities. Consequently, the investment questions - how much is needed to achieve the domestic energy and climate targets1 and how will this be financed - represent some of the main knowledge challenges that need to be tackled urgently. Systematic tracking of domestic climate investment and related financing flows, also called domestic climate finance “landscapes”, is a powerful mapping process for supporting the development, enforcement and strengthening of national climate and energy policy, contributing to the transition towards to a low-carbon and climate-resilient economy. Nevertheless, tracking domestic climate finance is only in its initial stages of development (as compared to the much more developed international climate finance tracking). To this end, the European Environment Agency (EEA) has launched the stock-taking exercise to assess the current state of play on domestic climate finance tracking in Europe2.

The report does not set out to deliver a full picture of the quantitative European climate finance landscape as such, but rather to carefully review the existing publicly accessible data and information on the various aspects of the European domestic climate finance landscape (e.g. different sources of finance, different climate action areas, etc.). The main focus of this review is to identify the main data and knowledge gaps involved in tracking domestic climate finance in on Member State and EU level and prioritising these in terms of their relative importance. In addition and to the extent possible, the report also provides a consolidated overview of the available quantified data (both for mitigation and adaptation) both from a top-down European viewpoint as well as bottom-up from individual Member States.

1 As regards mitigation, the EU has set a binding target of at least 40% domestic reduction of greenhouse gas emissions by 2030 (compared to 1990 levels). This target is part of the 2030 climate & energy framework (COM (2014) 15), which also aims to have at least 27% of EU energy coming from renewable sources and a 27% improvement in energy efficiency. These targets follow on the 20/20/20 targets of the EU 2020 climate & energy package, which should be reached by the time the Paris agreement enters into force. The long term goal of the EU is to achieve 80-95% emission reductions by 2050 (COM (2011) 112). As regards climate change adaptation, the Paris Agreement places unprecedented importance on actions needed— both nationally and globally—to help people adapt. The agreement calls on each country to develop and communicate national adaptation plans and provides guidance for planning and implementation. On EU level, the current EU Adaptation Strategy (COM (2013) 216) was published in April 2013. The Strategy is a powerful response to the climate hazards Europe is and will increasingly be facing. It demonstrates a dedicated long-term commitment to increase the resilience of the EU territory by enhancing the preparedness and capacity of all government levels to respond to the impacts of climate change. 2 The assignment focuses entirely on domestic climate finance in Europe. This means that the research and analysis focuses on tracking those mitigation and adaptation investments that are made within Europe (EEA Member States), i.e. the public and private investment flowing into national climate mitigation and adaptation activities (or climate component of activities) within EEA Member States, as well as relevant investments from the EU institutions to the MS.

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The importance of an improved knowledge base for domestic climate finance tracking

As stated above, the transition to a low-carbon, climate-resilient Europe over the next decades requires an unprecedented redirection of economic and social activities, which can only be achieved if the necessary investment volumes can be provided from public as well as private sources of finance. Based on currently available scenario estimations on a Europe-wide level, it is possible to estimate the remaining financing gap which needs to urgently be closed – in addition to delivering on the business-as- usual climate-related investment volumes – in order to achieve the EU’s ambitious climate and energy targets for 2030 and 2050. The magnitude of the overall financing gap in Europe for reaching EU 2030 targets is known. Based on top down models and independent sources it is estimated to be in the range of at least EUR 179 billion per year3 in the period 2021-2030, where ca. 75% of the financing gap to be filled is related to energy efficiency measures in the building and household sectors. For adaptation, on the other hand, currently available data does not allow for calculating a quantified estimation of the financing gap. Nevertheless, one can assume that there is also a sizable remaining financing gap for the adaptation aspects of European domestic climate finance.

Knowing this financing gap, it is important to monitor progress towards closing it, i.e. tracking European domestic climate finance flows (historic, current, planned). Domestic climate finance tracking also has various other uses, such as the role they can play as a decision-support tool for policy- makers for: reporting – to domestic (government, parliament, the general public) or international (EU, UNEP); diagnosing – the effectiveness (climate, GHG), the efficiency (leverage, money), and the gaps vs. estimated needs of current policies; comparing – between countries, climate action areas, instruments; recommending - propose solutions to close the gaps and mismatch in the financial value chain; and coordinating & planning – a “helicopter view”, as a basis for improved financing strategies, better connecting capital and pipeline of projects.

One of the first stumbling blocks towards achieving an improved knowledge base (at least on a joint European-wide perspective) is, however, the fact that currently there is a lack of common definitions, scope and tracking methodologies. At this point in time most Member States and wider European or international organisations often use their own tailored definitions and scope for domestic climate finance, if they have defined it all. While this may not pose a challenge for the individual studies or tracking exercises, when trying to aggregate data and information on a European level (e.g. for tracking progress towards EU policy targets) this diversity of scopes, definitions and methodologies makes it rather impossible to compare and/or combine figures. Furthermore, limited technical knowledge on the topic of domestic climate finance (tracking) among key stakeholders on Member State level further complicates the data collection process, reflecting the early phase domestic climate finance tracking is in. This should be kept in mind when interpreting the stock-taking results as possibly additional data is available but has not been provided due to this knowledge issue. However, survey results indicate a clear interest, willingness across Member States to engage in the (further) development of domestic climate finance tracking throughout Europe. It should be mentioned that from observations more generally, the technical knowledge among EU as well as private sector stakeholders is also not very well developed yet.

3 For detailed information regarding this figure, see Table 4-1 in Chapter 4. The remaining financing gap is based on latest European Commission scenarios as presented in the impact assessments accompanying the ‘Clean Energy for All Europeans’ policy package (SWD (2016)405), recalculated for 2015 constant prices.

State-of-Play of Climate Finance Tracking in Europe

Key messages from the stock-taking of European domestic climate finance data and information

The main conclusion from the stock-taking exercise on the state-of-play of domestic climate finance is that there are multiple data and knowledge gaps across all levels of analysis: Member States, European level, private sources of finance, as well as on sectoral level.

To complicate the matter further, there are also observed differences between mitigation and adaptation finance: The data availability regarding finance for mitigation is better and more transparently tracked than finance for climate adaptation - both on Member State and EU level. This means that currently it is not possible to gain a comprehensive understanding of where we are at today (historic trends and current climate-relevant spending levels), where we are projected to be heading (business-as-usual scenarios and/or planned spending on mitigation and adaptation actions) or where we need to be exactly (total required climate investment need) in terms of levels of financing that would allow us to deliver the needed actions for transitioning to a low-carbon, climate-resilient society and economy. The multitude of data and knowledge gaps can be illustrated for the various levels of analysis.

A. Illustration of identified data and knowledge gaps on Member State Level

There is a significant gap in comprehensive data availability on climate investment needs as well as actual and planned climate finance spending on Member State level with only a few Member States having a systematic approach (namely Germany4, France5 and Belgium6) in place for tracking climate investment flows including any links to Low Carbon Development Strategies, National Climate and Energy plans, National Adaptation Strategies. Others compile data in a very ad-hoc manner and have rather patchy data available at best. At the same time it should be noted that those countries reporting that no tracking methodologies or reporting procedures exist at the moment, a large share indicated that they do have intentions to (further) develop methodologies and processes for collecting (climate finance) data information such that a domestic landscaping exercise could be carried out. This lack of a common basis so-to-say, in turn, makes it very challenging to compare and contrast any of the identified data in the consequent chapters – both on EU and on Member State level – as most of them are based on different sets of underlying assumptions, scope, definitions, etc.

4 Juergens et al (2012). The landscape of climate finance in Germany. Climate Policy Initiative. http://climatepolicyinitiative.org/wp-content/uploads/2012/11/Landscape-of-Climate-Finance-in-Germany-Full-Report.pdf 5 Hainaut et al (2015). Landscape of climate finance in France 2011-2014. I4CE Institute for Climate Economics. http://www.i4ce.org/download/landscape-of-climate-finance-in-france-2015-edition-full-report/?wpdmdl=13071 6 Rademaekers et al (2016). Landscape of climate finance in Belgium. Federal Public Service (FPS) Health, Food Chain Safety and Environment, Belgium. http://www.klimaat.be/files/4914/6901/4152/Landscape_of_climate_finance_in_Belgium.pdf

State-of-Play of Climate Finance Tracking in Europe

The challenges encountered on Member State level are further illustrated via the data accessibility overview maps in Figure 0-17. This visual mapping shows that overall data accessibility across Member States for mitigation is better than for adaptation. When comparing data accessibility across different types of climate finance volumes, the following can be concluded: . Estimated total investment needs information: There is generally better accessible information for estimated investment needs for mitigation as compared to adaptation across Member States. Nevertheless, estimated investment needs figures for adaptation are already advanced in some cases – namely Estonia and the Czech Republic-, covering detailed total investment needs associated with the established National Adaptation Plans. . Actual spending data: Information on actual spending trends is more readily accessible for mitigation as compared to adaptation across Member States. Yet, most of the reported data – both for mitigation as well as for adaptation) is rather patchy and most often does not portray a comprehensive picture (with the exception of Germany, Belgium and France). These three Member States have initiated successful domestic climate finance landscaping exercises tracking actual spending trends. They serve as important best practice benchmarks and provide elements that could be replicated and built on for increasing the knowledge base on climate finance tracking across Europe. . Planned expenditure information: From a bottom-up Member State approach, very limited and patchy data is available regarding planned future expenditure levels for both mitigation and adaptation. A notable exception here is the comprehensive development of planned adaptation expenditure data available for Estonia and Germany. These planned public budget expenditures have been based on what it will cost to implement the actions specified in their national adaptation plans.

7 For further details and quantitative information behind these data accessibility maps, see Chapters 2.2.2, 2.3.2, 2.4.2 for mitigation and Chapters 3.2.2, 3.3.2, 3.4.2 for adaptation.

State-of-Play of Climate Finance Tracking in Europe

Figure 0-1 Degree of accessibility of climate finance data across EEA Member States Mitigation Adaptation

Total investment need Total investment

spending

Actual

Planned Planned expenditure

[Source : own development, map created with MapChart.net] Legend:

[Note : dark green = comprehensive actual spending figures available, light green = limited/partial actual spending figures available, yellow = respondent indicated availability, but figures could not be verified (confidential), red = no figures were found.]8

8 For further information on the data availability scoring, see methodology chapter.

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B. Illustration of identified data and knowledge gaps on European level

On aggregated European level the data availability gaps can be represented by ‘colour-coding’ the European domestic climate finance diagram.

The figure overleaf (Figure 0-2) depicts the European domestic mitigation and adaptation landscape diagrams providing a colour-coded summary of the relative data accessibility (of historic spending trends as well as planned future spending) capturing primarily what is available from a top-down

European perspective. The only ‘boxes’ where the Member State level findings informed the European landscape diagram (and hence the colour-code) are the ‘National Public Administration’ and ‘National Promotional Bank’ boxes where a rough average of the data availability across Member States was used for the availability score. The colour-coding here represents the relative degree of public data accessibility with respect to the different sources of finance, climate action areas and types of climate finance flows relevant for mitigation or adaptation respectively. The score colour for each box in essence is based on whether or not with the currently accessible knowledge it is possible to ‘fill in’ this specific part of the European climate finance landscape.

One general conclusion regarding these specific data gaps is that for mitigation generally better data availability is observed on European level as compared to Member State level; whereas for adaptation better data availability exists on Member State level as compared to European-wide data. This finding makes sense as mitigation is generally-speaking a more top-down driven policy area guided by EU-level targets and the possibility to share the effort of reaching these targets among Member States; adaptation on the other hand typically requires much more local, context-specific action and is therefore driven by local needs with corresponding information availability bottom-up.

Furthermore, as regards the EU level financing sources, there is a lack of disaggregation between climate mitigation and adaptation spending of overall EU Budget and EU Financial Institution investment available for climate-relevant spending. This makes it difficult to assess progress in EU public spending on specific climate action areas and also prevents improved decision-making as to where EU Budget is best spent in terms of supporting the transition to a low-carbon, climate-resilient society and economy.

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Figure 0-2 European climate finance landscape: colour-coded for availability of data Mitigation

Adaptation

[Source: own elaboration based on Ch. 2 and Ch. 3 results] [Note: The score colour for each box is based on whether or not with the currently accessible knowledge it is possible to ‘fill in’ this specific part of the European climate finance landscape.]

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Furthermore, the colour-coded European climate finance landscapes (Figure 0.2 above) also help depict the main findings regarding private sources of finance, as well as findings on a sectoral level.

C. Findings regarding private sources of finance

There is a clear lack of publicly available data from all private sources of finance (left-hand side of the diagrams above)9. The private sector is expected to contribute the largest share of the remaining financing gap; yet at the same time it is the source of finance with the most apparent data accessibility gap across mitigation and adaptation. Data from private sources would in particular help to strengthen the understanding about historic trends and current spending levels for the various mitigation and adaptation action areas and how these are financed.10 Currently, this knowledge is only developed for renewable energies. If it would exist also for other mitigation and adaptation action areas, the remaining investment gap estimations could also be made more accurately. Information from private sources is less important for determining total investment needs estimations as these figures should already be developed from an all-encompassing point of view, i.e. what is the amount needed to achieve certain policy targets, regardless of who provides this investment.

D. Findings on a sectoral level (per climate finance action area)

From a climate action area point of view (right-hand side of the diagrams above)11 there are important data availability gaps – in particular for disaggregated data – across pretty much all climate action areas. However, the most important data accessibility gaps to highlight here centre around various energy efficiency sectors on the mitigation side, as well as a cross-section of adaptation relevant action areas, including in particular infrastructure, agriculture, forestry, disaster management, natural ecosystems and health.

9 For more detailed information, see Ch. 4.1 and 4.2. 10 For more information on actual spending, see Ch. 2.3 (mitigation) and Ch. 3.3 (adaptation). 11 For more detailed information, see Ch. 4.1 and 4.2.

State-of-Play of Climate Finance Tracking in Europe

Roadmap towards closing identified data and knowledge gaps

Finally, the identified data and knowledge gaps observed on Member State and European levels as well as across all types of financial flows can be clustered in terms of categories of gaps (see table below). These clusters represent those gaps that have also been prioritised due to their relative degree of data accessibility (see colour-coded landscapes and maps) combined with their relative role with respect to the remaining climate financing challenge.

Table 0-1 Prioritised data and knowledge gaps (in no particular order of importance) Specific data gaps A: Mitigation: Lack of disaggregated energy efficiency finance data – in particular for energy efficiency in buildings. B: Adaptation: Lack of comprehensive total investment needs estimation. C: Adaptation: Lack of sufficiently comprehensive finance data across adaptation action areas. Broader cross-cutting knowledge gaps D: Lack of common definitions, scope and tracking methodologies. E: Limited technical knowledge on the topic of domestic climate finance tracking among key stakeholders.12 F: Insufficient data availability across different types of financing flows from Member State level. G: Lack of disaggregation of overall EU Budget and EU Financial Institution investment available for climate-relevant spending (no adaptation / mitigation split). H: Lack of publicly available data from all private sources of finance.

This prioritisation of key data and knowledge gaps in turn offers a first set of entry points in order to start tackling these challenges. Ch. 4.3 presents several building blocks that could form part of a wider roadmap or strategy for tackling the identified key data and knowledge gaps in an effort to improve European domestic climate finance tracking and mapping both on European as well as on Member State levels. The building blocks are set up as a direct response to the prioritised data and knowledge gaps and follow a certain logic of consecutive steps.

First, in order to further develop climate finance tracking on a European aggregated level it would be important to work on developing common terminology, definitions and possibly tracking methodologies.

BB-1: Developing common terminology and definitions Relevance for data and knowledge gaps: D, but also A, B, C, E, F Importance: Helps overcome current issues with incomparability of data from different sources of information. Allows for easier aggregation of European information based on bottom-up Member State data.

12 This may have also hampered the data collection processes for this study to a certain extent.

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In addition, in order to make progress also on Member State levels, a first step is to share existing knowledge and learn from each other.

BB-2: Review and learn from existing climate finance tracking methodologies and data collection processes Relevance for data and knowledge gaps: A, B, C, D, E, F, G, H Illustrative examples include: . On European level: EU Budget reporting under the Multiannual Financial Framework process. . On Member State level: Existing domestic climate finance landscape reports for Germany, France, and Belgium. . Private sector: Bloomberg New Energy Finance’s RES investment tracking and reporting.

At the same time, it is important to start enhancing capacity across all levels of stakeholders in order to improve their understanding and in turn their capability to act upon improved climate finance tracking.

BB-4: Training and capacity building on climate finance across stakeholders Relevance for data and knowledge gaps: E, but also A, B, C, F, H Illustrative examples include: . Public sector: Strengthen technical knowledge of those involved in data collection and reporting on Member State and EU levels. . Private sector: Promote the importance of energy efficiency in buildings (and the reporting thereof) among households and private companies.

In order to take action on this knowledge sharing and capacity building, two further building blocks are proposed, namely: leveraging existing reporting procedures for improved climate finance data and information (BB-3) and establishing a European expert network on climate finance tracking (BB-5).

BB-3: Leverage existing reporting procedures for gathering improved climate finance data Relevance for data and knowledge gaps: F, G, H but also A, B, C Illustrative examples include: . On EU level: Introduce an adaptation versus mitigation split in the EU Budget reporting under the Multiannual Financial Framework. . On Member State level: Improve finance-related reporting criteria in the templates for Low Carbon Development Strategies (LCDSs), National Adaptation Plans (NAPs), and/or joint Climate and Energy Plans. . Private sector: Introduce mandatory disclosure rules for relevant climate investment data.

BB-5: Establish a European expert network on domestic climate finance tracking Relevance for data and knowledge gaps: D, E, F, G, H (indirectly also A, B, C) Illustrative examples include: . On EU level: Share knowledge gathered via various assignments; support further research. . On Member State level: Establish a contact database; exchange experiences. . Private sector: Engage private financiers in discussion and the further climate finance tracking development process.

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1 Introduction

Chapter at a Glance

This chapter introduces the broader context of the report.

The main objective of the report is to assess the current state of play on domestic climate finance tracking in Europe. The report does not set out to deliver a full picture of the quantitative European climate finance landscape as such, but rather to carefully review the existing available data and information on the various aspects of the European domestic climate finance landscape (e.g. different sources of finance, different climate action areas, etc.).

Prior to carrying out the stock-taking exercise, it is important to elaborate on the wide ranges of applied terminologies and differences in scope (Section 1.3).

Finally, the methodology behind the stock-taking exercise is explained (Section 1.4).

For a quick overview on where to find what information, please see the Reading Guide in Section 1.5 below.

1.1 Context

Aligning financial flows with EU and national climate-related targets14 - expressed in among others Low- Carbon Development Strategies, Integrated National Energy and Climate Plans and National Adaptation

13 UNFCCC (2015). Paris Agreement. http://unfccc.int/resource/docs/2015/cop21/eng/l09r01.pdf. At the Paris climate conference (COP-21) in December 2015, 195 countries agreed to keep the increase in global average temperature to well below 2°C above pre-industrial levels, with the aim to limit it to 1.5°C. 14 As regards mitigation, the EU has set a binding target of at least 40% domestic reduction of greenhouse gas emissions by 2030 (compared to 1990 levels). This target is part of the 2030 climate & energy framework (COM (2014) 15), which also aims to have at least 27% of EU energy coming from renewable sources and a 27% improvement in energy efficiency. These targets follow on the 20/20/20 targets of the EU 2020 climate & energy package, which should be reached by the time the Paris agreement enters into force. The long term goal of the EU is to achieve 80-95% emission reductions by 2050 (COM (2011) 112). As regards climate change adaptation, the Paris Agreement places unprecedented importance on actions needed— both nationally and globally—to help people adapt. The agreement calls on each country to develop and communicate national adaptation plans and provides guidance for planning and implementation. On EU level, the current EU Adaptation Strategy (COM (2013) 216) was published in April 2013. The Strategy is a powerful response to the climate hazards Europe is and will increasingly be facing. It demonstrates a dedicated long-term commitment to increase the

State-of-Play of Climate Finance Tracking in Europe

Plans - will be key for a smooth and cost-effective transition towards a low carbon, climate resilient and competitive economy.

But shifting and scaling up financial flows to meet national climate and energy objectives requires an improved knowledge base. Systematic tracking of domestic climate investment and related financing flows, also called climate finance “landscapes”, is a powerful process for supporting the development, enforcement and strengthening of national climate and energy policy, contributing to the transition towards to a low-carbon and climate-resilient economy. However, tracking domestic climate finance is only in its initial stages of development (as compared to the much more developed international climate finance tracking). To this end, the European Environment Agency (EEA) has launched a stock-taking exercise to determine the current status of data availability on domestic climate finance in Europe.

1.2 Objectives

This report assesses the current state of play on domestic climate finance tracking in Europe. The report does not set out to deliver a full picture of the quantitative European climate finance landscape as such, but rather to carefully review the existing available data and information on the various aspects of the European domestic climate finance landscape (e.g. different sources of finance, different climate action areas, etc.). To the extent possible, the report provides a consolidated overview of the available data on estimated investment needs for mitigation and adaptation across Europe, the available data on current actual climate finance spending as well as any planned future expenditure. The main focus of this review is to map the data gaps involved in tracking domestic climate finance in Europe and identifying their underlying causes (e.g. insufficient knowledge on the topic of climate finance, lack of common definitions/methodologies, etc.). Finally, the report proposes several building blocks for an action plan to start tackling these urgent knowledge gaps.

The assignment focuses entirely on domestic climate finance in Europe. This means that the research and analysis focuses on tracking those mitigation and adaptation investments that are made within Europe (EEA Member States), i.e. the public and private investment flowing into national climate mitigation and adaptation activities (or climate component of activities) within EEA Member States, as well as relevant investments from the EU institutions to the Member States (MS).

1.3 Scope

This section briefly presents the main concepts of importance on domestic climate finance. The section presents what is generally known about climate finance concepts and the various choices that need to be considered when tracking. There are many different aspects to climate finance, adding to the complexity and challenges to finding a universal definition. These include: the sources of finance, as well as the types of finance provided. Without making a statement of what should be included in domestic climate finance, we present the different choices available when defining the scope of domestic climate finance. So in a sense, this section provides an initial ‘menu’ for countries to choose

resilience of the EU territory by enhancing the preparedness and capacity of all government levels to respond to the impacts of climate change.

State-of-Play of Climate Finance Tracking in Europe

from (or add to) in terms of their domestic climate finance definition, scope and methodologies applied. These concepts are also used when discussing stock-taking results, etc. in later chapters, as well as the discussion of existing gaps and to what extent current concepts and definitions play a role.

1.3.1 What is domestic climate finance? There is not one single agreed international definition on climate finance. Instead, various international institutions, research groups or national governments have been developing their own definition based on the specific objectives their respective publications have intended to pursue. In its broadest interpretation, climate finance refers to all financial flows towards activities that reduce greenhouse gas concentrations (mitigation) or help human and ecological systems adapt to the impacts of climate change (adaptation). The UNFCCC Standing Committee15 on Finance defines climate finance as follows:

“Climate finance aims at reducing emissions, and enhancing sinks of greenhouse gases and aims at reducing vulnerability of, and maintaining and increasing the resilience of, human and ecological systems to negative climate change impacts.”

The term ‘domestic’ refers to investments that are made within the country. In the case of this report where the subject is Europe, domestic climate finance includes all investment flows within Europe, including relevant investments from the EU institutions to the MS. The opposite, more well-known, term is international climate finance, which refers to investments from developed to developing countries. Despite this distinct difference, the discussion on what is included as climate finance is the same. Therefore lessons can be drawn from international climate finance discussions which are useful for this report as well.

The Climate Policy Initiative (CPI) annually reports on global climate finance, which includes both international and domestic climate finance worldwide. For CPI’s Global Landscape of Climate Finance 201516, the following working definition has been used:

“Capital flows directed towards low-carbon and climate-resilient development interventions with direct or indirect greenhouse gas mitigation or adaptation benefits. These flows include support for capacity building measures as well as for the development and implementation of policies.”

Both the UNFCCC and the CPI use a broad definition including both mitigation and adaptation in climate finance. Certain common definitions therefore leave room for interpretation on what is actually considered climate-relevant. Given the fact that all climate change discussions evolve around these two main challenges – mitigation and adaptation – there is a clear logic of trying to track and report financing flows associated with both. The two concepts of mitigation and adaptations are further discussed below to show what could be included as mitigation or adaptation activities.

Mitigation In the two broad definitions of climate finance as presented above, mitigation was shortly described as “low-carbon” interventions (CPI), or more specific by the UNFCCC: “reducing emissions and enhancing

15 UNFCCC Standing Committee on Finance (2015), 2014 Biennial Assessment and Overview of Climate Finance Flows Report. 16 CPI (2015), A Closer Look at the Landscape 2015 Methodology

State-of-Play of Climate Finance Tracking in Europe

sinks of greenhouse gases”. The OECD-DAC Rio markers methodology17 has one of the most established definitions of mitigation activities as used in the context of international climate finance:

A mitigation-related activity “contributes to the objective of stabilisation of greenhouse gas (GHG) concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system by promoting efforts to reduce or limit GHG emissions or to enhance GHG sequestration.”18

The first domestic climate finance study produced for a Member State, the German study by the CPI (2012)19, distinguishes between climate-specific and climate-related investments. The first refers to “capital flows that target investments resulting in climate change mitigation or avoidance of emissions”. The latter covers more general financial flows that deliver “climate co-benefits in terms of reduction or avoidance of emissions”.

Different studies can therefore use different eligibility criteria on whether an activity can be categorised as climate change mitigation activity. What is always included as mitigation in the definition is the reduction of greenhouse gas emissions. Avoidance of GHG emissions is however not always included. Maintaining or enhancing GHG sinks and GHG sequestration are also sometimes excluded. At last, low-carbon development itself may also be part of the definition. Section 1.3.3 below provides a detailed overview of relevant climate mitigation areas.

For the purpose of this study, two types of financial flows related to mitigation are covered: on the one hand the tangible investments made into the relevant activities of the different mitigation areas (e.g. renewable energy (RES), energy efficiency in buildings (EE-B), energy efficiency in industry (EE-I), energy efficiency in transport (EE-T)), as well as intangible investments (incl. research, R&D, capacity- building, and other mitigation related services).

Adaptation Within the two broad definitions of climate finance as given in the introduction of this section, adaptation was described as “climate resilient” interventions (CPI) and more specifically by the UNFCCC as: “reducing vulnerability of, and maintaining and increasing the resilience of, human and ecological systems to negative climate change impacts”. In the context of international climate

17 OECD (2011) Handbook on the OECD-DAC Climate Markers 18 Other commonly cited definitions of mitigation activities include the following: The Intergovernmental Panel on Climate Change (IPCC) has defined mitigation of climate change in its Fifth Assessment Report (AR5; see https://www.ipcc.ch/report/ar5/) as “A human intervention to reduce the sources or enhance the sinks of greenhouse gases”. The ‘Common Principles for Climate Mitigation Finance Tracking’, developed by the Multilateral Development Banks (MDBs) and International Development Finance Club (IDFC), drafted a shortened version of the OECD-DAC Rio markers definition for mitigation activities: An activity will be classified as related to climate change mitigation if it promotes “efforts to reduce or limit greenhouse gas (GHG) emissions or enhance GHG sequestration” (see: http://www.eib.europa.eu/attachments/documents/mdb_idfc_mitigation_common_principles_en.pdf). Despite the similar definition, the MDB methodology for determining what is mitigation finance is different from the Rio markers methodology. The biggest difference is that the MDBs do not look at the purpose of the activity, as the Rio markers do, but at the type of activity to be executed instead. Hence the MDB methodology involves less subjectivity in terms of judgment on the purpose; it is based on a chosen list (for mitigation) of purpose combined with context ad a clear link between the activity and climate vulnerability (for adaptation. Later on in Section 1.3.3 a slight alteration of their list of eligible activities is given (Table 1-1) for the purpose of this report. 19 Juergens et al (2012). The landscape of climate finance in Germany. Climate Policy Initiative. http://climatepolicyinitiative.org/wp-content/uploads/2012/11/Landscape-of-Climate-Finance-in-Germany-Full-Report.pdf

State-of-Play of Climate Finance Tracking in Europe

finance, the OECD-DAG Rio markers methodology20 also developed one of the most established definitions of adaptation, which largely matches the UNFCCC definition:

An adaptation-related activity “intends to reduce the vulnerability of human or natural systems to the impacts of climate change and climate-related risks, by maintaining or increasing adaptive capacity and resilience.”21

For the purpose of this study, two types of financial flows related to adaptation are covered: on the one hand the tangible investments made into the relevant activities of the different adaptation areas (e.g. water management, disaster risk reduction, etc.), as well as intangible investments (incl. research, R&D, capacity-building, and other adaptation related services).

Other climate-related services In the Belgian climate finance landscape study22, a third category of climate-related finance has been added besides adaptation and mitigation investments, namely ‘climate services’. The latter is based on the definition given by the European Commission’s Climate Services Initiative: “transforming climate- related data and other information into customised products such as projections, trends, economic analysis, advice on best practices, development and evaluation of solutions, and any other climate- related service liable to benefit that may be of use for the society”.

Drawing from lessons learned in the field of international climate finance tracking under MMR23, the countries are given the opportunity to categorise climate-related activities in the ‘other’ category, which could for example cover climate services as described by the Belgian study. Another possibility is that certain projects may fall under both categories of mitigation and adaptation, which therefore end up in the ‘other’ category. It is therefore important to define what ‘other’ climate-related investments are, and to find a conventional way to treat investments which overlap in categories.

For the purpose of this report, climate services have not been treated as a separate category, but rather have been included as part of the information and data needs for mitigation and adaptation

20 OECD (2011) Handbook on the OECD-DAC Climate Markers. 21 Other commonly cited definitions of adaptation activities include the following: The IPCC formulated adaptation in a completely different manner in in its Fifth Assessment Report (AR5; see https://www.ipcc.ch/report/ar5/): Adaptation is “the process of adjustment to actual or expected climate and its effects. In human systems, adaptation seeks to moderate harm or exploit beneficial opportunities. In natural systems, human intervention may facilitate adjustment to expected climate and its effects.” In their ‘Principles for Climate Change Adaptation Finance Tracking’ (see: http://www.eib.org/attachments/documents/mdb_idfc_adaptation_common_principles_en.pdf), the MDBs and IDFC recognize the existence of differing scientific and institutional definitions of adaptation. It refrains from giving a definition, but frames the scope of activities that can be classified as adaptation activities. It gives the following principles: “Adaptation finance tracking relates to tracking the finance for activities that address current and expected effects of climate change, where such effects are material for the context of those activities”, and it “may relate to activities consisting of stand-alone projects, multiple projects under larger programs, or project components, sub- components or elements, including those financed through financial intermediaries”. The MDB approach for adaptation is different from the approach for mitigation finance tracking as discussed earlier, as it depends on context-specific information. It requires a demonstration of a direct link between the financed activities and the identified, context-specific risks, vulnerabilities and impacts related to climate variability and climate change. Again, this approach is different from the OECD-DAC Rio markers approach in that it requires more than just a statement in the project documentation of the purpose of the financed activity. However, since adaptation activities are context- and location-specific, it does not rely on a positive list of activities as is the case for mitigation. A list of relevant sectors and adaptation activities is given in Annex D. 22 European Commission. (n.d.). Climate actions – climate services, cited in: Rademaekers et al (2016) ‘Landscape of climate finance in Belgium’, Final Report for the Federal Public Service (FPS) Health, Food Chain Safety and Environment. 23 Greenhouse gas Monitoring Mechanism Regulation (MMR). http://rod.eionet.europa.eu/instruments/652.

State-of-Play of Climate Finance Tracking in Europe

flows respectively. The full picture of climate finance flows should include data and information on the tangible investments, but also on the supporting intangible investments for mitigation and adaptation activities respectively.

1.3.2 What are Landscapes of domestic climate finance? Climate finance landscapes are comprehensive studies mapping financial flows dedicated to climate change action and the energy transition. Covering both end-investment and supporting financial flows from public and private stakeholders, landscapes draw the picture of how the financial value chain links sources, intermediaries, project managers and the end investment. Initially developed by Climate Policy Initiative (CPI), the landscape methodology has been applied globally as well as domestically in European countries such as Germany24, France25 and Belgium26.

Box 1-1 Advantages of developing landscapes of climate finance Climate finance landscapes serve as a policy tool supporting various aspects of the policy process. Experts27 have emphasised their particular usefulness with regards to:  Reporting – to domestic (government, parliament, the general public) or international (EU, UNEP);  Diagnosing – the effectiveness (climate, GHG), the efficiency (leverage, money), and the gaps vs. estimated needs of current policies;  Comparing – between countries, climate action areas, instruments;  Recommending - propose solutions to close the gaps and mismatch in the financial value chain;  Coordinating & Planning – a “helicopter view”, as a basis for improved financing strategies, better connecting capital and pipeline of projects.

Figure 1.1 depicts the European domestic climate finance landscape as applied for the mapping in this report. The landscape presented here has no values attached to the different flows. It is a representation of the relevant sources of finance and their investment instruments on the one hand, and the receiving climate action areas with climate-relevant activities on the other hand.

24 Juergens et al (2012). The landscape of climate finance in Germany. Climate Policy Initiative. http://climatepolicyinitiative.org/wp-content/uploads/2012/11/Landscape-of-Climate-Finance-in-Germany-Full-Report.pdf 25 Hainaut et al (2015). Landscape of climate finance in France 2011-2014. I4CE Institute for Climate Economics. http://www.i4ce.org/download/landscape-of-climate-finance-in-france-2015-edition-full-report/?wpdmdl=13071 26 Rademaekers et al (2016). Landscape of climate finance in Belgium. Federal Public Service (FPS) Health, Food Chain Safety and Environment, Belgium. http://www.klimaat.be/files/4914/6901/4152/Landscape_of_climate_finance_in_Belgium.pdf 27 Conclusions from the EEA and I4CE expert workshop in Copenhagen, October2016.

State-of-Play of Climate Finance Tracking in Europe

Figure 1-1 European domestic climate finance landscape

[Source: Own elaboration, 2017]

The existing landscapes (global, Germany, France, Belgium) have used this approach to visualise actual (historic/current) spending levels of climate finance. However, the main purpose of this report is not to map the quantified financial flows for such a landscape on European level, but rather to identify/map the data availability status on the various sources, climate action areas and flows in order to provide a better picture of the current state-of-play on climate finance tracking knowledge in Europe. For the purpose of this report, the visualisation of the European climate finance landscape will therefore be used as a point of reference for discussing the status quo of data availability across the different types of information to be tracked. The remainder of this scope section outlines the boundaries of this state-of-play review based on the climate finance landscape diagram.

1.3.3 What climate action areas to track? The right-hand column of the European climate finance landscape diagram describes those climate action areas most relevant for tracking climate activities, i.e. the recipients of the financial flows. In the existing literature, climate action areas are also often referred to as ‘sectors’; while this works relatively well for mitigation action areas, it does not represent adaptation action areas, such as natural ecosystems very accurately. Therefore, this report labels them as climate action areas instead. The primary climate action areas as defined for this report include:

State-of-Play of Climate Finance Tracking in Europe

Table 1-1 Main climate action areas as defined for this study Mitigation  Renewable energy (solar PV, onshore and offshore wind, biomass, small hydro, tidal/wave, etc.); and  Energy efficiency measures in the buildings, industry, and transport and energy grid/network. Adaptation  Water management (incl. for example flood management and water (resource management);  Infrastructure;  Agriculture, forestry and fisheries;  Extreme events / disaster management;  Natural ecosystems;  Coastal management; and  Human health. [Source: Own elaboration based on literature review] [Note: The areas presented here are main categories and most can be split further into sub-categories, such as flood management and water resource management under the broad heading of ‘water management’.]

Many of the most common definitions for climate finance introduced above, however, leave room for interpretation on which climate action areas and technologies can be considered climate-relevant. This can therefore vary considerably between different studies and tracking methodologies.

In most EEA Member States, the energy (power), industry, buildings, transport and agricultural sectors (five key sectors) are responsible for more than 95% of the GHG emissions.28 They are also some of the sectors facing the highest risks related to climate change and hence require urgent adaptation measures. For mitigation investments, the scope largely follows this breakdown into the key climate action areas, or a selection thereof. For adaptation, the distribution of finance over various sectors and topics is less straightforward. For a more detailed analysis of relevant climate action areas to be included for mitigation versus adaptation finance tracking, see Annex D.

The inclusion (or exclusion) of a climate action area in the scope can have large implications for the degree of completeness of the respective climate finance landscape to be produced. It is therefore important to always keep in mind and assess the scope when reading into climate finance data. Even more difficult is to assess what is included within the climate action area. For both mitigation and adaptation subcategories / types of measures were identified applicable within each climate action area. This is where the more political discussions take place, on whether to include fossil-based lower- carbon and energy-efficiency activities within the sectors, carbon capture and storage, nuclear energy, etc. For adaptation, the scope is usually not narrowed down to exclude certain sectors upfront due to their limited relevance for adaptation activities, and is therefore more related to the distinction between tangible and intangible assets, and to the demonstration of direct links between the climate impacts and the investment, which is context-specific.

1.3.4 What sources of finance to track? This section describes the left-hand column of the European climate finance landscape diagram, i.e. the different types of possible financing sources. Multiple sources of finance are at play to finance the transition to a low-carbon, climate-resilient economy. They include both the public and private

28 European Commission (2011). EC Energy Roadmap 2050. (COM (2011) 112).

State-of-Play of Climate Finance Tracking in Europe

sector.29 Public finance is typically needed to support the early stages of mitigation technology innovation as well as to speed up investments from various private sources. Public finance is also crucial for financing adaptation activities. Public finance has a variety of actors involved on different levels of government. Another important group of actors in climate finance stems from the private sector. Private sources also include a range of actors from very large financiers to individual households.

For the purpose of this report, the sources of finance are grouped into the following sets of actors:

Table 1-2 Sources of climate finance (as defined for this report) Public 1. Direct Member State government intervention via direct investments, grants, sources subsidies, or tax incentives; 2. EU level funds, grants, subsidies; 3. EU ETS auctioning revenues; and 4. Finance by public financial institutions (PFIs) on MS and EU level, such as the European Investment Bank (EIB), the European Bank of Reconstruction and Development (EBRD) (although minor contribution), and various regional and national public banks. The financial instruments at their disposal range from providing subsidies/grants, equity to classic concessional lending or guarantees.

Private 1. Banking organisations: the instruments used include debts (such as regular sources loans, non-recourse loans, mezzanine, guaranteed loans & cash loans leasing and bonds) and equity; 2. Institutional investors (pension funds, insurance companies, investment managers, foundations and endowments, sovereign wealth funds, non-fund pension assets); 3. Other financial investors (incl. high net worth individuals, venture capital or angel investors, etc.); 4. Companies’ own resources (private equity), e.g. large utilities remain an important source of equity finance for renewable energy projects, in particular at the development and pre-construction stage); and 5. Small end-users (households, farmers, small cooperatives, etc.). [Source: Own elaboration based on literature review]

When looking into the investment decisions of different types of investors in climate mitigation activities, the technology readiness level (TRL) of a given technology heavily influences the availability of financing sources.

29 Aaron Atteridge, Clarisse Kehler Siebert, Richard J. T. Klein, Carmen Butler and Patricia Tella (2009) „Bilateral Finance Institutions and Climate Change: A Mapping of Climate Portfolios“, Stockholm Environment Institute for the Climate Change Working Group for Bilateral Finance Institutions Submitted to the United Nations Environment Programme (UNEP) and the Agence Française de Développement (AFD), Stockholm Environment Institute, p. 4.

State-of-Play of Climate Finance Tracking in Europe

Figure 1-2 The 9 TRL levels

[Source: http://www.nasa.gov/pdf/458490main_TRL_Definitions.pdf) ]

Basic R&D for new technologies, for example, is primarily financed by public sources and/or the companies’ own resources. The further one moves down the technology readiness chain, the less risky the investment becomes and the more private sources, such as venture capitalists, private equity, banks or institutional investors, will also become interested in the investment.

A number of avenues are available during the stages of ‘Demonstration and Deployment’ including a combination of public and private funding. However, these stages are the most difficult and where young businesses often disappear. The clean energy sectors are certainly no exception and these two stages are crucial to improvements in the mitigation efforts. TRL levels of 9 and higher are stages where viable businesses and projects can have access to plentiful private finance sources. For a detailed discussion of the various sources of finance in the European climate finance landscape and the most relevant influencing factors impacting their investment decision-making process, please see the 2017 European Commission, DG Energy publication entitled ‘Assessing the European clean energy finance landscape, with implications for improved macro-energy modelling’30.

Financing adaptation has not been covered as extensively in existing studies and most finance is currently still provided primarily by the public sector. A simple division of who might undertake different types of adaptation strategies was made in the IPCC’s Fifth Assessment Report31, as given in Table 1-3. This table also confirms that most types of adaptation strategies are commonly undertaken by the public sector. The exception is when the strategy typically concerns changes at the enterprises itself or of individual behaviour.

30 Rademaekers, K, et al (2017). Assessing the European clean energy finance landscape, with implications for improved macro-economic modelling. Deliverable 3 of the Study on the Macroeconomics of Energy and Climate Policies. European Commission, DG Energy. https://ec.europa.eu/energy/sites/ener/files/documents/macro_eu_clean_energy_finance_final.pdf 31 IPCC (2014) Climate Change 2014: Impacts, Adaptation, and Vulnerability (AR5).

State-of-Play of Climate Finance Tracking in Europe

Table 1-3 Broad categorisation of adaptation activities and who might (mainly) undertake them Broad categories of adaptation activities Public Private Altered patterns of enterprise management, facility investment, X enterprise choice or resource use Direct capital investments in public infrastructure X Technology development through research X X Creation and dissemination of adaptation information X Human capital enhancement X X Redesign or development of adaptation institutions X X Changes in norms and regulations to facilitate autonomous actions X Changes in individual behaviour Xa X Emergency response procedures and crisis management X a Mainly private, but with possible public incentives [Source: IPCC (2014) Climate Change 2014: Impacts, Adaptation, and Vulnerability (AR5)]

Financial instruments Both public and private investors have various financial instruments at their disposal in relation to climate activities. The following financial instruments are included in the scope of financial instruments for this report (as represented in the middle column of the European climate finance landscape diagram):

Table 1-4 Financial instruments relevant for climate action finance  Public direct investments;  Concessional debt;  Policy-based incentives;  Green bonds;  Grants;  Equity;  Public-private partnerships;  Balance-sheet financing; as well as  Commercial market-rate debt;  Self-financing.

All these financial instruments serve different purposes and depend on the type of project and the type of actor involved. Some have the main purpose of mitigating the financial risk of an investment (guarantees, insurance, credit lines, equity, subordinate loans), others to provide capital / increase return on investment (debt, venture capital, grants).

Two challenges arise when trying to track the financial flows from these different instruments. First, some instruments are not easily measured in monetary terms. A guarantee or insurance is only paid out if the investment defaults or has financial damage. Second, the effectiveness of the various instruments in delivering climate mitigation or adaptation is not captured in monetary terms: one euro spent through a guarantee may not mitigate the same amount of GHG emissions as one euro spent through equity, or debt. The quantification of climate finance investments is therefore a complex activity, which can lead to significant different investment estimates.

1.3.5 What type of climate finance flows to track? There are different categories of climate finance flows relevant for domestic climate finance tracking. These flow patterns and volumes (size of) are represented by the direction (and size) of the arrows depicted in the European climate finance landscape diagram (see Fig 1.1).

State-of-Play of Climate Finance Tracking in Europe

For the purpose of this report, four financing flow categories have been identified: a) Estimated investment needs (total cumulative and annualised): this represents the total amount of money needed to achieve a set goal(s); b) Actual spending (historic trends / current levels of climate finance flows) spending; c) Any planned expenditure (public investments committed for a future time period); and finally d) Remaining financing gap as a result of a mismatch between anticipated financing needs versus current investment flows.

It is important to make a clear distinction between these four interrelated climate finance flows as they are sometimes confused also due to the fact that no conventional terminology nor a methodology are in place.

Estimated investment needs to reach policy targets For this report, the estimated investment needs are defined as follows:

The estimated investment needs cover the total amount of investments required to reach certain predefined climate mitigation/adaptation goals.

For mitigation, the goals are usually stipulated in the EU climate targets. For example, the EU has set a binding target of at least 40% domestic reduction of greenhouse gas emissions by 2030 (compared to 1990),at least 27% of EU energy coming from renewable sources and a 27% (updated to 30%) improvement in energy efficiency.32 There are no similar quantified adaptation targets. For adaptation the goal is to generally cope with the impacts of climate change. More specifically this can be defined as adaptation needs to a 2°C warming.

Investment needs estimates are ex-ante figures trying to anticipate the required amounts of investment into the various climate action areas and activities in order to fulfil the set targets within the given timeframe.

Policy targets are typically set for a specific timeframe into the future. For mitigation, the main EU targets are currently set for 2020, 2030 and 2050. The investment needs reported therefore usually cover accumulated or annual investments up to the target years 2030 or 2050. Investment needs for adaptation in general follow these timeframes, but can also run up to 2080 or even 2100. When future finance is considered, data are typically reported in constant (or real) prices.

Another important aspect for the estimation of investment needs is the use of scenarios. Reaching a certain target – like the 40% GHG target for 2030 – can likely be reached through multiple pathways. There could, for example, be a specific focus on energy efficiency measures. A scenario could also reject nuclear energy within its pathway towards lower emission levels or include it. Certain choices have consequences for the required investment needs to reach the targets. Without making a (political) choice on which pathway should be adopted, presenting different scenarios and the associated investment needs, is a useful way to inform on estimated future investment needs. Within the scenario work, reference scenarios show how much will be invested in a business-as-usual scenario continuing all current programmes/policies but not introducing any additional ones; thus a scenario where targets are not necessarily met. Because reference scenarios describe the business-as-

32 COM (2014) 15. Communication: A policy framework for climate and energy in the period from 2020 to 2030.

State-of-Play of Climate Finance Tracking in Europe

usual situation, they therefore do not represent estimated investment needs, but rather fall under the category of actual spending, as discussed in the following section.

It is important to keep in mind that the investment needs, as defined here, cover the estimated total investment needs required to reach the set target. This should not be confused with the additional investment needs, aka the remaining financing gap between what is needed and what is currently invested. The additional investment needed is therefore the difference between the investments of a scenario where the targets are met and a reference scenario where a continuation of current business is assumed (see section ‘remaining financing gap’ below).

Actual spending A second type of climate finance flow is the current spending levels and/or historic trends in climate finance spending. The category of ‘actual spending’ is defined in this report as follows:

Actual spending are the financing volumes which are (or have been) invested currently (historically).

Knowing the actual spending levels is crucial in order to serve as a reference investment volume to gauge how well countries/regions are progressing towards reaching their respective climate targets – or whether they are already making the required annual investment volumes to reach their targets.

It should be noted that existing climate finance landscapes (both global and domestic) focus on mapping this type of investment flow, i.e. the actual spending for the latest available year.

Actual spending provides rather reliable figures as it is developed based on ex-post data of invested amounts over the past years (historic spending trends) up to the last available year (current spending). A weak point of using actual spending as a reference investment volume to determine the remaining financing gap, however, is the fact that it very much provides a ‘snapshot’ reflection of a specific point/period in time and investment volumes even in the immediate future may differ significantly. To this end, it is important for climate finance tracking exercises to also engage into a forward looking process assessing planned expenditure, the third type of climate finance flows.

Planned expenditure The third type of climate finance flow to track is that of ‘planned investments committed for a future time period’. This type of flow is defined in this report as follows:

Planned expenditure is any committed/budgeted amount of climate finance to be disbursed in a future time period.

On the public side these are relatively easily accessible, as governments are obliged to regularly report their planned budgets. This type of planned public investment flows is a reliable source of expected future flows, as the government’s commitment is attached to it. However, the commitment does not necessarily match the eventual disbursed amount, as a result of a range of possible explanations. For private investments, on the other hand, such commitments or planned flows are in general non- existent.

Another way of deriving planned expenditure is via the reference scenarios used in European and domestic policy making. Reference scenarios assume a certain business-as-usual scenario, showing what

State-of-Play of Climate Finance Tracking in Europe

will be invested in the future without any additional policy efforts. The scenarios are mainly built on historical investments as parameter inputs, in combination with the continuation of existing policy plans and associated planned public investments projected into a future period. A reference scenario in general includes already (but no new additional) planned policies, in order to give the most realistic picture of the future – without additional intervention undertaken. The investment volumes generated in these reference scenarios can therefore be considered to more accurately reflect expected investments in the future, compared to using actual spending as a baseline for deriving the remaining financing gap.

The remaining financing gap The fourth category of climate finance volumes (not a flow per se) is the tracking and determination of the so-called remaining financing gap. The following definition of the remaining financing gap is used in this report:

The remaining financing gap is the additional amount of investments which is required - on top of the investments which are already made in the reference situation (current investment levels combined with any planned expenditure) – in order to achieve a predefined policy target.

The remaining financing gap is therefore the difference between the estimated total investment needs versus the reference investment volumes (actual spending & planned expenditure). The remaining financing gap thus represents what needs to be invested in addition to the amount which will already be invested anyways. Another common term for the remaining financing gap used in the literature is the ‘additional required investment’.

Determining the remaining financing gap is extremely valuable in climate finance discussions in order to know how much finance is still ‘missing’, so to that policies can focus on making available and/or mobilising the additional required investment from public and private sources, in order to eventually reach the set targets.

1.3.6 When to track? Four distinctively different components of time are important to track climate finance. These four components are presented below.

Timeframes For the purpose of this report, the differences in timeframes between estimated total investment needs, current actual spending, planned expenditures, etc. are crucial to constantly keep track of, in order to make sense of the available data. In order to allow for a certain degree of comparability, all data is reported in cumulative amounts for the given timeframe, but then also as an average annual amount. While such an annualised figure is a rough generalisation and does not allow for portraying potentially large differences in investment volumes for different time periods, it at least helps to portray the order of magnitude for the various climate finance flows discussed.

Generally speaking, the report defines four broad timeframes corresponding to the different types of climate finance flows:  Estimated investment needs (up to 2030 and 2050). This is mirroring the timeframe of the climate targets the investment needs are typically associated with.

State-of-Play of Climate Finance Tracking in Europe

 Actual spending (historic up to today). This timeframe can vary greatly across different publications. Latest available figures may be from 2010 for one country or type of climate action area or from 2016 for other climate action areas. The report aims to always be as precise as possible in terms of indicating which year(s) the actual spending refers to.  Planned expenditures (in most cases up to 2020 or 2030). The planned expenditure is most often expressed as part of a planned government budget and therefore tied to a specific budgetary period.  Remaining financing gap (cumulative for a given time period, as well as annualised).

Unit of measurement The discussion of future investment volumes implies that the investments need to be in constant prices (thus a base year will be taken as reference year and not the current year). There is no conformity among the reports, however, on the base year to present constant prices. To compare figures, these numbers therefore need to be converted to the same unit of measurement. The use of different currencies makes this process even more complex. In order to reflect the available data as accurately as possible, this report therefore does not convert to a single base year or currency, but instead reports the available data as it is reported in its original source.

Basis of measurement There are different points in the financial chain when climate finance can be measured. The most common points are commitments (i.e. contractual obligation) of providing climate finance, or the actual disbursements of climate finance.

On a broader level, finance is typically tracked at the point of contracting. In international climate finance this is the common way for multilateral and national development banks to track their financial flows. This is also the method used by CPI to track global climate finance. On the smaller (country) level, most seem to prefer reporting on disbursement basis, e.g. the Belgian climate finance landscape33. Important to note is that tracking at commitment or contractual basis is less accurate than tracking on disbursement basis as commitments do not always lead to disbursements and often complex (and discussable) calculations are used to arrive at the final estimated investment figures.

Fiscal year vs calendar year Another difference in timeframe is that between using fiscal years and calendar years. Multilateral Development Banks (MDBs) usually report in fiscal years, whereas countries usually report in calendar years. When attributing financial flows to certain years, this would need to be kept in mind and clearly stated.

33 Rademaekers et al (2016). Landscape of climate finance in Belgium. Federal Public Service (FPS) Health, Food Chain Safety and Environment, Belgium. http://www.klimaat.be/files/4914/6901/4152/Landscape_of_climate_finance_in_Belgium.pdf

State-of-Play of Climate Finance Tracking in Europe

1.4 Methodology

This section presents the overall study approach and detailed methodological steps that have been applied to carry out the stock-taking exercise. Important caveats are also discussed.

1.4.1 Overall approach In order to draw up the European domestic climate finance landscape, one ideally needs data available from three main matrix dimensions (as already introduced above): 1. Climate action areas a. Mitigation (both tangible investments in in physical infrastructure, as well as supporting investments (R&D, research, etc.) b. Adaptation (both tangible investments in physical infrastructure, as well as supporting investments (R&D, research, etc.) 2. Sources of finance a. EU budget & financial institutions b. National (and sub-national) budgets & financial institutions in Member States c. Private sources (banks, investors, private companies, small end-users) 3. Types of climate finance flows/volumes a. Total estimated investment needs to reach an agreed target (e.g. up to 2020/2030/2050): Knowing these volumes of total investment needs allows for putting current or planned investment levels into perspective and for prioritising certain areas of spending. b. Actual spending (historic trends/current volumes) on climate-relevant activities: Knowing historic/current investment trends serves as an important baseline to compare future estimated investment needs to. c. Planned expenditure (in a future period) on climate-relevant activities: Knowing future planned investment volumes (in combination with actual spending) allows for a more accurate assessment of the remaining investment challenge. d. Remaining financing gap, i.e. the additional finance required in addition to the business-as-usual spending pathway in order to achieve the agreed climate change targets: Knowing the remaining financing gap allows for clearly targeting policy efforts towards mobilising sufficient levels additional finance from public and/or private sources and targeted towards the most urgent climate-action areas.

Table 1-5 summarises these three data dimensions as a data overview matrix, which in an ideal situation one would be able to fill in for Europe.

State-of-Play of Climate Finance Tracking in Europe

Table 1-5 Aggregated matrix of data inputs for the European climate finance landscape Total estimated Remaining financing Actual spending Planned expenditure investment needs gap Mit Adapt Mit Adapt Mit Adapt Mit Adapt T I T I T I T I T I T I T I T I

EU budget & financial institutions National budgets & financial institutions (all MS) Private sources [Note: Mit = mitigation; Adapt = adaptation; T = tangible; I = intangible] [Source: own development]

If data was available for all of these matrix dimensions, a meaningful European domestic climate landscape could be developed informing not only about the types of financing sources and target climate action areas involved, but also the amounts needed to reach set goals, the amounts currently invested, as well as any planned expenditures. In conclusion, this would allow for a reliable assessment of the remaining financing gap.

However, in reality, there is currently no oversight on what data may or may not exist or be available. This report is therefore a first exercise to shed light on the current status quo of data availability across the three dimensions. As a result the report is also used to highlight existing knowledge gaps and makes recommendations as to how to start tackling these knowledge gaps. The report therefore does not aim to draw up the landscape itself. Those data points that are presented are valuable information to shed light on the current level and detail of data availability. It can, however, not be used for aggregating and concluding on any total climate finance volumes, etc. The report only uses the quantified data that is available to make some initial suggestions regarding orders of magnitude, supporting findings with additional qualitative findings.

1.4.2 Detailed methodological steps In order to deliver the state-of-play assessment, the team first collects the available information via a variety of data collection channels, including desk research, an EIONET Member State survey, and engagement with experts. This information is consequently analysed and mapped for mitigation and adaptation (Chapters 2 and 3 respectively). The most important findings regarding knowledge gaps and challenges encountered with the tracking process are then highlighted (Ch. 4.1) and corresponding building blocks for a roadmap tackling the identified gaps is provided (Ch. 4).

State-of-Play of Climate Finance Tracking in Europe

Figure 1-3 Overview of methodological steps and the corresponding chapters

The remainder of this section elaborates the respective methodological steps in further detail.

Data collection Data collection was carried out in a three-pronged approach: (a) desk research of available documentation, databases etc. for EU level information; (b) an EIONET expert survey questionnaire to gather information on a national level; and (c) additional desk research to verify, further explore, etc. the responses received from Member States.

The literature search on EU level covers reports stemming primarily from major sources including the European Commission or the IEA/OECD. While the team has reviewed a large number of reports, only those most relevant for comparison have been included in the final report (see Section 2.2.1 for more details). In addition, the existing climate finance landscape studies executed by research groups, have also been consulted. Further, the main relevant policy documents in a standardised reporting format for both mitigation and adaptation have also been checked for all EU Member States: for mitigation the team has checked whether the submitted national Low Carbon Development Strategies include any quantitative information on expected investment needs and/or actual spending. Similarly, for adaptation all submitted national adaptation plans were analysed for possible investment figures.

As a next step, to collect any available documents on national level, an EIONET expert survey was set out among the EEA member states. The main purpose of this survey was to get hold of relevant domestic climate finance figures and/or relevant research, as well as to start building a database with the most relevant contact persons per MS. For more details on the survey set-up, see Box 1-2 below. The survey also allowed to reveal some of the underlying issues of tracking and reporting present in the MS. The box below summarises the key background information on the executed survey. The survey questions can be found in Annex A, part 1. It should be noted that the results presented in the main chapters of this report do not one-to-one reflect the survey results, but rather the conclusions from our overall data collection and corresponding analysis (combined survey and desk research results). For transparency, the raw survey results data are provided in Annex A, part 2.

State-of-Play of Climate Finance Tracking in Europe

Box 1-2 EIONET survey set-up

Survey sample The survey was held under a total of 39 countries. This includes 33 EEA member countries (28 EU Member States, together with Iceland, Liechtenstein, Norway, Switzerland and Turkey) and 6 cooperating countries in the West Balkan (Albania, Bosnia and Herzegovina, the former Yugoslav Republic of Macedonia, Kosovo, Montenegro and Serbia). The respondents who received the initial survey, are the country representatives as connected through the EIONET: the European environment information and observation network. The majority of the final respondents (it should be noted that the EIONET member may have forwarded the survey to a more relevant person within the administration) are operating at the country’s ministry covering the energy and/or environment (or climate). A handful operated at a different field (for example the Ministry of Finance) at the government (Q1). In most cases the approached respondent therefore operated at the ministry where climate finance is concerned (Q2). However, where required we were redirected (Q3), to make sure we reached the right contacts who were able to get us the required information on their situation considering domestic climate finance. Additionally, this survey therefore serves as a first step to set up a network of domestic climate finance experts in the EEA region. Response rate The response rate of the survey was 74.4%; 10 countries did not reply to our inquiry. Additionally, four of the filed surveys came back very incomplete, with only the general non-topic questions being answered. This could be caused by the fact that the respondents did not have that kind of information at their disposal. Where possible these gaps were filled by reaching out to other contacts as found through the network of the initial EIONET respondent (Q3), in order to improve the response rate. In the survey was available for a period of three months in order to provide sufficient room to follow-up specific responses in more detail, etc. It is important to note here again that the survey served as a primary means of collecting information on MS level, but was then complemented with our own desk-research. The survey questions The questionnaire itself consisted of four parts. Each part and how it aided to our analysis is shortly described below.

Part 1: Contact information (Q1-Q3) By means of the first three questions contact and background details of the respondent and possibly other responsible bodies were collected. This allowed the respondents to provide us with the relevant person within their administration to respond to any future queries on domestic climate finance. Additionally the acquired contact details serve as a first step to build a network of domestic climate finance experts.

Part 2: Availability of estimate figures (Q4-Q11) In question 4 to 11 the respondents were asked about the availability of estimates of needs and current flows of finance for both mitigation and adaptation. Additionally, access to the figures was requested if possible. This section helped to map the domestic climate finance figures on MS level.

Part 3: A defined methodology of domestic climate finance (Q12-Q18) The questions 12 up to 18 concern the (availability of a) tracking and reporting method as present in the different Member States. Most questions here cover what is included in the scope as set by the country, which is an important methodological determinant for the differences between estimates. Moreover, this section could uncover the common ground between different methodological approaches. At last, best practices can give insight into what domestic climate finance tracking in the EU could look like in the future.

Part 4: Knowledge acquirement (Q19-Q23) The final questions of the survey cover the acquirement of knowledge on the country’s domestic climate finance. Here the awareness of other research executed in their country was addressed, in order to get access to other useful reports and get insight to the developments taking place. Additionally the respondents were asked on their awareness of future plans to further develop (and willingness of the respondents to learn more), which gave insight into what the governments are undertaking themselves considering the subject.

‘Additional info’ boxes For each question the respondent was given the possibility to specify their given answer or provide additional information. This helped us to find the named documents, other experts, but mostly provided valuable information on why a certain answer was given in the first place. Sometimes this information also led to us to changing the initial survey response due to the additional information, e.g. a respondent may have responded ‘yes’ to having current mitigation finance flows available, but in the end the linked data was reporting on the MS’s contribution to international climate finance. The additional qualitative answers therefore gave us very valuable information on the underlying issues present.

State-of-Play of Climate Finance Tracking in Europe

Finally, as a third – and very important - step in the data collection process, the team then set out to verify the collected data and information from the survey. As domestic climate finance is a relatively new subject with sometimes confusing concepts, the different terms used in the field may not yet be familiar for all respondents (see Section 1.3). This was in itself an important outcome of the research, as it revealed an important part of the knowledge gap. But it also means that validation of the given survey answers was therefore an important part of the data collection process. The validation involved following up any documentation or website links that had been submitted by MS, cross-checking indicated data for their scope, etc. Sometimes, but not in a systematic manner, this type of follow-up work also led the team to find additional data that had not been listed in the survey responses but was deemed relevant by expert judgment. This type of information was also included for carrying out the data analysis.

Data analysis (taking into account survey results and desk research) Once the data collection process was completed, the team carried out a review and analysis of what had been collected. During the analysis, the team paid particular attention to gauging what type of information (on the three dimensions of data inputs for the landscaping exercise) is available/missing, any associated knowledge issues that could be flagged, etc. In order to communicate the data analysis and the current state-of-play, the main findings along the data matrix are summarised in visualisations mapping the current degree of data availability across Europe (see Box 1-3 for an explanation of the mapping visualisation for the MS results). As a second layer to the analysis, summary data tables present the actual investment figures that have been reported and case boxes highlight any findings of particular interest. Finally, for each section, the analysis concludes by listing the key knowledge issues encountered.

Box 1-3 Colour-coding for the visual mapping of the data availability stock-taking results across MS The results of our analysis are summarised in overview maps which schematically show where domestic climate finance estimates are available, etc. For this the report portrays four colour codes, as presented in the table below.  A dark green label means that investment data was found covering a broad scope. This means most aspects of domestic climate finance tracking (e.g. public and private sources, etc.) were included in the investment figure.  In case the indicated investment figures only provided information about a rather narrow scope of the domestic climate finance landscape (e.g. only public investments in renewable energy were available), they were labelled with a light green colour code.  A yellow colour code implies that the respondent had indicated that such figures are available in the concerned country, but the figures are (still) confidential. Some countries for example stated that the studies were still ongoing and therefore not published yet. Therefore, whenever it was not possible to verify the numbers, certain cases were labelled ‘yellow’.  A red label was given to countries for which neither the survey indicated the data and information availability, nor the project team found the desired data and information.

Table 1-6 summarises this colour-coded results mapping. It should be noted that those EEA Member States that did not respond to the survey are marked as grey for the mapping of results. Table 1-6 Colour codes used for the visual mapping of the stock-taking results Level of availability Explanation Dark green Comprehensive data availability, using a broad scope Light green Partial data availability, using a narrow scope Yellow Potential data availability, data could not be verified Red No identified data availability, figures were not found/reported

State-of-Play of Climate Finance Tracking in Europe

As a final step to conclude the data collection and analysis phases, the draft report was sent back to Member States, who were given a chance to comment and correct the information about their own country during a review period. In the cases where no response was received within the review period, the assumption was taken that the information is a fair representation of the current status-quo.

Synthesis of findings Finally, the analysis presented in Chapters 2 and 3 is synthesised revealing the key knowledge gaps currently preventing a solid overview of the European domestic climate finance landscape. In turn, the team investigated and proposes corresponding building blocks that could help tackle each of the identified challenges.

1.4.3 Important caveats The following caveats should be kept in mind when reading the results of the stock-taking exercise: In general –for all aspects of the stocktaking exercise – the data presented is most likely not exhaustive and can be further improved via additional follow up. o On EU level, the literature review was carried out based on publicly available documentation only. This may therefore miss out certain confidential information. o On MS level, the study did not include a thorough literature search for each MS. The first point of entry for MS level analysis was the EIONET survey and based on this selected complementary desk research was carried out, where relevant. o Two existing formalised reporting channels that were scanned for each MS, however, are the submitted Low Carbon Development Strategies34 (for potential information on mitigation investments) and the submitted National Adaptation Plans35 (for potential information on adaptation investments). For private sources, the study relied entirely on available publications and databases, such as Bloomberg New Energy Finance. Investment flows from the private sector could be more accurately mapped in the future if additional engagement efforts with relevant actors would lead to the release of further information. Finally, language barriers may have played a small limiting factor for various aspects of the stock-taking exercise. For example, the survey was only provided in English, but given the complex concepts involved, this may have posed a barrier for some MS to provide the most relevant data. In addition, while all of the links and additional documentation provided by MS has been read and interpreted by native speakers, it was impossible for the study team to carry out additional desk research for some languages to check whether other local information is available.

34 The Reporting Obligations Database (ROD) of the EIONET: http://rod.eionet.europa.eu/obligations/700/deliveries. 35 The European Climate Adaptation Platform http://climate-adapt.eea.europa.eu/countries-regions/countries.

State-of-Play of Climate Finance Tracking in Europe

1.5 Reading Guide

Given the main objectives and methodological approach of this study, the remainder of the report is structured as follows:  Chapters 2 and 3 contain the in-depth results of the stock-taking exercise of European climate finance information. Chapter 2 contains all mitigation-relevant information. Chapter 3 contains all adaptation-relevant information. These detailed chapters are then structured along the four different types of climate finance volumes: estimated investment needs, actual (current/historic) spending, planned future expenditures and the remaining financing gap. For each of these, the available data on European as well as on Member State levels (i.e. different sources of finance) is presented. Knowledge issues encountered throughout this stock-taking exercise are highlighted throughout.  Chapter 4 – essentially a self-standing summary report - then provides a synthesis of the findings from the stock-taking exercise, identifying and prioritising the main data and knowledge gaps, before proposing next steps (building blocks) towards developing a strategy for tackling these identified barriers towards a better informed European climate finance landscape development.  The various annexes included at the end of this report provide additional detail and are referenced whenever relevant within the main report.

In short, depending on what type of information the reader is interested in, different chapters / sections may be of most interest:

Main Interest area Relevant report chapter/section Summary overview of identified data and Chapter 4 knowledge gaps and other key messages Recommendations for stakeholders Chapter 4.3 Information on existing definitions, scope and Chapter 1.3 and 1.4 methodologies Mitigation finance information Chapter 2 Adaptation finance information Chapter 3 European level information Chapters 2.2.1, 2.3.1, 2.4.1, 2.5.1 (mitigation) Chapters 3.2.1, 3.3.1, 3.4.1, 3.5.1 (adaptation) Member State level information Chapters 2.2.2, 2.3.2, 2.4.2, 2.5.2 (mitigation) Chapters 3.2.2, 3.3.2, 3.4.2, 3.5.2 (adaptation) Information on different climate finance flows - Estimated investment needs Chapters 2.2 and 3.2 - Actual spending levels Chapters 2.3 and 3.3 - Planned expenditures Chapters 2.4 and 3.4 - Remaining financing gaps Chapters 2.5 and 3.5

State-of-Play of Climate Finance Tracking in Europe

2 Stock-taking of European mitigation finance information

Chapter at a Glance

This chapter presents all mitigation-relevant information gathered during the stock-taking exercise. Existing information on both European and Member State levels for the four different types of climate finance flows are presented. . Ch. 2.2 presents estimated mitigation investment needs . Ch. 2.3 presents existing information on actual mitigation spending (historic and current) . Ch. 2.4 presents any planned mitigation expenditure (mainly from public budgets) . Ch. 2.5 presents the remaining mitigation financing gap as identified by comparing the collected data from the previous sections. Encountered data and knowledge gaps are highlighted throughout the chapter.

Additionally, whenever relevant, case boxes are used to highlight a specific point in further detail or to provide specific examples.

Note to readers: this is a very detailed, technical chapter. If you are interested to learn about the key findings and messages that can be taken from this stock-taking exercise, please see Chapter 4.1.

2.1 Introduction

This chapter presents the results of the stock-taking exercise of European mitigation finance information. This means all accessed information and data related to mitigation finance flows, as well as corresponding knowledge issues are reported. It should be noted that for each section only the synthesised analysis results are presented, which are based on a combination of the review of collected information (via web search, survey, expert interviews) combined with (in some cases) own calculation exercises to provide an alternative approximation of specific climate-finance flows.

Additional supporting information for this chapter is presented in Annex B. For detailed information regarding the data collection and assessment methodologies, see Chapter 1.4.

In a nutshell, the stock-taking exercise of information concerning European mitigation finance focused on renewable energy and energy efficiency related financing flows – both tangible infrastructure investments, as well as supporting intangible investments, such as for R&D or capacity building. All sources of finance are potentially relevant and therefore assessed.

The analysis (sub-sections) is presented per type of climate finance flow (estimated investment needs, actual spending, planned expenditure, and remaining financing gap). Each sub-section first discusses

State-of-Play of Climate Finance Tracking in Europe

available information on EU level before mapping the data availability across Member States. The data availability mapping has been scored along the following colour-coding36:

Level of availability Explanation Dark green Comprehensive data availability, using a broad scope Light green Partial data availability, using a narrow scope Yellow Potential data availability, data could not be verified Red No identified data availability, figures were not found/reported

2.2 Estimated investment needs

How much total investment is required to achieve the EU’s climate mitigation targets?

As stated above, for each type of climate finance flow, the most relevant set of publicly available literature has been reviewed (primarily for information on European level). This has been complemented with feedback on Member State level collected via the EIONET survey. Finally, given data gaps in available information on estimated investment needs, the team has carried out a calculation exercise for renewable energy capacity investment needs in order to complement the collected information and provide an additional means for assessing the current status of estimations regarding required overall mitigation investment needs on European and MS levels. The analysis on the current state of information regarding estimated investment needs is thus based on the following key sources:

EU level:  EUCO30 scenario – 2016 ‘Clean Energy for All Europeans’ Impact Assessment;  Own calculation exercise for renewable energy capacity investment needs on EU level; National level:  Low-Carbon Development Strategies;  EIONET survey results;  Own calculation exercise for renewable energy capacity investment needs on MS level.

2.2.1 EU level Given the urgent challenge to secure sufficient investment for the transition to a low-carbon, climate- resilient European economy that meets the above mentioned climate and energy targets, numerous (mainly public) estimates have been made to size up the investment needs up to 2020, 2030 or 2050. However, the use of different underlying policy scenarios, data sources, as well as definitions of what is included in the respective figures makes it difficult to compare the estimated investment needs figures across the different studies.

36 See Box 1-3 in Chapter 1.4.2 for a more detailed description of the results mapping.

State-of-Play of Climate Finance Tracking in Europe

During the research and analysis for this report, various relevant studies have been reviewed. Most of these studies stem from bodies such as the European Commission and the IEA/OECD, providing an independent and objective analysis of pathways to achieve a low-carbon economy. Due to the use of different scopes across the reports, the resulting investment needs estimates are – in essence – not comparable at face-value. To be able to make a meaningful assessment of the current state of play of estimated mitigation investment needs for the EU as a whole, only four key reports were selected and assessed in further detail (see Annex B, section 6.1.1) in terms of estimated investment needs for this report, these are: EC (2011), Energy Roadmap 2050; SWD (2014) 16, Impact Assessment of the 2030 climate and energy framework; OECD/IEA (2014), World Energy Investment Outlook; EIB (2016), Restoring EU competitiveness; and SWD (2016) 405, Impact Assessment accompanying the ‘Clean Energy for All Europeans’ policy package.

Annex B, section 6.1 contains a detailed comparison of the different scope, methodologies, timeframe, etc. employed in these studies that can help explain the differences in the quantified investment needs estimations. The main requirements for this selection were that the reports’ estimated needed to be in line with the latest set targets at least up to 2030 (i.e. 27% renewable energy share and 30% energy efficiency)37, taking a broad scope including at least (most) of the climate action areas relevant for mitigation.

Other reports on investment needs initially reviewed, but not taken into account for the further analysis include: OECD/IEA and IRENA (2017), Perspectives for the energy transition – investment needs for a low-carbon energy system38; OECD/IEA (2016), World Energy Outlook 201639; OECD/IEA (2016), World Energy Investment Outlook40; CE Delft (2016). Investment challenges of a transition to a low-carbon economy in Europe41; OECD/IEA (2015), WEO Special Report Energy and Climate Change42; Barclays (2011), Financing the low carbon economy43; and Ecofys et al (2010), Financing Renewable energy in the European Energy market44.

Studies often look at different pathways to reach the low-carbon economy. This can inform policy- makers on how different pathways towards the same broad policy goal can still imply that the associated total investment needs figures differ from one another. For example, if the pathway rejects nuclear energy, this needs to be substituted by other (possibly more expensive) technologies. This has

37 The presented figures were selected to only include scenarios complying to the EU climate targets of 27% RE, 30% EE and 40% GHG in 2030 (and 80% GHG cuts in 2050). For the SEC (2011) Energy Roadmap 2050 and the OECD/IEA (2014) World Energy Investment Outlook such scenario results are not given. Therefore, for these reports it remains unclear whether the investment needs estimates they present are sufficient to reach the current targets. 38 Reason for exclusion: Does not disaggregate the worldwide investment figures to regional sub-divisions. 39 Reason for exclusion: Does not include figures on investment needs for a low-carbon economy (the 450 scenario); only includes figures on the EU level for the new policies scenario, which is a reference scenario. 40 Reason for exclusion: Only includes figures on the EU level of current (2015) investments. 41 Reason for exclusion: Analysis of the SWD (2014) impact assessment, no additional estimation of investment needs. 42 Reason for exclusion: Includes only an INDC and a Bridge scenario on the EU level. The most relevant scenario to reach a low-carbon economy is (the 450 scenario) is more thoroughly discussed in OECD/IEA 2014. 43 Reason for exclusion: Only includes power supply figures between 2011-2020. 44 Reason for exclusion: Only includes renewable energy between 2011-2020.

State-of-Play of Climate Finance Tracking in Europe

consequences for the required investments to reach the decarbonisation targets. Some of the studies also explore more ambitious pathways reaching higher decarbonisation levels than required by the currently set targets. Therefore, the inclusion of different pathways to reach the low-carbon economy, results in a range of total mitigation investment needs figures. Annex B, Section 6.1 includes information on all the different pathways with increasing ambition levels covered in the four selected studies. The reference scenarios are also discussed (‘0’ pathway), representing a business-as-usual situation. The difference between the decarbonisation pathways and the reference scenarios represents the remaining mitigation financing gap (explained in section 2.5 of this report). Based on detailed analysis, the EUCO30 scenario is deemed the most up-to-date source for investment needs estimations reflecting latest policy developments, climate models, future (energy) projections, etc. Consequently, the investment needs presented in this scenario have been used throughout this report as a point of reference. The remainder of this section therefore only presents the pathways and corresponding investment needs for the Impact Assessment associated with the ‘Clean Energy for All Europeans’, i.e. the REF2016 and EUCO30 scenarios.

Table 2-1 below depicts annual investment needs estimations for the EU as a whole in order to achieve the climate and energy targets set for 2030. Between 2021 and 2030 the total required climate finance amount for mitigation was estimated on 1115 bn EUR’13 annually. More ambitious targets would require higher investments, which are further elaborated in Annex B, Section 6.1. A 40% efficiency target, for example, would be equivalent to a total required climate finance investment of 1565 bn EUR’13 annually, an additional 450 bn in investments compared to the EUCO30 scenario.

State-of-Play of Climate Finance Tracking in Europe

Table 2-1 Estimated investment needs for Europe (in billion EUR’13), with sectoral decomposition

Investment needs (replacement of ageing Total investment needs for infrastructure, etc.) achieving the EU’s 2030 under BAU conditions climate and energy targets continued until 2030

Associated …………… scenario REF201645 EUCO30 Mitigation action area

Cumulative investment need, 2021-2030 9 380 11 150

(Average) annual investment needs 938 1 115

Sectoral decomposition of (average) annual investment needs

Industry 15 19

Buildings - households 127 214 Demand side46 Buildings – tertiary sector 23 68

Transport47 705 736

Grid 34 36

Power generation (total)* 33 42 Supply side48 - RES 25 34 - Conventional 8 8

[Source: own development based on SWD (2016) 405, Impact Assessment on Energy Efficiency accompanying the EC Communication ‘Clean Energy for All Europeans’, Table 22 (p. 66)] [* Power generation percentage split between RES and conventional sources based on IEA WEO 2014: 75% RES in NPS (reference) scenario; 80% RES in 450 (decarbonisation) scenario. Similar shares have also been reported in EC (2014 Impact Assessment scenarios.]

For a comparative analysis of these figures with other commonly cited publications on estimated investment needs (e.g. EP’s 2017 report on ‘European Energy Industry Investments’), see Chapter 4.1.2. It should be noted that in Chapter 4 all finance figures have been converted into EUR’15 constant values.

45 Whereas the EUCO scenario achieves the 2030 targets for RES (≥27%), GHG (≥ 40%) and energy efficiency ((≥30%), the REF2016 does not achieve these targets. 46 Investments on the demand side include energy equipment (covering appliances in households and tertiary sector, vehicles, industrial equipment etc.) and direct energy efficiency investments (covering renovation of buildings improving their thermal integrity). 47 The high numbers for transport are due to the fact that this includes investments in transport equipment for mobility purposes (e.g. rolling stock but not infrastructure) and energy efficiency. They exclude investments in recharging infrastructure. However, the largest part of the additional investment needs (last column) between current versus needed investment levels for the transport sector can largely be attributed to clean energy investment needs. 48 Investments on the supply side (power generation) include grids as well as power generation (power generation plants and industrial boilers).

State-of-Play of Climate Finance Tracking in Europe

Data and knowledge issues encountered

Detailed and quantified mitigation investment needs estimates are readily available for the European level from a variety of publications. But the available data shows a wide range in the estimated investment needs figures. Depending on the specific purpose of analysis, one or more of these available investment needs assessment can be applied as a baseline to know the overall investment levels targeted for the climate and energy transition in Europe over the coming decades.

The currently available data already includes a certain degree of granularity in terms of a disaggregation of the total estimated investment needs to the various mitigation action areas.

The biggest challenge associated with the interpretation and usability of the available data is the great complexity in terms of their underlying scope and methodological assumptions. . The analysis has shown a wide range of investment needs figures and it is therefore important for readers to know how to interpret the presented data. . It is questionable how ‘easy’ such a comparison is for the non-expert reader who may wish to report on and/or work with these figures.

One shortcoming of the currently available investment needs estimates is that they only cover the EU-28, not the EEA member countries. . The remaining data gap with this respect is information on estimated investment needs for the additional EEA member countries that are not part of the EU-28.

In an attempt to cross-check the order of magnitudes provided in the reviewed studies, a calculation exercise was carried out estimating the required investments in renewable energy sources for electricity (RES-electricity) based on available technology cost developments (CAPEX) and deployment trend predictions. The exercise includes six RES-electricity technologies: onshore wind, offshore wind, solar PV, biomass, hydro run-off river (ROR) and hydro reservoir. Geothermal and tidal range are excluded as the current and future deployment levels are very limited.49 Hydro pumped storage is excluded as no CAPEX is available due to the large uncertainties around future costs.

Box 2-1 presents a summary of the findings. A detailed description of the methodology and results is available in Annex B, section 6.1.

49 CEPA (2016). Supporting investments into renewable electricity in context of deep market integration of RES-E after 2020: Study on EU-, regional- and national-level options (final report).

State-of-Play of Climate Finance Tracking in Europe

Box 2-1 Calculation exercise: RES-electricity capacity investment needs on EU level The calculation exercise is based on the technology costs and deployment levels as reported by the Cambridge Economic Policy Associates (CEPA) studying RES-electricity deployment in the EU after 2020.50 The capital investment costs (CAPEX) and the (additional) capacity of the different technologies in the EUCO30 scenario were extracted from the CEPA study. The required investment levels are then simply calculated by multiplying the difference of installed capacity over each period, by the average CAPEX over the concerned period (see Annex 6.1.2 for further details). The results are presented in Figure 2-1, showing average annual capital investments over four intervals between 2020 and 2050.

Figure 2-1 Average annual investments (in bn EUR’15) required for the added capacity installation of six RES-electricity technologies in the EU under a EUCO30 scenario

[Source: own development based on indicated CAPEX and added capacity estimations by CEPA]

The figure shows that the average annual capital investments in added RES-electricity capacity in the EU amount to approximately 20 to 30 bn EUR’15. Cumulative this aggregates to total investment needs of 762.2 bn EUR’15 over 2020-2050. The exercise seems roughly in line with investment needs estimations provided in the EUCO30 scenario: comparing this estimate to the 42 bn EUR’13 in required power generation investment according to the EUCO30 scenario (see Table 2-1), though not directly comparable, could indicate that approximately two-thirds of the required 42 bn EUR’13 may be directed towards renewables, the remaining one-third towards CHP investments in industrial boilers.

The relative share of the different technologies does not vary much in the calculated investment needs between 2020 and 2050; onshore wind takes the largest share (40% on average), followed by offshore wind (29%), solar PV (25%), hydro run-off-river (ROR) with 3%, biomass with 2% and hydro reservoir with only 1% of the total added RES-electricity capacity investment needs over 2020-2050 (Figure 2-2).

50 CEPA (2016). Supporting investments into renewable electricity in context of deep market integration of RES-E after 2020: Study on EU-, regional- and national-level options (final report).

State-of-Play of Climate Finance Tracking in Europe

Figure 2-2 Sectoral decomposition of cumulative RES-electricity added capacity investment needs required in the EU over 2020-2050 under the EUCO30 scenario (in bn EUR’15)

[Source: own development based on indicated CAPEX and added capacity estimations by CEPA]

Lessons learned

When installed capacity figures are available, combined with (projected) CAPEX costs a simple exercise as carried out here allows to provide a rough estimation of – in this case – future RES-electricity capacity investment needs. This exercise shows that: o A cumulative 762.2 bn EUR’15 of investments is required between 2020 and 2050 in the EU28 in order to reach the 27% RES target by 2030. o Annually this comes down to an average of 24.2–30.0 bn EUR’15 across the four distinguished periods. o The split between technologies does also not change substantially over time, with offshore wind taking the largest share (40%), followed by onshore wind (29%), solar PV (25%), hydro ROR (3%), biomass (2%) and hydro reservoir (3%). As the installed capacity reported by CEPA is in rounded Gigawatts, the capacity figures are rather rough. This explains why less-established technologies like marine and geothermal, could not be included in this exercise (i.e. insignificant capacity in Gigawatt terms.

2.2.2 National level On national level, the stock-taking on whether or not - and what detail of information - countries have available regarding their estimated investment needs is composed of two layers of information: first, the team conducted a review of all published national low-carbon development strategies (LCDSs) in order to check for potential investment information included. A second layer was then the EIONET survey results, which may or may not have led to additional information on estimated investment needs across Member States. The actual data reported in the quantitative data overview table includes any data found via either of these two strata of information gathering.

State-of-Play of Climate Finance Tracking in Europe

Low-carbon development strategies (LCDSs) On the national level, the required low-carbon measures for each country are reported in so-called ‘Low-carbon development strategies’ (LCDSs). EU Member States ought to prepare these documents under the Monitoring Mechanism Regulation51, which includes the reporting on the status of implementation of their low-carbon development strategies.52 An initial screening shows that four countries to-date still have not yet submitted their LCDS.5354 Slovakia and Latvia have indicated, however, that their LCDS is in the preparatory stage.

Figure 2-3 presents the availability of LCDS and the availability of investment needs estimates within these strategies across EU Member States. Where quantified figures were available in the LCDSs on investment needs (or current or planned investment volumes), these were included in our quantitative data tables of the available figures further on. As can be seen in the figure, while most LCDS have been submitted, only five LCDS - namely Belgium, France, Germany, Portugal, and The Netherlands - include quantified figures on estimated investment needs to achieve the set climate and energy targets.

Figure 2-3 Status of reports on LCDSs available across Member States

Report includes needs figures

[Source: own development, map created with MapChart.net]

51 Regulation (EU) No 525/2013 of the European Parliament and of the Council of 21 May 2013 on a mechanism for monitoring and reporting greenhouse gas emissions and for reporting other information at national and Union level relevant to climate change and repealing Decision No 280/2004/EC. 52 Based on the reports listed in the Reporting Obligations Database (ROD) of the EIONET http://rod.eionet.europa.eu/obligations/700/deliveries 53 Some of these countries were expected to have made their LCDS available in 2016. These are however not stored in the Reporting Obligations Database (ROD) of the EIONET and therefore it has been assumed that these countries do not have their LCDS reports available. 54 In principal, according to the MMR, Sweden does not have any LCDS but as reported in 2015 the country is conducting ongoing work with Miljömålsberedningen. The government will present a bill on LCDS late March 2017. Sweden anticipates to have a formal decision on the bill by mid-2017.

State-of-Play of Climate Finance Tracking in Europe

Data and knowledge issues encountered

The LCDS screening exercise allows for some more general findings regarding the availability and level of detail of the contained information. These include: LCDS reporting is firmly anchored in the MMR regulation55 and corresponding reporting requirements and consequently most EU Member States have submitted their initial LCDS report. As such the LCDSs represent a potential vehicle for unified reporting on investment needs estimations.

The lack of a unified reporting method, in turn leading to inconsistencies and difficulties for comparison. . LCDS have different titles ranging from ‘climate strategy (e.g. the Netherlands)’ to ‘energy strategy’ (e.g. Italy) which not always explicitly reads ‘low-carbon development strategy’. This represents a challenge in particular when submitted hyperlinks were not active anymore and as a consequence carrying out an internet search was challenging given the unknowns around titles to search for. . LCDS have a wide range of publication dates. In fact, some of the reports available are already between 3 and 10 years old (e.g. the report from Spain dates back from 2007, those of Germany and Denmark date from 2010 or 2011 respectively; those of Italy and Croatia from 2013) and contain data mostly from the past. . The quality and form of the information in the reports varies significantly (at least for the type of information that concerns this study).

The lack of (consistent) information on low carbon investment related financial data. As a consequence of that, a huge lack in reporting consistency is observed from the reports available. . There is currently no detailed common template for reporting on climate finance indicators, nor an indication of a specified reporting period. This results in inconsistencies in the content and years for which investments are reported (even within the same report, investments conducted in different fields related to climate change sometimes are presented for different years – instead of selecting an investment period and reporting on all investments therein). . Further, the way in which various aspects of climate finance are covered is currently not well laid out or distinguished in the current reports (i.e. private climate finance, public climate finance, climate finance per climate action area, domestic climate finance versus international climate finance).

A clear barrier and difficulty for learning lessons from other LCDSs exists because most reports are only available in the national languages.

55 The Monitoring Mechanism Regulation requires that Member States prepare low-carbon development strategies (LCDS) and report on the status of implementation of their LCDS (Article 4(2)). The regulation also requires Member States to provide information on updates relevant to their LCDS and progress in implementing the strategies (Article 13(1) (b) of the Monitoring Mechanism Regulation and Article 21 of Commission Implementing Regulation (EU) No 749/2014). A reporting template for the LCDS and their updates exists and has been used by most MS for their reporting (http://cdr.eionet.europa.eu/help/mmr).

State-of-Play of Climate Finance Tracking in Europe

Available investment needs estimates Figure 2-4 maps the data availability on estimated investment needs for domestic mitigation activities across Europe, as collected through the EIONET survey56, the scan of submitted LCDSs and additional desk research.57 A red label indicates that there have been no information sources identified that would provide investment needs figures, a yellow label means data could not be verified (e.g. if survey respondents indicated availability, but reports are confidential), a light green label signals that some (but incomplete/patchy) data has been identified and finally a dark green label confirms the availability of comprehensive data detailing estimated investment needs related to set climate policy targets.58

It is important to keep in mind that this section only includes available figures which represent the total required investments to reach a set policy goal. These are not necessarily equal to budgeted planned future expenditures by the government, but rather include scenario explorations as done on the EU-wide level, e.g. via impact assessments (see section 2.2.1). A careful assessment on the found figures has been carried out after the survey period in order to clarify – to the extent possible - what the figures present exactly. This explains why the survey responses do not necessarily match the analysis as mapped here in Figure 2-4 and more detailed in Table 2-2 below. Moreover, these results also include our desk literature research and the LCDS findings, therefore representing the complete picture of data availability.

56 For the availability of estimated investment needs questions 4 and 5 of the EIONET survey were relevant (see Annex A). In Annex B the face-value survey results are presented. 57 It should be noted here that official documents submitted under the UNFCCC have not been scanned as part of the data availability search. They have been excluded from the scope given their primary focus on international climate finance. 58 A more detailed explanation of the assessment methodology can be found in Chapter 1.4.

State-of-Play of Climate Finance Tracking in Europe

Figure 2-4 Availability of estimated domestic mitigation investment needs across EEA Member States

[Source: own development, map created with MapChart.net] [Note: dark green = comprehensive investment needs figures available, light green = limited/partial investment needs figures available, yellow = respondent indicated availability, but figures could not be verified (confidential), red = no figures were found.]59

What can be observed from the figure is that currently the majority of EEA Member States does not have (detailed) quantified investment needs estimates available, i.e. they have not associated their climate mitigation targets with an amount of money required to achieve these targets. However, some positive examples can be highlighted from the EIONET survey results indicating that countries are working to improve the scope and granularity of their mitigation investment needs estimations: for example Slovenia’s ambitions for improving their currently available mitigation investment needs estimations (see Box 2-2).

59 For further information on the data availability scoring, see Box 1-3 in Chapter 1.4.

State-of-Play of Climate Finance Tracking in Europe

Box 2-2 Slovenia’s ambitions for further improvements to their currently available mitigation investment needs estimations The currently available estimations of mitigation investment needs for Slovenia are not comprehensive. However, partial information is available in the National Renewable Energy Action Plan 2010-2020 (NREAP)60 which includes estimations on investments needed for achieving the 2020 targets (NREAP, Table 13). The national Long-Term Strategy for Mobilising Investments in the Energy Renovation of Buildings (BRS)61 also includes data on investment needs for renovation of buildings until 2023 on a yearly basis and by sector, as well as investment needs estimations until 2030 by sector.62 Further, the Operational Programme for Municipal Waste Management63 includes estimates on investment in infrastructure in the sector for a period by 2016-2020. The investment needs for the energy sector by 2030 were estimated in 2010 in the framework of drafting a national energy programme.64 The program was never adopted, but a detailed background analysis65 was published and served as a background document for preparing the NEEAP, NREAP, and OP GHG-2020. The National Energy Efficiency Action Plan (NEEAP) 2016-2020 and the ‘Operational Programme of measures for Reducing GHG Emissions until 2020’, however, currently do not include estimations on investments needed for the 2020 targets. During the preparatory background analysis only investments to be supported by public money were estimated, but the results were not published. Planned in 2017: A revised National Renewable Energy Action Plan (rNREAP) 2014-2020 is in preparation and is expected to be adopted by the government (in the first half of 2017). The Draft rNREAP contains revised investment figures. A revised National Energy Efficiency Action Plan (NEEAP) 2016-2020 and a revised Long-term strategy for mobilising investment in the building renovation sector will also be prepared, with a due date 30th April 2017 by EED. Corresponding financial tables, including investment estimations, are planned to be updated and published.

The lack of investment needs estimations is particularly pronounced across South-Eastern Europe. However, a positive trend throughout Europe in terms of the interest to develop such investment needs estimates can be observed from the EIONET survey as various of the respondents have indicated potential availability of (upcoming) information. These include:  Estonia: Preliminary cross-sectoral analysis on the specific investment needs to fulfil internationally agreed goals (as well as policy objectives) have been conducted. Work is ongoing, the system and market changes are constantly monitored to update the Estonian estimations on investment needs. Most of this information is however confidential, however the building sector investments are explicitly available and included here.  Ireland: Ongoing examination of Ireland’s capacity to meet climate and energy targets, but a significant amount of the information is confidential at this stage of development.  Turkey: Information may be available in the upcoming ‘Revision Study of the National Environmental Strategy’ document.

60 National Renewable Energy Action Plan 2010-2020 (in English): - National Renewable Energy Action Plan 2010- 2020 (NREAP) (http://www.energetika-portal.si/fileadmin/dokumenti/publikacije/an_ove/an-ove_eng.pdf) 61 The national Long-Term Strategy for Mobilising Investments in the Energy renovation of buildings (in English): (http://www.energetika-portal.si/fileadmin/dokumenti/publikacije/dseps/building_strategy_slovenia_en.pdf) 62 Detailed yearly investment values for a period until 2030 are available from a background analysis but were not published in the strategy. 63 Operational Programme for Municipal Waste Management (in Slovenian): http://www.mko.gov.si/fileadmin/mko.gov.si/pageuploads/zakonodaja/varstvo_okolja/operativni_programi/op_komunalni _odpadki.pdf 64 Long-term Energy Balances of RS for NEP until 2030 – Results: (http://www.energetika- portal.si/fileadmin/dokumenti/publikacije/nep/nep__db_rezult.pdf) 65 Background analysis for the Draft national energy programme (in Slovenian): - Long-term Energy Balances of RS for NEP until 2030 – Assumptions: (http://www.energetika-portal.si/fileadmin/dokumenti/publikacije/nep/nep__db_izh.pdf)

State-of-Play of Climate Finance Tracking in Europe

On the contrary, it should equally be highlighted that those five countries that did report comprehensive estimations regarding their mitigation investment needs (those labelled dark green, namely Belgium, France, Germany, Italy, The Netherlands) have engaged in rather extensive processes to come up with these detailed estimations. The following two case study boxes (2-3 and 2-4) provide further insight into two MS (Belgium and Italy) as particularly interesting cases in terms of lessons learned and their potential applicability for other MS.

Box 2-3 Belgium: deducting total investment needs via a tool for decarbonisation scenario development In the Belgian LCDS submission of 2015, investment needs were reported as calculated by Climact & Vito in 2013 (original title: Scenarios for a low carbon Belgium by 2050). In 2016 these figures were reported in the final version of the original study called ‘Macroeconomic impacts of the low carbon transition in Belgium’. This study explores the socio-economic consequences of a transition towards an economy with 80 to 95% reduction of greenhouse gases.

The results from Climact, Federal Planning Bureau & Oxford Economics (2016) are presented in a similar manner as results from EU-wide impact assessments as discussed in Section 2.2.1, showing system costs if the transition split up for both capital investments and fuel expenditures. Additionally the study discusses macroeconomic results in terms of growth, employment and competitiveness, sectoral impacts and other impacts such as public health and air pollution.

The model used is the Belgian version of the OPEERA model: Open-source Emissions and Energy Roadmap Analysis. This is an expert-driven model developed by the Department Energy and Climate Change of the UK (DECC). Next to a thorough literature review, the model builds on thematic workshops and intensive discussions with a large number of experts in business, NGOs, technical fields and academics in order to help defining the scenarios.

Interestingly, the OPEERA model is an open-source tool, which invites other experts to create low- carbon scenarios for Belgium. In 2014 a study was conducted by Climact & Ecofys for Flanders only, called ‘Exploring the medium term (2030) and long term (2050) energy and greenhouse gas scenarios in Flanders’ (translated from Dutch). Here investments were estimated of 790 to 850 bn EUR’14 annually on average from 2010 to 2050. This comprises roughly half of the estimated needs of Belgium as a whole as calculated by Climact, Federal Planning Bureau & Oxford Economics (2016).

Additionally the website (http://www.klimaat.be/2050/nl-be/home/) contains a simplified model version specifically developed for the larger public and students. This educative web tool is available in three languages, including teacher manuals, info sheets and animations. The availability of such an open tool is very inventive and certainly valuable building the knowledge on mitigation needs and the consequences amongst others in terms of future investment needs.

State-of-Play of Climate Finance Tracking in Europe

Box 2-4 Italy: Firmly linking estimated mitigation investment needs with decarbonisation scenarios The Italian Ministry of Economic Affairs published ‘Italy’s National Energy Strategy: For a more competitive and sustainable energy’ document in March 2013. For Italy to resume the country’s ambitions for sustainable growth of the Italian economic system and to improve Italy’s competitiveness, their energy system needs a radical transformation to deliver on their targets and expectations to have access of all Italian citizens to secure and sustainable energy by 2050. Therefore, the National Energy Strategy (NES) defines seven priorities for the medium-long term (up to 2020) to make sure Italy’s ambitions can be realized and implemented. The identified priorities and actions are centered around 1) energy efficiency improvements, 2) sustainable development of renewable energy, 3) electricity infrastructure and market development, 4) restructuring of the refining sector and fuel distribution network, 5) sustainable development of domestic hydrocarbons production, 6) modernization of the energy governance system, and 7) development of a competitive gas market and Southern European Hub.

In cooperation with the Italian National Agency for New Technologies, Energy and Sustainable Economic Development (ENEA), the Ministry of Economic Affairs developed a set of policy actions and development scenarios in which in quantitative terms the expected results are assessed and benchmarked. The development scenarios have been aligned to the forecasts used by the European Commission regarding Italy’s (average) annual growth prospects up to 2020. Based on the development scenarios, the Ministry of Economic Affairs has been able to identify the expected results in terms of economic growth for the Italian economy and investments needed in the energy sector, and they have been able to differentiate between private and regulated investments (including policy incentives) for the development and deployment in the renewable energy sector, the energy efficiency sector and the ‘traditional’ energy sector (i.e. electricity and gas networks, energy production operations).

Following the development scenarios, it is expected that around EUR 170-180 billion will need to be invested in the above-listed sectors between 2013- 2020, to make sure that the priority initiatives are achieved, from which around 50% should be private sector investments. Disaggregating this between the listed energy sectors above, it is expected that EUR 60-70 billion (total between 2013 and 2020)(40% private sector finance) should be invested in the renewable energy sector, EUR 50-60 billion (total between 2013 and 2020) (60% private sector finance) should be invested in the energy efficiency sector, and EUR 50-60 billion (total between 2013 and 2020) (50% private sector finance) should be invested in the ‘traditional’ energy sector.

To provide a flavour of those mitigation investment needs estimations that do exist, the most comprehensive and most relevant quantified estimated investment needs figures that have been reported are represented in Table 2-2, including a short clarification on the scope of the figures. It should be noted here that this data is reported to provide an indication of the type of available figures on estimated investment needs on a national level. The orders of magnitude provide an initial indication of where countries need to head towards, but are not comparable between each other at face value given the wide range in scopes and level of detail, etc.

State-of-Play of Climate Finance Tracking in Europe

Table 2-2 Available data on estimated mitigation investment needs on Member State level Average Country Cumulative Unit Timeframe Source annual Climact, Federal Planning Bureau & Oxford Economics (2016), Macroeconomic impacts of the low carbon 1 461 - 2 089 bn EUR’13 2010-2050 35.64 - 50.96 transition in Belgium (ref in LCDS) Belgium* Coverage: Total investments expenditures in the sectors transport, buildings, power and industries, constructed with the macroeconomic OPEERA model. Exploration of five decarbonisation scenarios with increasing levels of ambition (from -80 to -95% GHG levels). In the reference scenario the expected yearly investment expenditures involve 32.97 bn EUR. See also Table 2-13 for a more elaborate gap assessment.

1400 bn CZK 2020-2050 45.16 Preliminary impact assessment (EIONET expert consultation)

Czech Coverage: Additional energy-related costs for reaching 80% GHG reduction by 2050. These costs are additional to the costs of extrapolated State Energy Policy scenario. Republic The impact assessment also considered benefits, which were calculated at 526 bn CZK and significant reduction of costs of fossil fuel imports. It is important to note that the 1400 bn CZK are additional costs, which is already a gap assessments of the total energy-related costs including also fuel costs on top of capital investments. A 2014 report by the Ministry of Industry and Trade66 estimated that 500 bn CZK is required between 2014 and 2040 for renewable energy investments.

2439 mn EUR 2011-2030 121.97 ENMAK 2030 Building Fund Scenarios (website ‘Energiatalgud’67) Estonia Coverage: Investment needs for the housing sector according to the ENMAK 2030+ scenario State Institute for Economic Research (2014), National development low-carbon scenarios – Low ~46 bn EUR 2011-2050 ~1.12 68 Finland Carbon Finland 2050 platform – final report . (Numbers estimated from figure 3) Coverage: Low-carbon investment needs for the industry (~11 bn EUR) and the total energy sector. Decadal figures are presented for seven different scenarios. Ministry of Ecology, Sustainable Development & Energy (2015). National Low-Carbon Development 69 532 bn EUR’13 2015-2035 25.3 Strategy , p. 109ff And the 2016 associated Economic assessment of the LCDS70, Graphique 1, p. 5ff

France* Coverage: Required investment efforts across all investors to reach the French climate targets. Scope includes the following domains: buildings, transport, industry, electricity generation. The French investment needs estimations are expressed as % of GDP and have been converted based on an assumption that GDP+1% is roughly equal to EUR 20 bn. It should be noted that for the period 2017-2021 the required annual investments are estimated to spike to a level of around EUR 40-50bn/a, after which they will stabilise again around the EUR 20bn/a mark until 2035.

66 Original document: Ministerstvo průmyslu a obchodu ČR (2014) Doplňující analytický materiál k návrhu aktualizace Státní energetické koncepce 67 https://energiatalgud.ee/index.php/ENMAK_2030._Hoonefondi_stsenaariumid?menu-185 68 Original document: Valtion Taloudellinen Tutkimuskeskus Vatt (2014), Kansantalouden kehitys vähähiiliskenaarioissa Low Carbon Finland 2050 -platform -hankkeen loppuraportti 69 Original document: Ministre de l’Écologie, du Développement durable et de l’Énergie (2015) Stratégie Nationale Bas-Carbone. 70 Original document: Ministre de l’Environnnement, de l’Energie et de la Mer (2016). Stratégie nationale bas carbone Une évaluation macroéconomique. http://www.developpement- durable.gouv.fr/sites/default/files/Théma%20-%20Stratégie%20nationale%20bas%20carbone%20-%20Une%20évaluation%20macroéconomique.pdf

State-of-Play of Climate Finance Tracking in Europe

DLR et al (2012). Long-term scenarios and strategies for the expansion of renewable energies in Germany, 577 - 619 bn EUR’09 2020-2050 17-22 taking into account future developments in Europe and globally, page 207-208.71 Germany* Coverage: The report provides detailed investment needs figures (also split by sectors) on the annual required investment needs to reach Germany’s climate and energy goals as defined in the ‘Energiewende’. A similar figure (20 bn EUR annually) was provided in the LCDS submission entitled ‘Energy Concept for an environmental- friendly, reliable and affordable energy supply’72, page 5. Ministry of Economic Development (2013), National Energy Strategy: for a more competitive and 170-180 bn EUR’12 2012-2020 18.89-20 sustainable energy Italy* Coverage: Required investments in 7 sectors under different development scenarios complying with the transformation of the Italian National Energy Strategy (NES). A distinction is made between private and regulated investments and investments for renewable energy, energy efficiency and the ‘traditional’ energy sector.

- bn EUR in 2030 16.8.6-20.7 PBL (2017), National energy costs in 203073

Coverage: A very recent publication by the national energy research institutes PBL and ECN estimated the costs of different ‘energy measure packages’ on a pathway to Netherlands reach significant emission reductions by 2050. Reductions of 43% in in 2030 (80% pathway for 2050) require 1.6-2.5 bn EUR/a, 49% emission reductions (95% pathway require 3.5-5.5 bn EUR/a. These are considered additional to the investments which are expected in the base (BAU) scenario (see also Table 2-10). The total mitigation investments may amount 16.8-20.7 bn in 203, assuming an annual investment of 15.17 bn annually as estimated over 2015-2020 In the National Energy Outlook 201674. The Dutch LCDS submission75 provided an estimate of costs up to 20 bn for transitioning to a climate-neutral energy system in the Netherlands by 2050.

1 148-12 546 mn EUR’10 2010-2050 28-306 Portuguese Environment Agency (2012), National Low Carbon Route76 2050 (LCDS), page 52 Portugal Coverage: Investment costs for 60% or 70% GHG emission reductions, with a low and high confidence interval (28-253 mn EUR’10 for 60% scenario, 57-306 mn EUR’10 for 70% scenario); also presented as percentage of GDP.

3.12 bn EUR 2010-2020 0.28 NREAP (2010), National Renewable Energy Plan

Coverage: Investments required to reach renewable energy targets, based on reference costs. Additionally in 201577 investment needs in the building sector to reach Slovenia carbon-neutral energy use in buildings by 2050 was estimated on 6.61 bn EUR over 2015-2030. Slovenia has planned on updating and making their investment needs estimates more comprehensive in 2017 (see box

Box 2-2).

Spain 27.00 bn EUR 2013-2020 3.38 Ministry of Agriculture, Food and Environment (2014), Roadmap of NON-ETS sectors to 202078

71 Original document: DLR, Fraunhofer IWES, IfnE (2012). Langfristszenarien und Strategien fuer den Ausbau der Erneuerbaren Energien in Deutschland bei Beruecksichtigung der Entwicklung in Europa und Global. Schlussbericht. 72 Original document: Energiekonzept für eine umweltschonende, zuverlässige und bezahlbare Energieversorgung 73 Original document: Koelemeijer et al. (2017), Nationale kosten energietransitie in 2030, Den Haag: PBL 74 Original document: Nationale Energieverkenning 2016 75 Original document: Klimaatbrief 2050: uitdagingen voor Nederland bij het streven naar een concurrerend, klimaatneutraal Europa. 76 Original document: Agência Portuguesa do Ambiente (2012), Roteiro nacional de baixo carbono 77 Ministry of Infrastructure & Ministry of Public Administration (2015), Long-term strategy for mobilising investments in the energy renovation of buildings 78 Original document: Ministerio de Agricultura, Alimentación y Medio Ambiente (2014), Hoja de ruta de los sectores difusos a 2.020

State-of-Play of Climate Finance Tracking in Europe

Coverage: The total investment required in the non-ETS sectors to reach the 2020 objective in Spain.

11-82 bn SEK 2011-2030 0.37-2.73 SOU (2016), A climate and air pollution control strategy for Sweden79 Sweden Coverage: Reaching the interim target (for non-ETS sectors only) of 2030, assuming 2% GDP growth, as estimated by the Institute of Economic research.

100 bn GBP’12 2014-2020 14.29 Department of Energy & Climate Change (2014), Delivering UK Energy Investment United Kingdom Coverage: Investment required in electricity generation, split made for conventional, renewables (40-50 bn GBP’12) and electricity networks.

[Source: own development based on all collected data and information. Reported figures have been ‘standardised’ to the extent possible by reporting cumulative amounts over the indicated time period, as well as annualised average investment needs.] [Note: * indicates those MS where more detailed analysis on the reported investment needs is carried out in case study boxes throughout the report]

79 Original document: ‘En klimat- och luftvårdsstrategi för Sverige’

State-of-Play of Climate Finance Tracking in Europe

From the table of available investment needs estimations, several take-away messages can be observed. First, often the needs estimations reported only cover a specific part of the overall mitigation spectrum, such as renewables (Czech Republic, Slovenia), the building renovations sector (Slovenia), or non-ETS sectors (Portugal, Spain and Sweden). Additionally, many of the reported figures have also been marked as ‘partial’ due to the fact that they do not cover the entire timeframe of the climate targets (e.g. they do not run up to 2030 or 2050). Therefore, these partial figures then do not allow for a more general conclusion for the overall investment needs associated with the wider climate targets. Second, for those countries that did report comprehensive investment needs data, they are often explored via multiple scenarios targeting different levels of ambition (e.g. Belgium and Portugal). This is similar to the modelling method of the impact assessments and associated investment needs figures on the EU level. Third, due to these different pathways and/or the application of confidence intervals, often a range of investment needs estimates is reported, to show the level of uncertainty involved in the figures (e.g. Germany, Portugal, Sweden). Finally, from those countries identified as having reported comprehensive estimated investment needs figures, it is interesting to note a certain trend in the order of magnitude of the estimated average annual investment needs for mitigation: the annual average seem to be somewhere around EUR 20 bn. However, it should be noted that the reported range (only for the dark green category) is between EUR 0 – 50bn of average annual investment needs.

Data and knowledge issues encountered

Based on the overall stock-taking on the availability of mitigation investment needs estimations on national level, the following lessons can be drawn regarding encountered knowledge issues: Those countries that do have comprehensive data available on estimated mitigation investment needs (Belgium, France, Germany, Italy, The Netherlands) provide interesting lessons that can be further explored for applicability in other MS: they are all based on in- depth methodologies involving scenario development and take a comprehensive approach in terms of estimating the required investments to achieve the full climate targets until 2030 and/or 2050.

During the reporting process, total needed investment volumes to achieve a set policy target are often confused for budgeted public expenditure. These two types of investment flow figures, however, do not necessarily match – in particular for mitigation activities – because the total estimated investment need required to meet set policy targets should in most cases be significantly larger than the planned public expenditure (see section 2.4). The difference between the two would be made up of (a) the part already financed/planned to be financed by private sources, and (b) the remaining financing gap (see section 2.5), which is the amount that is likely not picked up by public nor by private financing sources.

. This type of misinterpretation of terminology has been observed throughout the survey, but also when analysing and comparing various reports. It helps explain some of the discrepancies between responses reported in the EIONET survey versus the interpretation of the information as presented in this chapter.

State-of-Play of Climate Finance Tracking in Europe

. This knowledge issue flags the importance of clearly defining scope and terminology for the reporting on any climate finance flow figures.

There is only a limited (6 MS) number of countries with comprehensive mitigation needs estimates available even though the vast majority of MS does have clearly stated climate policy targets (as seen in the LCDSs). But despite the clear policy targets and often even associated policy pathway scenarios, the majority does not present associated investment needs figures. . Reasons for this can be manifold, but one potential explanation could be that countries have previously not seen the urgency in developing such investment needs estimates on the domestic level (as the reporting focus on climate change finance has so far been on the international contributions towards the US$100 bn international climate finance goal). . It should be noted that even those countries that have reported a comprehensive overall mitigation needs estimate may not have any information available on a sectoral disaggregation of the total figure, for example.

There is a clear lack of comparability between MS due to the wide ranges in reported scope and chosen underlying methodology. Annualised averages of those that engaged in reporting a comprehensive investment needs figure (i.e. those labelled dark green) are ‘the most comparable units’ but even these are not comparable at face-value. . While it is interesting to report that the average annual investment needs figure across these MS seems to be in the order of magnitude of EUR20bn, this figure may be a large volume and deemed very ambitious for one MS, while it may be considered rather low for another MS depending on the progress they have already made in their mitigation efforts as well as their broader socio-economic setting. . It should be highlighted that another issue with using annualised averages is that they hide the sometimes very significant differences in investment needs for smaller periods within the overall timeframe. For example, in France the anticipated investment needs for the 2017-2021 period are significantly higher (approx. EUR40-50bn/a) compared to the 2022-2035 period (approx. EUR20bn/a).

The limited granularity of information concerning the reported estimates is another knowledge issue that needs to be highlighted. For example, the publicly available information regarding investment needs is not always clear about or provides a disaggregation of the total estimated investment needs by mitigation sectors (RES vs EE, etc.) or by source of finance (public versus private share of the required investment burden), etc.

. Box 2-3 provides one of the few good practices regarding the disaggregation and provision of granularity of the investment needs data.

Additional to the information gathering from available national sources as presented above, the team conducted an exercise to estimate the required investments in renewable electricity (RES-electricity) sources per MS (see Box 2-5), similar as the one carried out on the EU level in the previous section (see Box 2-1).

State-of-Play of Climate Finance Tracking in Europe

Box 2-5 Calculation exercise: RES-electricity capacity investment needs per MS up to 2030 Similar to the exercise presented in Box 2-1Box 2-1 the research team for this report made an estimation of investment needs for RES- electricity on the MS level. However, as capacity projections are not readily available for each Member State, we made an estimation required RES capacities by extrapolating the RES-electricity levels as presented in the National Renewable Energy Action Plans (NREAPs)80, based on the ratio of the 20% renewable target for 2020, compared to 27% for 2030. The elaborated method can be found in Annex 6.1.2. The required RES-electricity investments are then calculated by multiplying the projected added capacity for each source with the project capital cost price81. A correction was made for 2015; if the projected capacity was already achieved by 201582, these investment needs were extracted.

The main results are presented in Figure 2-5. Results including the split for the seven explored RES- electricity technologies are provided in Table 6-11 in the Annex. According to this exercise average annual investment needs amount up to 27.2 (2020-2025) and 28.3 bn EUR’15 (2025-2030) for the EU as a whole. These figures are very comparable to the 24.2 and 30.0 bn EUR’15 which came forward in the top- down RES-electricity exercise, also in terms of the resulting technology split. According to Figure 2-5 investment needs are largest Germany, Spain and France, where 50% of the total investments are expected to take place according to this exercise.

Figure 2-5 Cumulative RES-electricity investment needs for each EU28 Member State in two intervals

[Source: Own calculations see Annex B, section 6.1 for details]

Lessons learned

This simple exercise allows to make an estimation of the required RES-electricity investments on the MS level, for each renewable source. The additional investments overall match the top-down exercise (24.2-30 bn EUR’15 annually). The calculations are made assuming that: installed capacity levels are equivalent to energy use, consumption levels remain more or less the same, the part taken up by

80 https://ec.europa.eu/energy/en/topics/renewable-energy/national-action-plans 81 CAPEX costs taken from CEPA, provided by Cambridge Economic Policy Associates (CEPA), following EUCO30 82 IRENA RE electricity statistics – Query tool v1.1

State-of-Play of Climate Finance Tracking in Europe

renewable electricity within renewable energy consumption remains equal, each country takes up a similar share of the required capacity in 2030 as it did in 2020 and the same renewable mix is maintained. A more complex calculation method may give a better estimation of the required investment needs. The estimated investment needs figures obtained from this bottom-up exercise largely match the top-down results, however, the capacity projections itself do not. NREAP and the calculated projection give 484 GW in 2020 and 654 GW in 2030. The more recent CEPA projections based on the latest EUCO30 assumptions, on the other hand, give 563 GW and 796 GW respectively. The average annual results for added capacity installations remain comparable, but the total capacity projections themselves are outdated (because they are based on the NREAPs.

2.3 Actual spending

How much is already being invested in climate mitigation?

The next type of mitigation finance flow to be assessed in terms of data availability is actual spending. This category aims to report on what is already being invested in climate mitigation. Actual spending takes into account historic investment trends, current (most recent available year), as well as reference flows – all eventually serving as a baseline to compare with the future estimated investment.

The analysis on the current state of information regarding actual spending is based on the following primary sources:

EU level:  European mitigation spending trends as reported in EP (2017) and EIB (2016) publications;  RES-only data on total actual spending o RES R&D based on JRC’s RES capacity mapping tool o Based on BNEF data (for an alternative estimate based on a methodology focused on tracking the end investment rather than from the source of finance) o Based on own calculation exercise for added renewable energy capacity spending  Court of Auditors Report on EU Budget spending (combined mitigation & adaptation);  Other supporting elements from the wider literature review; National level:  Three existing domestic landscape studies;  EIONET survey results;  LCDS submissions;  ETS auctioning revenues; and  Own calculation exercise for added renewable energy capacity spending.

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Similar to the assessment of estimated investment needs, this section is also based on available literature sources, combined with EIONET survey results, expert interviews and own calculations for the added renewable energy capacity spending in order to compare existing figures with yet another means of analysing total current spending.

Prior to delving into the analysis of the broader stock-taking exercise regarding the availability of information on actual spending across EU and MS levels, it is interesting to review the available information for actual spending on intangible R&D investments in the RES sector (see Box 2-6). Historic R&D spending on RES is one of the few ‘source-use connections’ in the European domestic climate finance landscape where comprehensive data is available for filling in a specific dimension in the European climate finance landscape matrix (see Table 1-5). Table 2-3 highlights this specific dimension for visualisation of this specific investment flow. It should be noted that this specific climate finance investment flow is labelled as ‘light green’ due to the fact that it does not include actual spending on energy efficiency R&D.

Table 2-3 Visualisation of actual spending on RES R&D as depicted in the aggregated matrix of data inputs for the European climate finance landscape Total estimated Remaining financing Actual spending Planned expenditure investment needs gap Mit Adapt Mit Adapt Mit Adapt Mit Adapt T I T I T I T I T I T I T I T I

This means RES-relevant R&D spending figures are available for all main sources (EU level, national level, private). While this data also still has some pitfalls, such as the fact that it is only available for one year (2011) and it does not cover the entire mitigation R&D spectrum (R&D in EE is not covered), it still represents one of the best available examples to highlight where sufficient data is available to start filling in this financing stream through the European domestic climate finance landscape.

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Box 2-6 Highlighting one ‘source-use connection’ for which detailed data through the European finance landscape is available

Actual spending on intangible R&D investments for SET-Plan technologies The JRC’s capacity mapping tool for SET-Plan technologies (2015)83 indicates a total amount of EUR 8.8 billion invested in 2011 in R&D from public (European and national level) and corporate sources in nine energy related technologies (see Figure 2-6). Energy storage, wind and bioenergy received the biggest investment from corporate sources, both in absolute and relative terms. On the other hand, nuclear, CCS, or electricity grids show a more than 50% contribution from public (EU and national) sources. When looking at the R&D investment in renewable energy technologies only, the total amounted to around EUR 3.8 billion, with EUR146 million from EU funding, around EUR 1 billion from national funding, and EUR 2.6 billion from corporate funding.84

Figure 2-6 Absolute figures and relative contribution of EU, national and corporate funding to R&D for the nine SET-Plan technologies examined in the year 2011

[Source: JRC Capacities Map85]

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To demonstrate the availability of further nuances within this data, Figure 2-7 illustrates the disaggregation of the private R&D investment share split across MS. In the EU, Germany, France, Denmark, the United Kingdom and Spain are the Member States in which corporate R&D spending on SET-Plan technology types was the highest in 2011.

Figure 2-7 Absolute investment from the corporate sector in R&D per technology and country for 2011.

[Source: JRC Capacities Map86]

Lessons learned

The following insights for the broader landscaping endeavours can be concluded from this ‘deep- dive’ into the data availability on RES technology R&D:

Consistency in scope and methodology can be assured if data across all sources of finance is collected, reported and aggregated via one tracking tool, e.g. in this case the JRC’s capacities mapping tool. Detailed insights regarding the ‘source-use connections’, i.e. the connecting arrows in the landscape diagram, can be provided with this level of data availability. In turn, this can serve as very insightful information for policy-makers to review and update existing and/or draft new policy measures.

83 Corsatea, T.D., A.Fiorini, A. Georgakaki, B.N. Lepsa (2015). Capacity Mapping: R&D investment in SET-Plan technologies. Reference Year 2011. JRC Science and Policy Report. https://setis.ec.europa.eu/system/files/Capacities- map-2015.pdf 84 Corsatea, T.D., A.Fiorini, A. Georgakaki, B.N. Lepsa (2015). Capacity Mapping: R&D investment in SET-Plan technologies. Reference Year 2011. JRC Science and Policy Report. https://setis.ec.europa.eu/system/files/Capacities- map-2015.pdf. Figure for 2011 (latest data available). 85 Corsatea, T.D., A.Fiorini, A. Georgakaki, B.N. Lepsa (2015). Capacity Mapping: R&D investment in SET-Plan technologies. Reference Year 2011. JRC Science and Policy Report. https://setis.ec.europa.eu/system/files/Capacities- map-2015.pdf. Figure for 2011 (latest data available). 86 Corsatea, T.D., A.Fiorini, A. Georgakaki, B.N. Lepsa (2015). Capacity Mapping: R&D investment in SET-Plan technologies. Reference Year 2011. JRC Science and Policy Report. https://setis.ec.europa.eu/system/files/Capacities- map-2015.pdf. Figure for 2011 (latest data available).

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The assessment also indicated a weakness that currently exists in the tracking processes that do exist already: some of these exercises are carried out to present a ‘snapshot’ review of the latest available year but then do not follow up with the same tracking exercise on a regularly set time interval. . This makes it challenging to detect any trends in historic spending levels. . Additionally, it means that data is outdated rather quickly and hence cannot serve as a good baseline to compare needed investments in this sector in order to determine progress and the remaining financing gap.

2.3.1 EU level This section presents available information on actual spending on European level for the latest available year(s), primarily 2015. First, total annual spending on mitigation in Europe is presented, highlighting some disaggregated figures in more detail (e.g. RES investment per type of technology). As a second step, some of the sources of finance for which aggregate information on European level exist are reported on: this includes EU budget spending (total mitigation and adaptation), as well as a highlight on available figures for RES-only spending by European public financial institutions.

Total annual spending on mitigation actions in Europe, 2015 According to the latest European Parliament (2017) report on ‘European Energy Industry Investments’87, total average annual spending on mitigation in Europe in 2006-2015 amounted to approximately EUR 190 bn EUR’15. This figure includes spending on energy efficiency and other GHG reduction measures across industry, tertiary and residential sectors, as well as investments in power generation and grid investments. It does not, however, include actual spending made in the transport sector.

Table 2-4 Total spending on mitigation in Europe - average annual trends (2006-2015) based on EP (2017) Avg. annual Avg. annual spending In Bn EUR’15 spending (2006-2010) (2011-2015) TOTAL Mitigation 162 190 Total Demand side (excl. transport) 91 106 Industry 7 7

Demand side Buildings – households 74 88

Buildings – tertiary sector 10 11

Total Supply side 71 85 Grid 25 26 Supply side Power generation - RES 34 46 Power generation - Conventional 11 15 [Source: based on underlying data for Figure 8 in EP (2017). European Energy Industry Investments]

While the demand side figure in the table above includes not only direct energy efficiency measures, but also other energy-related products in the buildings and industry sectors, it is still the best available

87 EP (2017). European Energy Industry Investments. http://www.europarl.europa.eu/RegData/etudes/STUD/2017/595356/IPOL_STU(2017)595356_EN.pdf

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order of magnitude figure currently available for knowing what is more or less already being invested in energy efficiency measures.

Using this available data on annual average actual mitigation spending in 2011-2015 shows that currently just over 50% of the total mitigation-related spending focuses on energy efficiency88.

Figure 2-8 Total actual mitigation spending in Europe in 2015, by mitigation action area

[Source: own elaboration based on EP (2017) data]]

When looking at the RES-only figures presented in the table above (EUR 46bn annual average in 2011- 2015) these are very much in line with other literature sources that report on total RES investment using different input data sources and methodologies (see boxes 2-7 and 2-8 below).

Another source of overall European mitigation spending figures is the EIB’s 2016 publication ‘Restoring EU Competitiveness’89. Table 5 of this EIB report depicts current annual investment levels based on European Commission estimates of average annual investment in the EU28 over the period 2001 to 2015, supplemented on occasion by EIB estimates.

Table 2-5 Actual annual average mitigation-relevant spending in the EU28 (2001-2015) based on EIB (2016) in Bn EUR’15

Actual annual average 2001-

2015 in Bn EUR’15

TOTAL Mitigation 130 Total Demand side (excl. transport) 42 Energy efficiency savings in buildings and Demand side 42 industry Total Supply side 87 Upgrading energy networks 46 Supply side Power generation, including RES 41 [Source: Based on Table 5 in EIB (2016). Restoring EU Competitiveness]

88 In reality, this share is even lower due to the fact that the ‘demand side’ figures are only an approximation for energy efficiency spending. 89 EIB (2016). Restoring EU Competitiveness. http://www.eib.org/attachments/efs/restoring_eu_competitiveness_en.pdf

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The figures presented by the EIB (2016) report on actual spending are not fully in line with those presented by the EP (2017) above. The only comparable amount is that for actual spending on power generation 41bn EUR’15 and 46bn EUR’15 respectively as an annual average amount applicable in 2015.

This leads to the introduction of another two sources of information also shedding further light on this particular mitigation action area of RES spending in Europe, namely Bloomberg New Energy Finance (BNEF) investment trends data for RES, as well as the calculation exercise based on added RES capacity in 2015. Box 2-7 and Box 2-8 below report on these two information sources reporting on RES spending trends only.

Box 2-7 Trends in total RES spending in Europe While the EU budget actual spending figures presented above report on all EU climate-related spending and therefore currently do not allow for separating out the total EU budget spending on mitigation only, several other reports exist presenting reliable actual spending data for total European actual spending in RES-only. The Bloomberg New Energy Finance (BNEF) data is one of the most cited sources on RES investment trends. Figure 2-9 shows the total investment trends in renewable energy in Europe from 2004 to 2015. This figure includes both private and public investments.

Figure 2-9 European trends in renewable energy investment (in USD billion)

According to BNEF data, the total actual spending on RES in Europe amounted to US$ 48.8 bn (EUR 43bn) in 2015. This is significantly lower than the 12-year average of around US$ 69 bn (EUR 62bn) annually. However, the 2015 figure is more or less in line with the RES-relevant actual spending figures also presented by the EP (2017) and the EIB (2016) in the main text of this report.

When running the calculation exercise for determining the actual spending on added RES capacity in 2015, the resulting figure is very much comparable to the other total RES actual spending figures for 2015 presented above.

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Box 2-8 Calculation exercise: Added RES-electricity capacity spending (2015) in Europe Another source of information for an indication on the total actual spending on RES is an exercise carried out for the purpose of this report, combining the change of installed capacity from 2014-2015 with the 2015 CAPEX figures per renewable energy technology (See Annex B, section 6.2.1). This exercise indicates 2015 total RES investments in Europe amounting to 46 bn EUR’15. The slightly lower figure as compared to the figure provided by BNEF is likely explained due to a combination of the following differences in scope, methodology, etc.:

BNEF scope / methodology RES Exercise scope / methodology  Wider Europe  EU-28 only  Based on transactions data  Based on installed capacity figures and average CAPEX costs

However, when talking about orders of magnitude, these two information sources report rather similar data on current investment levels, i.e. between 45-55 bn EUR’15.

Figure 2-10 RES exercise results for total actual RES spending in Europe in 2015 (in EUR Bn)

[Source: own elaboration based on IRENA Query tool 1.1 and IEA/OECD 2015 CAPEX costs, see also 6.2.1 for a more elaborate method]

Lessons learned

Actual investments into RES-electricity can be estimated by comparing installed capacity levels to CAPEX costs of different technologies. This method is inherently different from looking at transactions data, but nevertheless gives comparable past investment levels.

o Total EU investments for 2015 according to this exercise ammounted up to 46.0 Bn EUR’15. o Most investments took place to install wind energy (38% onshore, 28% offshore), followed by solar energy with 19% of the investments.

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The results presented here must be viewed as a snapshot. To get a better image of actual investments it is desirable to use a longer timeframe.

This exercise does not take into account reinstallation/upgrading of old installations, as only capacity levels are compared. This does not necessarily represent the total capital investments, which are therefore slightly higher.

Data and knowledge issues encountered

Data on aggregated European annual spending on mitigation activities is available from a few different sources. They seem to report consistent figures in terms of the orders of magnitude.

The available information contains sufficient detail to disaggregate by type of mitigation action area.

Only incomplete information exists on how the total amount of mitigation spending is divided among the various sources of finance.

. There is no data on the private sector’s share in current mitigation spending. . Official EU budget figures currently do not disaggregate between mitigation and adaptation spending (see next sub-section). . Disaggregation between sources of finance can only be attempted with available data for RES, but not for EE.

EU Budget As regards actual spending data for EU budget engagement in climate mitigation activities, the most comprehensive and recent source of information to fall back on is the European Court of Auditors’ 2016 Special Report on ‘Spending at least one Euro in every five from the EU budget on climate action: ambitious work underway, but at serious risk of falling short’.90 This report presents a detailed review of the 2014-2020 current multi-annual financial framework with regards to EU budget spending towards the 20% spending target on climate-related action. It should be noted here that figures are reported for combined spending on mitigation AND adaptation actions. For the purpose of this study, 2014-2016 is accounted for as historic and current ‘actual spending, whereas the 2017-2020 period is covered as ‘planned expenditure’ in the next section. Another important factor to keep in mind when reading these numbers is that these capture the EU budget spending only; they do not take into account any leveraging of national co-finance or mobilised private finance.

Bearing in mind this scope, the following table presents the total EU budget spent on climate-relevant (both mitigation and adaptation) for the period 2014-2016. The reported figures indicate an average annual spending on climate-related activities from the EU budget of about EUR 25 bn. Even though no official split exists, the team has attempted such a split based on expert judgment in order to further

90 European Court of Auditors (2016). Special Report on ‘Spending at least one euroe in every five from the EU budget on climate action: ambitious work underway, but at serious risk of falling short’. http://www.eca.europa.eu/Lists/ECADocuments/SR16_31/SR_CLIMATE_EN.pdf

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the discussions presented within this report.91 While the split is not a very exact science (due to lack of detailed project level information), it does allow for an initial analysis of the EU Budget contribution for both current spending levels as well as future planned expenditures and how these compare to overall investment needs levels.

Table 2-6 Total climate change finance in the EU budget, 2014-2017 (EUR bn, commitment Total Annual 2014 2015 2016 appropriations) 2014-2016 average For reference: Total EU 118 159 151 428 143 budget92 Total climate change finance 16 28 32 76 25 in the EU Budget Estimated total for 6 10 12 28 9 MITIGATION* Mitigation as share of total EU 5% 7% 8% Budget Mitigation as share of 37% 37% 37% climate-relevant EU Budget [Source: European Court of Auditors (2016), p. 66; combined with split indication (see Annex B, section 6.2.2]

Further, these climate-relevant EU budget spending can be divided by EU budget areas. The following figure visualises this split, indicating that the largest climate-relevant programme under the EU budget are the programmes under the common agricultural policy (EAGF and EAFRD: 23% and 28% respectively) followed by those under the cohesion policy (ERDF and CF: 27%). R&D spending under Horizon 2020 accounts for about 8% of total climate-related spending of the EU budget.

Figure 2-11 Climate funding by EU budget area

[Source: own development based on European Court of Auditors Report (2016), p.22.]

91 For more detailed information on how this split has been calculated, see Annex B, section 6.2.2. 92 EU Budget line: Section III – Commission, Financial programming

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Data and knowledge issues identified

The methodology to track climate-related expenditure in EU funds has been established, making use of the OECD’s Rio Marker (see Ch. 1.3 and Annex D)93. The methodology developed for tracking EU climate expenditure therefore relates to ex ante tracking only. It proposes a staged approach to tracking and highlights the need for different approaches according to the different management mode of the expenditure.94

Lessons learned from the analysis of the EU budget and the ex-ante tracking of climate-related expenditure include: The reported total EU budget figures are comprehensive in the sense that they cover actual spending across the entire EU budget on climate-relevant activities over a seven year time period. . Some funds under the EU budget are more accurately reflected / more suitable for this type of assessment than others. . The tracking methodology thus far have been developed for tracking ex ante expenditure only. Therefore, there is currently not an easy way to confirm if the given amount was actually disbursed. It is assumed that it has been based on the commitment. One of the major obstacles to improving the disaggregation of the identified climate-related EU funds is that fact that the current tracking methodology relate to explicit policy objectives with earmarked financing: Earmarked funds for climate do not distinguish between adaptation and mitigation. Hence the current split estimations are based on expert judgement only. Another major obstacle towards improved overall climate finance tracking is the fact that the current tracking methodology does not monitor the potential of financial instruments intended to leverage funds: Ex ante tracking of EU funds intended to leverage private finance cannot track the full potential of the expenditure as there is no way of knowing how much additional finance will be mobilised. This challenge is particularly relevant owing to the emphasis on financial instruments in the 2014-2020 budget cycle.

Disaggregation of existing European data for actual spending in 2015 by sources of finance A somewhat greater level of granularity exists for the actual spending data for RES-only. For this type of mitigation action area, some indicative split among sources of finance is possible.

The following box highlights RES-only spending trends by European Public Financial Institutions. When combining these figures with the existing total RES spending figures for 2015 as presented above, as well as some assumptions on RES-relevant EU budget spending, it is possible to draw up some rough

93 Withana, S., Baldock, D., Illés, A., Rayment, M., and Medarova-Bergstrom, K., (2014) Tracking system for climate expenditure in the post-2013 EU budget: Making it operational, Final summary report for the European Commission - DG CLIMA, Institute for European Environmental Policy, London/Brussels. 94 Withana, S., Baldock, D., Illés, A., Rayment, M., and Medarova-Bergstrom, K., (2014) Tracking system for climate expenditure in the post-2013 EU budget: Making it operational, Final summary report for the European Commission - DG CLIMA, Institute for European Environmental Policy, London/Brussels.

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estimations regarding the contribution of public versus private sector finance for current RES spending in Europe.

Box 2-9 Trends in RES spending by European Public Financial Institutions To highlight data availability for a specific source of finance and its RES-related spending trends, this box reports on RES spending by European Public Financial Institutions. The International Renewable Energy Agency (IRENA) provides a database containing RES investment trends by public financial institutions (PFIs). When filtering for those that invest in European domestic RES finance, namely the European Investment Bank, European Bank for Reconstruction and Development, KfW, Green Investment Bank and the Nordic Investment Bank, these PFIs together spent US$3.9 bn (EUR 3.5 bn) in 2015, or an average annual investment of US$ 4.4 bn (EUR 4.0 bn) since 2009.

Figure 2-12 RES investment trends by European Public Financial Institutions (in US$ Bn)

[Source: IRENA database]

Based on currently available data it is difficult to say much about the possible split of the total mitigation spending across different sources of finance. However, using the public/private split encountered for the three existing domestic climate finance landscapes, it is possible to state this share as a rough estimation for the European level, i.e. 65% private sector contributions and 35% public sector contributions (Figure 2-13).

Figure 2-13 Estimated split of average annual (2011-2015) European mitigation spending across public versus private sources, in EUR bn

[Source: own development based on EP (2017) and three MS climate finance landscapes] From the review of existing information regarding Europe-wide actual mitigation spending, the following conclusions can be drawn.

State-of-Play of Climate Finance Tracking in Europe

Data and knowledge issues encountered

What can be learned in terms of the available data for disaggregation of actual spending by source of finance? When detailed data is available – such as for the three existing domestic climate finance landscapes - it is possible to track the relative roles of different financing sources; both in terms of the relative size of their contribution, as well as their preference in terms of the type of mitigation actions they invest in.

. Projecting the ranges observed in these three MS to a European level, roughly 1/3 of mitigation finance is currently being provided by the public sector and the other 2/3 are coming from the private sector.

However, the data available on European mitigation spending are currently not sufficiently detailed to allow for any detailed analysis of the financial volumes and flows by source of finance.

. Only for specific sub-sectors, namely RES, the data development is more advanced and an analysis of the total spending by source of finance becomes possible.

2.3.2 National level Figure 2-14 maps the data availability on current (or recent historic) spending for domestic mitigation activities across Europe, as collected through the EIONET survey, the scan of submitted LCDSs and additional desk research. A red label indicates that no information sources have been identified that would provide actual spending figures, a yellow label means data could not be verified (e.g. if survey respondents indicated availability, but reports are confidential), a light green label signals that some (but incomplete/patchy) data has been identified and finally a dark green label confirms the availability of comprehensive data detailing current (recent historic) actual mitigation spending.95

95 A more detailed explanation of the assessment methodology can be found in Chapter 1.4.

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Figure 2-14 Availability of actual mitigation spending across the Member States

[Source : own development, map created with MapChart.net] [Note : dark green = comprehensive actual spending figures available, light green = limited/partial actual spending figures available, yellow = respondent indicated availability, but figures could not be verified (confidential), red = no figures were found.]96

What can be concluded from this mapping of available data on historic/current actual mitigation spending is that the only ones able to provide a comprehensive picture are those three Member States that have already conducted domestic climate finance landscape exercises, namely Belgium, France and Germany (see Box 2-10 for a comparative analysis of their respective findings). A few other other Member States were able to provide partial information on actual spending ; the vast majority did not provide any data on current spending.

96 For further information on the data availability scoring, see methodology chapter.

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Box 2-10 Summarised comparison of the three existing domestic finance landscapes: scope and results All three existing landscape reports had roughly the same goal, namely mapping climate finance in each of these countries. However, their scope, level of detail and categorization is not identical to one another (see comparison table below). In the German study (2012) the scope was the most restrictive (only tangible mitigation topics, basically, energy efficiency, non-energy related reduction measures and RES) were taken into account. In the French study (2015) also investments in new nuclear plants and GHG reductions in agriculture, forestry and industrial processes were taken into account. In the Belgian study (2016) also climate services and climate adaptation were part of the scope. As such, the overall figures are not easily comparable.

Landscape of Climate Finance in Germany Landscape of Climate Finance in France Landscape of Climate Finance in Belgium Authors of the study CPI - Climate Policy Initiative I4CE – Institute for Climate Economics Trinomics and EY

Partners or sponsors French Ministry for the Environment, ADEME, FoD Environment, Climate Change Service Climate-KIC, Caisse des Dépôts Year of publication 2012 Editions in 2014, 2015 and 2016 2015 (officially Jan 2016)

GENERAL Year(s) covered 2010 2011 to 2015 2013 Climate scope Mitigation X Mitigation X Mitigation X Adaptation - Adaptation - Adaptation p Climate Services - Climate Services - Climate Services X Sectoral scope Buildings New buildings X Buildings New buildings X Buildings New buildings X Retrofitting X Retrofitting X Retrofitting X X indicates strong coverage Transport Vehicles X Transport Vehicles X Transport Vehicles X p indicates weak or Infrastructures (1) X Infrastructures (1) X Infrastructures (1) X

partial coverage Agriculture Energy X Agriculture Energy X Agriculture Energy X - indicates no coverage Other GHG (2) X Other GHG (2) p Other GHG (2) p SCOPE (1) e.g.: railways, Industry X Industry X Industry X mass urban Energy Fossil p Energy Fossil X Energy Fossil p transport (2) e.g.: emissions Nuclear - Nuclear X Nuclear - from land-use, Renewables X Renewables X Renewables X forestry, carbon sinks Networks (3) X Networks (3) p Networks (3) p (3) e.g.: smart grids Capital scope Tangible, material assets X Tangible, material assets X Tangible, material assets X Intangible assets, R&D p Intangible assets, R&D - Intangible assets, R&D p [Source : I4CE/Trinomics development for October 2016 EEA expert workshop]

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These differences in scope and methodologies should be kept in mind when reading the summarised results of these landscapes, as presented below. For further details and an explanation of the assessment methodology, see Chapter 5 of the recent European Commission, DG Energy publication on ‘Assessing the European clean energy finance landscape’97.

GERMANY According to the Landscape of German Climate Finance98, approximately €37 billion were invested in climate related projects in Germany in 2010. A large portion of investments in climate related projects in Germany is related to generation of energy through renewable sources. However, the structure of the German report is such that the investments are divided by sector (e.g. “buildings”, “industry”, etc.). Whereas this report represents under the labels/columns of “industry”, “buildings”, “transport” only those investments related to energy efficiency projects. Those amounts invested in the buildings sector that relate to installation of energy generating devices have therefore been summed up as “clean energy generation (CEG)”. This represented often large sums: for example, the “buildings” sector invested €16.3 billion, of which €5.8 billion referred to energy efficiency and the rest to clean energy generation.

FRANCE According to the French Landscape99, France invested around €36 billion in clean energy related projects in 2013. This report was particularly detailed in what concerned the types of projects and less stringent assumptions had to be made in order to map the information back to the types of financial sources per type of projects. However, it was not always straightforward to separate those investments in the sector of buildings that referred actually to energy generation and this required making some assumptions about the data presented below.

BELGIUM According to the Belgian Landscape100, about €6.4 billion were invested in climate related projects in 2013, of which approximately €2.9 billion were invested in RES and €2.5 billion in energy efficiency. Of the three reports, Belgium was the only one that contained information on R&D spending, as well as on adaptation related activities. The figures actually refer to investments in “climate services”, but a big part is related to R&D, another part to consultancy.

97 Rademaekers, K, et al (2017). Assessing the European clean energy finance landscape, with implications for improved macro-economic modelling. Deliverable 3 of the Study on the Macroeconomics of Energy and Climate Policies. European Commission, DG Energy. 98 Juergens et al (2012). The landscape of climate finance in Germany. Climate Policy Initiative. http://climatepolicyinitiative.org/wp-content/uploads/2012/11/Landscape-of-Climate-Finance- in-Germany-Full-Report.pdf 99 Hainaut et al (2015). Landscape of climate finance in France 2011-2014. I4CE Institute for Climate Economics. http://www.i4ce.org/download/landscape-of-climate-finance-in-france-2015- edition-full-report/?wpdmdl=13071 100 Rademaekers et al (2016). Landscape of climate finance in Belgium. Federal Public Service (FPS) Health, Food Chain Safety and Environment, Belgium. http://www.klimaat.be/files/4914/6901/4152/Landscape_of_climate_finance_in_Belgium.pdf

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Figure 2-15 Annual investment volumes by ‘type of investment instrument’ and ‘mitigation investment opportunity’ relative to the total amount of total mitigation finance spent (in %) GERMANY FRANCE BELGIUM

[Source : Trinomics (2017) in ‘Assessing the European clean energy finance landscape’]

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Nevertheless, the conducted EIONET survey indicates a positive trend in terms of increased interest to better track actual mitigation finance spending. Several MS reported potential availability of (upcoming) information:  Finland: Public (state) investments from 2013 and before are available for each ministry’s own area in the Yearly Budget Book, but have not been aggregated yet. Available in Finnish, assistance requested. Actual spending from private sources of finance is currently not tracked however.  Ireland: Reported on having a thorough annual budgetting process for government departments involved. But it is not clear whether there are concrete plans to use this process for tracking and aggregating domestic mitigation spending. No mention was made of tracking actual spending from private sources.  Slovenia: In the framework of monitoring of implementation of the Operational Plan for the Reduction of GHG Emissions 2020, a survey of financial sources for implementation of the programme spent up to date and planned in a period 2017–2020 is currently in preparation. This survey will include information on investments already made and planned. The main focus of the survey will be on public spending. Regarding the sectors, the focus will be on surveying the financial sources relevant for the buildings, waste and transport sectors. It is expected that these figures on historic public spending levels will be available in 2017. It is unclear how much (if any) information regarding actual spending from private sources the survey will be able to deliver.  Switzerland stated their interest in learning more about systematic tracking of actual climate finance spending. However, they are unsure whether the federalised structure of the country would allow for such a system to be successfully implemented in Switzerland. It can be noted here that the three countries with existing landscape exercises also have a federalised system with responsibilities for climate policy and implementation split between national and regional levels.

The following table presents those quantified figures on actual spending that have been found. Once again, these figures are presented at face value and are not directly comparable between countries due to the differences in underlying scope and methodologies, etc.

State-of-Play of Climate Finance Tracking in Europe

Table 2-7 Available data on actual mitigation spending on Member State level Country Cumulative Unit Timeframe Average annual Source -- bn Eur 2013 6.4 Trinomics and EY (2016). Landscape of climate finance in Belgium. Belgium Coverage: R&D and tangible assets; sectors: buildings (retrofit & new), transport (vehicles & infrastructure), agriculture (energy), industry, RES, energy networks Subsidy sheet (belonging to 2020 Energy Agreement) made available through EIONET survey 28.81 bn DKR 2013-2015 9.60 respondent. Denmark Coverage: Disbursed subsidies for climate and energy, according to the 2020 Energy Agreement. Split is available for six different renewable energy sources, decentralized CHP and a number of other ‘climate and energy’ eligible subjects. Additional (private) investments are triggered by other economic instruments like environmental taxes, emission standards, etc. 2011 30

94 bn EUR 2016 Update of French domestic climate finance landscape 2013 32 France 2014 32 Coverage: RES and EE investments (public and private) in the transport, industry, agriculture, centralised energy production and networks, and buildings sectors. Note: this figure includes nuclear. 761.70 mn EUR 2013-2015 253.90 Expert consultation (EIONET survey) Finland Coverage: Expenditure includes only direct domestic finance for energy sector (e.g. renewables, energy efficiency, R&D, pilot projects and related initiatives. Finance flows for sector-specific actions (e.g. in agriculture, forestry, transport, etc.) are not included in this figure. -- bn EUR 2010 37 CPI (2012). Landscape of climate finance in Germany. Coverage: tangible assets. Sectors: buildings (retrofits & new), transport (vehicles & infrastructure), agriculture (energy & other GHG), industry, energy (RES & networks)

Germany 2014 19.2 German Ministry for the Economy and Energy (2016). RES in Numbers: national and international trends -- bn EUR 101 2015 15 in 2015. Coverage: total investment in new RES installed capacity. No EE included, which explains the rather significant difference to the 2010 figures above. 2.51 bn EUR 2013-2014 1.25 ISTAT (2016), Industry investments for environmental protection102 Italy Coverage: Investments on environmental protection by the industry (integrated and end-of-pipe technologies), reported under EC regulation 295/2008. In 2012 public spending reported under CEPA classification on air and climate protection category amounted up to 218.5 mn EUR103. Latvia 131.17 mn EUR 2012-2015 32.79 Expert consultation (EIONET survey)

101 Original document: Bundesministerium fuer Wirtschaft und Energie (2016). Erneuerbare Energien in Zahlen: Nationale und internationale Entwicklung in Jahr 2015. http://www.erneuerbare-energien.de/EE/Redaktion/DE/Downloads/erneuerbare-energien-in-zahlen- 2015.pdf;jsessionid=9657F0369BD9932B04953EB9A744CDBA?__blob=publicationFile&v=6 102 Original document: Gli investimenti delle imprese industriali per la protezione dell’ambiente 103 Ministero dell’economia e delle finanze (2013), L’ecorendiconto dello Stato

State-of-Play of Climate Finance Tracking in Europe

Coverage: National Green Investment scheme (CCFI), funded from sales of AAUs. Covers public finance distributed through project tenders, within tenders attracting significant amounts of private finance. The latest ‘Inter-institutional Action Plan of 2016 and relevant sectorial development plans 1121 mn EUR 2014-2016 373.7 (EIONET expert consultation) Lithuania Coverage: Investments for mitigation measures, as provided through the survey. Unclear how comprehensive this figure is. 125.6 mn EUR came from the Climate Change Special Programme managed by the Ministry of Environment in this period; another 15.2 mn EUR was expended over 2012-2013. The Ministry’s website lists the submitted and funded greening projects, with most projects listed filed under renovation and renewable energy equipment for (private and public) buildings. 81 bn EUR 2010-2014 11.6 ECN (2016), National Energy Outlook 2016104 (estimate from figure 6.7) Netherlands Coverage: Historical investments in energy supply, including fossil fuel supply. 2.14 mn PLN 2012-2014 0.71 Expert consultation (EIONET survey) Poland Coverage: Public funding for information and education campaigns on energy efficiency. Energy Agency (2015), Progress monitoring report on achieving national targets for RES and CHP for 648 mn EUR 2010-2014 129.6 105 Slovenia 2012-2014 Coverage: Renewable electricity and CHP investments 2.276 bn EUR 2006 2.276 Spanish climate change and clean energy strategy, Horizon 2007-2012-2020 (LCDS)

Spain Coverage: Investments mobilised by 264.3 mn EUR public resources under the Collaboration Agreements with the Autonomous Communities. Resulting in 1.3 Mtep direct energy savings, representing 1.12% reduction of the base year: 3.5 Mt CO2 decrease. This LCDS also reported the objective to invest 8.5 bn EUR over 2005-2010 and 2.4 bn EUR for energy savings over 2008-2012. Statistics Sweden statistics database: ‘Total environmental protection expenditures in industry, 2001- 29.42 bn SEK 2001-2015 1.96 2015’106 Sweden Coverage: Investments in air protection (measures to reduce air emissions - i.e. broader than mitigation) in the industry. Environmental protection expenditure is monitored yearly under 18 branches of the industry. A similar survey for expenditures at the public sector is still under development. bn 45 2010-2013 11.25 Department of Energy & Climate Change (2014), Delivering UK Energy Investment United GBP’12 Kingdom Coverage: Investment in electricity generation, split made for conventional, renewables (28.9 bn GBP’12) and electricity networks. In the more recent 2015 report the renewable capacity investment over 2010-2014 was estimated on 39.6 bn GBP’12; 42.1 bn GBP’12 including nuclear energy (see also Table 2-14).

104 Original document: Schoots, K., Hekkenberg, M. & Hammingh, P. (2016), Nationale Energieverkenning 2016: Petten, ECN 105 Original document: POROČILO O DOSEGANJU NACIONALNIH CILJEV NA PODROC JU OVE IN SPTE ZA OBDOBJE 2012−2014 106 Available on: http://www.scb.se/en/finding-statistics/statistics-by-subject-area/environment/environmental-accounts-and-sustainable-development/environmental-protection- expenditure/pong/tables-and-graphs/total-environmental-protection-expenditures-in-industry-20012015/

State-of-Play of Climate Finance Tracking in Europe

Since actual spending is reported for the last available years and these differ across MS, it is difficult to deduct any trends from the indicated data in the table above. The ‘snapshot’ picture on current spending levels is most useful when applied as the baseline for the remaining financing gap calculations (see Section 2.5 below). Hence, it needs to be compared with estimated investment needs figures per MS, rather than comparing annualised figures across MS. Such a comparison would have little learning value in and of itself.

Box 2-11 Calculation exercise: Added RES-electricity capacity spending (2014-2015) for EU28 Member States As already discussed in

Box 2-8, the RES-electricity investments for each EU28 Member State can be done by comparing the change in installed capacity levels from 2014-2015 to the CAPEX figure for each renewable energy technology. A more elaborate explanation of the methodology is given in Annex B, section 6.2.1. Results on MS level are shown in Figure 2-16. Table 6-13 in the Annex gives investment figures split up for seven different technology categories.

The results show that more than half of the RES-electricity investments in the EU took place in Germany and the United Kingdom. It is important to mention that these results must be considered a snapshot of the situation, a longer timeframe possibly gives a better picture of past RES-electricity investments when the exercise is based in installed capacities. Nevertheless, the results are to a large extent comparable in magnitude to the investment levels resulting from the landscape exercises done by Germany, France and Belgium (see Box 2-10).

Figure 2-16 RES-electricity investments in 2015 for the EU28 Member States (in mn EUR’15)

[Source: own development based on RES exercise calculations]

Lessons learned

Actual investments into RES-electricity can be estimated by comparing installed capacity levels to CAPEX costs of different technologies. This method is inherently

State-of-Play of Climate Finance Tracking in Europe

different from looking at transactions data, but nevertheless gives comparable past investment levels as the sum of all MS (46.0 bn, see also box 2-8) showed comparable investment levels to investment estimates based on transactions data.

The results presented here must be viewed as a snapshot. Results showing zero investments for example for Slovakia is not realistic. To get a better image of actual investments it is desirable to use a longer timeframe.

This exercise does not take into account reinstallation/updating of old installations, as only capacity levels are compared. This does not necessarily represent the total capital investments, which are therefore slightly higher.

The only public climate finance source on national level that is already being tracked in a systematic manner across all MS is the climate-relevant spending levels from EU ETS auctioning revenues. According to the EU ETS Directive, Member States should use at least 50 % of auctioning revenues or the equivalent in financial value for climate and energy related purposes. In 2014, the total revenue from the auctioning of EU ETS allowances amounted to EUR 3.2 billion. On average in 2014, Member States used or are planning to use around 87 % of their ETS auctioning revenues or the equivalent in financial value for climate and energy related purposes, largely to support domestic investment in climate and energy. The following box highlights the use of EU ETS auctioning revenues as one financing source for domestic climate action. While this only provides some insights into one specific, relatively small, financing stream, lessons learned from this standardised reporting methodology will be further synthesised in Chapter 4.

Box 2-12 ETS auctioning revenues: systematic tracking of one specific public finance stream The figure below shows the reported EU ETS auctioning revenues used for climate and energy related purposes in 2016 per MS. The figure provides a general reference point regarding the total size of these revenues, as well as what proportion of these are spent on mitigation activities. Germany, for example, has by far the largest EU ETS auctioning revenues (ca. EUR 850 million) and spent nearly 100% of this amount for domestic climate and energy related purposes.

Figure 2-17 Reported revenue or equivalent in financial value used or planned to be used for climate and energy related purposes in 2014

[Source: European Commission, COM(2015) 576 final. Climate Action Progress Report, p. 14]

State-of-Play of Climate Finance Tracking in Europe

[*HR: auctioning starting in 2015 hence no revenues in 2014]

Lessons learned

11 MS (DE, UK, ES, FR, NL, EL, RO, PT, AT, BG, LT) spent the majority of their auctioning revenues on domestic climate and energy activities. Countries prioritise different mitigation actions via their EU ETS auctioning budget. Denmark and the UK are using a significant proportion of their auctioning revenue or the equivalent in financial value to finance research projects on reducing emissions, including CCS technologies, for example. Whereas France invests all the revenues in improving the energy efficiency of public buildings used for social housing. Sweden, on the other hand, provided provided the vast majority of its auctioning revenues (€ 32 million) to international climate finance under the UNFCCC Green Climate Fund. A few Member States are still in the process of setting up the appropriate legal and financial instruments to make use of some of their revenues. Belgium, for example, has not provided details on the use of any of its revenues because no agreement has been reached on its allocation between authorities. Interestingly, the EU ETS auctioning revenues have not been reported as domestic climate finance as part of the EIONET survey for a large part of the concerned countries.

Data and knowledge issues encountered

The stock-taking of mitigation finance information on the national level has revealed various lessons learned as well as encountered various knowledge issues across different dimensions of the data matrix. For three MS (Belgium, France and Germany) comprehensive data exists on actual mitigation spending. These existing landscapes of domestic climate finance present the latest available year (as well as some broader historic trends) and explain who finances what type of mitigation activity and how much. Lessons that can be learned from these three existing landscaping exercises are highlighted via various case boxes throughout this report (e.g. Box 2-10, Box 2-13, Box 2-14). For example, the case of France, who is the only country so far that has engaged in repeated annual updates of their domestic climate finance landscape, indicates a steep learning curve and cost-effectiveness gains through annual updates.

Box 2-13 France: improved tracking methodology and greater cost-effectiveness through annual updates of the domestic climate finance landscape107 During the initial round of data collection about domestic low-carbon investment and finance in France, the main difficulty was to assess which methodology would bring cost-

107 The information contained in this box represents feedback provided to the authors of the study by H. Hainaut, I4CE – Institution for Climate Economics.

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effective – yet robust - estimates. For investment data already tracked by sectorial institutions, such as the energy management agency (ADEME) or the renewable energy producer association (SER), the challenge was mostly to find the right person or entry points. When data is tracked but not publicly-disclosed, the challenge was to agree on the level of detail presented in the Landscape to avoid unwanted public disclosure of the said data. When no investment data is available, the main challenge was to devise a method to produce a quality estimate based on existing information. This approach consists principally of estimating separately the number of projects and the average price of projects. Trade-offs between more detailed, generally bottom-up methodologies based on the individual review of many single projects versus more top-down, global methodologies based on refining statistical aggregates have been identified. For example, low-carbon investment in the industrial sector can be estimated through the addition of current known projects and public programs (bottom-up) or through a blanket estimated percentage of the total investment in the sector (top-down). When facing such trade-offs, the team elected to concentrate our efforts on sectors where investment is potentially large, and thus significant to the overall results.

After the first publication of the Landscape report, annual updates allowed incremental efforts to improve the existing methodology. Contact points in data source institutions were easier to interact with since they already knew about the study, its purpose and format. Experts were asked to comment on their previous estimates. Methodological options were assessed in light of new knowledge cropping up from recent reports.

Box 2-14 Belgium: lessons learned from the tracking process The authors of the Belgian landscaping exercise108 highlighted four key lessons learned: To get the right information of each specific sector or type of climate activity, one needs to set up both a detailed bottom-up approach (compiling data from the company, project, or technology level) and a top- down approach (using aggregate statistics and reports) (to get the whole picture). In addition, for some climate activities, interviews will be needed to fill in the data gaps. Similarly, to get the right information from private sources, interviews with the relevant actors to ask for their data and/or sources has proven the most effective means. One of the most important precautions when using data from various points along the finance flow was to avoid double counting (e.g. from Belgian national budget reporting, total investment figures from sector reports, or lending volume from banks’ annual reports). In the Belgian report this was mitigated this risk by adhering to consistent approaches to tracking, by applying assumptions consistently, and by providing transparency about the approach and assumptions throughout the analysis.

108 Rademaekers et al (2016). Landscape of climate finance in Belgium. Federal Public Service (FPS) Health, Food Chain Safety and Environment, Belgium. http://www.klimaat.be/files/4914/6901/4152/Landscape_of_climate_finance_in_Belgium.pdf

State-of-Play of Climate Finance Tracking in Europe

To determine the climate-specific or related share of broader budget lines and their allocation to any of the climate-specific categories, we referred to expert opinion or other qualitative information

However, even the authors of these studies have highlighted that various methodological and data access challenges remain in order to further improve the accuracy of the results in the future (see Box 2-15).

Box 2-15 France: Remaining data access challenges encountered during the process109 Investment was easier to document for renewable electricity projects (through grid operators annual reviews) and for large infrastructure projects (such as rail and urban transport, which often benefit from central state and/or European funding and tracking). Sales of individual cars could be tracked through licensing statistics. Energy efficiency was hardest to estimate, due to the decentralized nature of many projects, especially in residential and commercial buildings. The biggest knowledge gaps occur in the industrial and commercial buildings sectors, as well as in agriculture.

Box 2-16 Belgium : Remaining data access challenges encountered during the process According to the authors, the main challenges while drafting the report, included: Overall: Obtaining data on the financing for different sectors or the use of different financial instruments by commercial intermediaries posed the biggest challenge. For efficiency improvements in fossil fuel-based energy generation, it was not possible to determine the total investment because of complexities in reporting private investment. Additionally, lack of data on investment in energy efficiency of commercial and public buildings contributes to a lower estimate of total energy efficiency investment. This limitation of data creates a bias that causes an underestimate of the investments in energy efficiency and non-energy-related reduction measures relative to renewables, which are often clearly financed for climate mitigation purposes.

Further, knowledge issues encountered from the wider stock-taking exercise across other MS can be identified as follows: There is a general interest and initial indications on progress across most Member States placing increased importance in engaging in the tracking of actual climate finance spending.

The mapping of current data availability for actual spending shows that a comprehensive picture on current spending (i.e. including all relevant mitigation sectors, as well as finance received from public and private sources) seems difficult to achieve without engaging in a detailed domestic climate finance tracking exercise.

. Only the three MS with existing landscaping exercises were able to provide comprehensive data.

109 The information contained in this box represents feedback provided to the authors of the study by H. Hainaut, I4CE – Institution for Climate Economics.

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. A very common reason for no and/or only partial data available for the other MS was an organisational challenge to locate the responsible points of contact that could help provide the various bits and pieces of information, i.e. across different ministries, programmes and from the private sector.

There is no common reporting method for aggregating actual spending amounts.

Even the methodologies and scope for the three existing landscapes of domestic climate finance differ in their approach (see Box 2-10 for a comparison).

Some other MS also indicate using a structured approach (e.g. Italy under two regulations that do have reporting requirements), but for all they are currently not tailored to serve specifically the purpose of domestic climate finance landscape reporting (e.g. split between mitigation versus adaptation spending, split between different sources of finance, etc.)

Another recurring issue in the reporting of actual spending is that of inconsistency with timeframes. As there are no reporting requirements, the latest available year can differ significantly across those countries that did report (at least partial) spending amounts.

2.4 Planned expenditure

How much is planned to be invested in climate mitigation in the future?

This section covers the stock-taking of all information related to planned future mitigation expenditure. Most of the information available on planned future spending stems from public budgets – both on EU level as well as for Member States. There are no total (incl. private) planned expenditure figures available. This is not however a data availability gap but rather the nature of this type of financing volume: the private sector financiers typically do not use budget planning over a given future period as a tool. Nevertheless it is interesting to gain a better understanding on planned expenditure – even if only covering public sector financiers – in order to gauge the future direction of public sector efforts.

The analysis on the current state of information regarding planned expenditure is based on the following primary sources:

EU level:  Court of Auditors Report for EU Budget figures (combined mitigation & adaptation) for the 2018-2020 period;  Updates reported in the ‘Clean Energy for All Europeans’ policy package;  Other supporting elements from the wider literature review; and National level:  EIONET survey results.

2.4.1 EU level As regards planned expenditure data for EU budget engagement in climate mitigation activities, the most comprehensive and recent source of information to fall back on is the European Court of Auditors’ 2016 Special Report on ‘Spending at least one euro in every five from the EU budget on climate action:

State-of-Play of Climate Finance Tracking in Europe

ambitious work underway, but at serious risk of falling short’.110 This report presents a detailed review of the 2014-2020 current multi-annual financial framework with regards to EU budget spending towards the 20% spending target on climate-related action. It should be noted here that figures are reported for combined spending on mitigation AND adaptation actions. For the purpose of this study, 2014-2016 is accounted for as historic and current ‘actual spending (see previous section), whereas the 2017-2020 period is covered as ‘planned expenditure’. Another important factor to keep in mind when reading these numbers is that these capture the EU budget spending only; they do not take into account any leveraging of national co-finance or mobilised private finance.

Bearing in mind this scope, the following table presents the total planned expenditure on climate- relevant activities (both mitigation and adaptation) of the EU budget for the period 2018-2020. The reported figures indicate an average annual planned expenditure on climate-related activities from the EU budget of about EUR 31 bn. This represents a significant increase as compared to the previous three- year period of around EUR 6bn annually and it would just barely fall short of the 20% spending target for the EU’s budget.

Table 2-8 Total planned climate change finance in the EU budget, 2018-2020 (EUR bn, commitment Total Annual 2017 2018 2019 2020 appropriations) 2018-2020 average For reference: Total EU 154 157 160 164 635 159 budget111 Total climate change finance 30 31 32 32 125 31 in the EU Budget Estimate total for MITIGATION 11 11 12 12 46 12 Mitigation as share of total EU 7% 7% 7% 7% Budget Mitigation as share of climate- 37% 37% 37% 37% relevant EU Budget [Source: European Court of Auditors (2016), p. 66; combined with split indication (see Annex B, section 6.2.2]

In addition to these planned budget figures for the 2014-2020 Multi-annual Financial Framework, several fund initiatives with EU Budget involvement (beyond the 2020 timeframe) are worth highlighting, namely the proposed innovation fund (or NER400), modernisation fund and upgrading of the European Fund for Strategic Investments (EFSI 2.0).

NER 300 and the proposed innovation fund The New Entrants Reserve (NER300) programme112 is an EU-wide funding programme for commercial projects to demonstrate innovative technologies for RES and Carbon Capture and Storage (CCS). It is funded through the sale of 300 million emission allowances (amounting to about EUR 2.1 billion) under the EU’s Emission Trading Scheme (ETS). The NER300 was implemented with the support of the

110 European Court of Auditors (2016). Special Report on ‘Spending at least one euroe in every five from the EU budget on climate action: ambitious work underway, but at serious risk of falling short’. http://www.eca.europa.eu/Lists/ECADocuments/SR16_31/SR_CLIMATE_EN.pdf 111 EU Budget line: Section III – Commission, Financial programming 112 Established under article 10a(8) of Directive 2009/29/EC which states that ‘up to 300 million allowances in the new entrants’ reserve shall be available until 31 December 2015’ to help encourage the construction and operation of CCS as well as innovative renewable energy technologies in the EU. The funding programme was implemented through the NER300 Decision (2010/670/EU) in 2010.

State-of-Play of Climate Finance Tracking in Europe

European Investment Bank (EIB) and awarded EUR 2.1 billion to 38 innovative renewable energy and one CCS project across 20 Member States.113 The renewable technology areas with the largest number of awarded projects were bioenergy and wind as shown in Table 2-9.

Table 2-9 Number of projects and funds awarded under each category 1st call (2011) 2nd call (2013) Total funding (amount of projects) (amount of projects) (Mn EUR) Category Submitted Awarded Submitted Awarded

Advanced bioenergy 24 7 10 6 905.8

Concentrated solar power 9 3 3 2 233.4

Photovoltaic 4 0 3 1 8

Geothermal 3 1 4 2 70.9

Wind 15 6 3 2 340.5

Ocean 8 2 5 3 142

Distributed renewable 3 1 3 2 104.2 management (smart grids)

CCS 13 0 1 1 300

Total 79 20 32 19 2 104.9 [Source: Trinomics (2017) based on SWD (2015) 135]

According to the European Commission, the NER300 funding of EUR 2.1 billion has mobilised an additional EUR 700 million from public sources and leveraged EUR 2.7 billion from private sources. An additional EUR 3.1 billion is expected in additional benefits (net present value) over the first five years of operation. This initiative is hence considered an efficient measure to increase mitigation finance levels. The establishment of an Innovation Fund (or NER400), as the continuation to NER300, has been proposed in the review process of the ETS.114 The new innovation fund would have 400 million allowances (instead of the previous 300 million) plus 50 million of unallocated allowances. It would build on the NER 300 programme extending its scope to low carbon innovation in industrial sectors.

Proposal for a modernisation fund The European Commission has also proposed a new modernisation fund115, designed for 10 Member States with a GDP per capita of less than 60 % of the EU average (namely: BG, HR, CZ, EE, HU, LV, LT, PL, RO and SK). The main objective of the fund is to modernise their energy systems and improve energy efficiency and ultimately provide citizens with cleaner, secure and affordable energy. Between 2021 and 2030, 2 % of the allowances, equalling around 310 million allowances in total, will be used to establish this fund.

Proposal for EFSI 2.0 40% earmark The European Fund for Strategic Investments (EFSI) is an initiative launched jointly by the European Commission and the EIB Group - European Investment Bank (EIB) and European Investment Fund (EIF) -

113 SWD (2015) 135: Impact Assessment accompanying the proposal for a Directive amending Directive 2003/87/EC to enhance cost-effective emission reductions and low-carbon investments 114 SWD (2015) 135: Impact Assessment accompanying the proposal for a Directive amending Directive 2003/87/EC to enhance cost-effective emission reductions and low-carbon investments 115 COM (2015) 0337

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to help overcome the current general investment gap in the EU by mobilising private financing for strategic investments. EFSI is one of the three pillars of the ‘Investment Plan for Europe’ that aims to revive investment in strategic projects around Europe to ensure that money reaches the real economy. With EFSI support, the EIB Group will provide funding for economically viable projects where it adds value, including projects with a higher risk profile than ordinary EIB activities. It will focus on sectors of key importance where the EIB Group has proven expertise and the capacity to deliver a positive impact on the European economy, including:  Strategic infrastructure, incl. digital, transport and energy;  Education, research, development and innovation;  Expansion of renewable energy and resource efficiency; and  Support for smaller businesses and midcap companies.

When first established, it was estimated that EFSI should unlock additional investment of at least EUR 315bn over a three year period (2015-2018). The EFSI consisted of a EUR 16bn guarantee from the EU budget, complemented by a EUR 5bn allocation of the EIB’s own capital. In terms of implementation, EFSI has two components to support projects with wider sector eligibility: a. The Infrastructure and Innovation Window, deployed through the EIB. b. The SME Window, implemented through EIF.

In its June 2016 communication116 ‘Europe investing again –Taking stock of the Investment Plan for Europe and next steps’, the EC envisaged an 'extension of the duration of the European Fund for Strategic Investments (EFSI) beyond its initial three-year period, the scaling-up of the Infrastructure and Innovation Window as well as the SME window within the existing framework and the enhancement of the European Investment Advisory Hub (EIAH)'. The present proposal on EFSI 2.0 intends to fulfil these objectives by increasing the EU guarantee from €16 to 26 billion and EIB capital from €5 to 7.5 billion, with an expected total private and public investment of at least €500 billion (up from €315 billion). EFSI was initially established for a period of three years (2015-2018), and would now be extended until 31 December 2020.

In the future, the EFSI 2.0 will focus even more on sustainable investments in all sectors to contribute to meeting COP21 targets and to help to deliver on the transition to a resource efficient, circular and zero-carbon economy. To this end, the Commission has proposed that at least 40% of EFSI projects under the infrastructure and innovation window should contribute to climate action in line with the COP21 objectives.

Box 2-17 presents an initial review of the estimated impact that such an EFSI2.0 target could make on mitigation action areas on the one hand, and on the different sources of finance on the other hand.117

116 COM(2016) 359 final 117 The analysis is based on the current project pipeline database: http://www.eib.org/efsi/efsi-projects/index.htm .

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Box 2-17 Estimated impact of EFSI2.0 40% earmark on mitigation action areas and sources of finance Expected effects on targeted mitigation action areas The following figure indicates the projected total mitigation-relevant EFSI investment divided per mitigation action area.

Figure 2-18 Total clean energy relevant EFSI investments per clean energy sector (in EUR mn)

[Source: own development based on EFSI database until 31-12-2016]

The following figures then capture the division of total EFSI2.0 investments per broad mitigation sector (RES versus EE) sub-divided across the different sub-action areas in terms of their relative share.

Figure 2-19 Total clean energy related EFSI finance split among RES sub-sectors and EE subsectors

[Source: own development based on EFSI database until 31-12-2016]

State-of-Play of Climate Finance Tracking in Europe

A few conclusions can be drawn from these figures as to the current sectoral preferences of EFSI:  RES o 37% of total EFSI clean energy investment is currently going to renewable energy infrastructure. o All RES investments focus primarily on already established technologies. o Offshore wind investments represent the largest investment volume of EFSI RES investments (63%), followed by contributions to RES investment funds that invest in various RES technologies (28%), and only small shares attributed to onshore wind and biomass (6% and 3% respectively).  EE o 63% of total EFSI clean energy investment is currently going to energy efficiency improvements. o EE in buildings receives by far the largest EFSI contribution compared to other EE sectors (72% of total EFSI EE investment volume). The other three EE sectors currently receive much less EFSI investment volume (14% EE transport, 10% EE energy, and 4% EE industry).

Expected effects on financing sources The EFSI ‘Infrastructure and Innovation’ Window is mainly targeted at larger investments. Therefore, it is mainly trying to receive co-funding from national promotional banks, commercial banks, and institutional investors. To some extent it also attracts private companies. In its current set-up, EFSI is not relevant for small-end users (maybe only under SME window which is excluded from the 40% earmarking target).

For the current approved EFSI projects under the ‘Infrastructure and Innovation Window’, in particular the national promotional banks (NPBs) have played an important role in mobilised co- finance given their complementary product ranges, local knowledge and geographic reach. By mid- 2016, nine Member States have so far committed to co-finance projects in the context of the EFSI mostly via their NPBs for a total of EUR 42.5billion:118 With the EUR 16bn initial EFSI capital, the EIB expects to leverage an additional EUR 49bn in internal EIB finance, and the remaining EUR 175bn to reach the total of EUR 240bn envisioned under the innovation and infrastructure window is supposed to come from mobilised public and private co- finance.

2.4.2 National level On the Member State level, Figure 2-20 maps the data availability on planned future expenditure for domestic mitigation activities across Europe, as collected through the EIONET survey, the scan of submitted LCDSs and additional desk research. A red label indicates that no information sources identified that would provide planned expenditure figures, a yellow label means data could not be verified (e.g. if survey respondents indicated availability, but reports are confidential), a light green label signals that some (but incomplete/patchy) data has been identified and finally a dark green label confirms the availability of comprehensive data detailing planned expenditure.119

118 COM(2016) 359 final 119 A more detailed explanation of the assessment methodology can be found in Chapter 1.4.

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Figure 2-20 Availability of planned mitigation expenditure data across the EEA Member States

As can be seen from the mapping of stock-taking results above, most MS currently do not have any or only partial quantified information available regarding planned mitigation expenditure for a given future time period.

The table below presents the quantified data received / found for several MS. In addition, the following countries’ responses indicate the potential availability of (upcoming) information:  Estonia: As the new EU ETS trading period is approaching, new measures to be included in the Estonian State Budget Strategy are under development.  Ireland: Reported on via annual budgetting processes for government departments involved. As much of this relates to the ongoing development of national policy, a significant amount is confidential at this stage (is it possible to share any aggregated figures for the purpose of this study ?).  Slovenia: In the framework of monitoring of implementation of the ‘Operational Plan for the Reduction of GHG Emissions 2020’, a survey of financial sources for implementation of the programme spent up to date and planned in the period 2017–2020 is in preparation. This survey will include information on investment carried out and planned. The main focus of the survey will be on public spending on subsidies. Regarding the sectors, the focus will be on surveying the financial sources relevant for the buildings, waste and transport sectors. (info taken from survey response).

120 For further information on the data availability scoring, see methodology chapter.

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 Lithuania: Legally binding targets and objectives in the ‘Strategy for the National Climate Change Management Policy for the period from 2021 till 2030’ will be updated by the end of 2019. It is intended to use integrated National Energy and Climate Plans, to be developed under the proposal for the Energy Union Governance Regulation by 2019 for planning and reporting domestic energy and climate finance.

State-of-Play of Climate Finance Tracking in Europe

Table 2-10 Available data on planned mitigation expenditure on Member State level Country Cumulative Unit Timeframe Average annual Source

1.10 bn EUR 2013-2020 0.14 Climact & Ecofys (2014), Exploring the medium term (2030) and long term (2050) energy and Belgium (Flanders) greenhouse gas scenarios in Flanders’ (translated from Dutch) Coverage: Governmental budget for internal Flanders climate publishing (excluding co-financing from Flemish climate fund). bn 10.58 2012-2020 1.18 LEV’11 Ministry of Environment and Water (2012), Third National Action Plan121 Bulgaria Coverage: This economic analysis shows that 4.9% of the total expected investments in the economy as a whole will be aimed at reducing emissions (without reducing production and consumption), split up for seven sectors. [This seems a rough estimate; it is unclear what this figure is based on (see p.22). Not genuine ‘planned’ investments, rather a reference trend estimate.] Subsidy sheet (belonging to 2020 Energy Agreement) made available through EIONET survey 53.65 bn DKR 2016-2020 10.73 respondent. Denmark Coverage: Expected expenditure of subsidies for climate and energy, according to the 2020 Energy Agreement. Split is available for six different renewable energy sources, decentralized CHP and a number of other ‘climate and energy’ eligible subjects. Additional (private) investments are triggered by other economic instruments like environmental taxes, emission standards, etc.

363.4 mn EUR 2016-2019 90.84 ENMAK (2016), Energy Sector Development Plan 2030122 Estonia Coverage: State budget for the 2050 development plan, of which 38.42 for 'security of energy supply' and 323.56 to efficient use of primary energy.

Ministry of Economic Affairs and Employment of Finland (2017), Government report on the National 1597.75 mn EUR 2017-2020 399.44 Energy and Climate Strategy for 2030. The figures have been calculated based on tables 1 and 2 of Chapter 4.3 Finland Coverage: This total figure includes six tangible (1504 mn EUR) and five intangible budget lines (93.75 mn EUR). Tangible covers: investment subsidies for renewable energy & new energy technology, operating aid for electricity from renewable energy sources, renewable energy investments, energy aid and major new energy technology products (incl. bio refineries). Intangible investments here include: piloting of digital mobility services, market experiments related to low-carbon business and service platforms, guidance by information in wood construction, additional needs of R&D related to sink policy measures and promoting energy-efficient vehicles (electricity and gas).

81 bn EUR 2015-2020 15.17 ECN (2016), National Energy Outlook 2016123 (estimate from figure 6.7)

Netherlands Coverage: Expected investment trends in energy supply, including fossil fuel supply. This trend takes into account planned policies, which is the part that genuinely falls under the category of planned expenditures. In fact the total of 15.17 yearly are all investment as expected under a business-as-usual scenario, including also private investments.

250 mn NOK 2016-2017 125 Website Norwegian Environment Agency (Miljodirektoratet) and expert consultation Norway Coverage: Klimasats is a new programme, providing subsidies for climate mitigation projects in municipalities.

Poland 647.2 mn PLN 2014-2023 64.72 Ministry of Economy (2014), The National Action Plan Energy Efficiency for Poland 2014124

121 Original document: Министерство на околната среда и водите и (2012) ТРЕТИ НАЦИОНАЛЕН ПЛАН ЗА ДЕЙСТВИЕ 122 Original document: Energiamajanduse arengukava aastani 123 Original document: Schoots, K., Hekkenberg, M. & Hammingh, P. (2016), Nationale Energieverkenning 2016: Petten, ECN 124 Original document: Ministerstwo Gospodarki Krajowy Plan Działań dotyczący efektywności energetycznej dla Polski 2014 77

State-of-Play of Climate Finance Tracking in Europe Coverage: Public fund for efficient public buildings (30 mn PLN annually) and energy efficient lighting (34.72 mn PLN annually)

898.12 mn EUR 2010-2020 81.65 NREAP (2010), National Renewable Energy Plan Slovenia Coverage: As part of the estimated investment needs, the NREAP reports on the part which was budgeted from public sources to support renewable energy.

6.84 bn EUR 2014-2016 2.28 PWC (2015), Climate change in Spain, 2033125 Spain Coverage: Government aimed to collect this ‘energy-climate contribution’ spent on mitigation through fossil fuel tax and CO2-emitting forms of energy.

125 Original document: ‘El cambio climático en España, 2033’ 78

State-of-Play of Climate Finance Tracking in Europe

Data and knowledge issues encountered

The identified planned expenditures across MS cover public budgets only in those countries that reported having a tracking process and/or quantified figures for this type of flow.

. In a way this is not surprising since governments’ way of working is via annual budgets, whereas it would be impossible to gain such aggregated planned investment figures from the private sector.

The only exceptions to this are the figures from Bulgaria and the Netherlands. These to MS have indicated a total expected future expenditure from both public and private sources. [It would be very interesting to highlight one (or both) of these cases in terms of the methodology/tracking process used to come up with such a combined figure as this would then allow to compare the planned investments (similar to the REF2016 scenario on the European level) to the total investment needs (e.g. EUCO30 scenario on European level).]

While information on the general reporting methods of national budgets is likely available for most MS, often total aggregated (or sectoral) planned mitigation finance figures are lacking.

One of the main challenges involved in the stock-taking exercise for planned future mitigation expenditure was the confusion by many with other types of investment flows.

. Sometimes ‘planned expenditure’ is confused with ‘total investment needs’. However, these are rarely the same as total investment needs in theory should be higher, also encompassing private financing sources, as well as any potential amount that represents the remaining financing gap. . Sometimes planned expenditure is reported in a rather intertwined manner with historic or current actual spending due to broader timeframes, for example. This can skew the climate finance landscape picture, if not checked and framed carefully.

2.5 Remaining financing gap

What is the additional amount of investments required on top of existing reference investments in order to reach set mitigation targets?

Finally, having discussed data availability on European and national levels for estimated overall investment needs as well as actual spending and planned expenditure, it is possible to attempt an analysis of the remaining mitigation financing gap, i.e. the difference between what is needed and what is currently already invested and/or planned to be invested. To recap, the remaining financing gap is therefore the amount of additional investment needed to reach the 2030 mitigation targets – this amount is needed on top of / in addition to the business-as-usual investment volumes.

State-of-Play of Climate Finance Tracking in Europe

The current level of data availability allows – under various assumptions – to make a remaining financing gap calculation for Europe as a whole. However, for the national level, it is currently much more challenging to come up with a meaningful remaining financing gap calculation unless the figures for the three preceding climate finance flows (investment needs, actual spending and planned expenditure) are all based on the same scope and methodology (e.g. like the Impact Assessment scenarios on European level). Otherwise a ‘forced’ comparison requires many assumptions and conversions, which in turn make the resulting financing gap figure much less reliable. Nevertheless, for those countries with at least decent data availability on all three types of flows, the report provides an order of magnitude range based on the available information.

2.5.1 EU level Given the urgent challenge to secure sufficient investment for the transition to a low-carbon economy in order to meet Europe’s climate and energy targets and work towards the commitments under the Paris Agreement, numerous estimates have been made to size up the investment needs up to 2020, 2030 or 2050. The use of different underlying policy scenarios, data sources, as well as definitions of what is included in the respective figures makes it difficult to compare, or potentially sum up all various sources to work towards.

Still, comparing estimated investment needs with current investment levels (i.e. reference volumes made up of historic/current spending trends and planned expenditure) indicates that Europe is facing a major remaining financing gap for mitigation activities. Though there is no agreed single figure regarding the size of this gap, the various figures elaborated in the literature indicate additional investment needs in the order of €180-300 billion per year between now and 2050. It should be noted that these are the additional investment needs on top of a business-as-usual progression that need to be channelled specifically towards mitigation and adaptation activities, i.e. these are investments needed in addition to future investment costs for replacement of ageing infrastructure, etc.

The most recent estimations from the European Commission confirm this order of magnitude, suggesting that the mobilisation of an additional 177 billion EUR’13 from public and private investment sources is needed annually from 2021 onwards to reach the 2030 climate and energy goals as set out in the Communication ‘Clean Energy for All Europeans’.126 In turn, this investment in the EU’s clean energy transition would likely generate up to a 1% increase in GDP over the next decade and create 900,000 new jobs.127

From a top-down European perspective, sufficient quantitative and qualitative analysis and scenario work is available from various independent sources including EU institutions, World Bank, International Energy Agency, to make an overall judgment on the order of magnitude of the remaining financing challenge (see Table 2-11) and on where the most urgent challenges lie. The table provides a summarised overview of the latest investment needs estimations from the ‘Clean Energy for All Europeans’ policy package and related impact assessments. The table presents (a) historic spending trends (representing a backward-looking spending baseline); (b) the overall projected future spending levels up to 2030 based on a business-as-usual pathway (REF2016 scenario representing a forward-

126 https://ec.europa.eu/energy/en/news/commission-proposes-new-rules-consumer-centred-clean- energy-transition 127 https://ec.europa.eu/energy/en/news/commission-proposes-new-rules-consumer-centred-clean- energy-transition

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looking spending baseline), (c) the total investment needs based on achieving the EU’s energy and climate targets (EUCO30 scenario), and (c) the remaining mitigation financing gap in Europe (two alternatives: based on the forward-looking versus backward-looking baselines). It should be noted here that the REF2016 scenario is assumed to include all the planned and future anticipated public and private investments that are projected to occur based on historic spending levels WITHOUT additional policy efforts. As such, the difference between the REF2016 and EUCO30 scenarios represents the remaining financing gap for European domestic climate finance (based on a forward-looking baseline). The remaining financing gap represents the amount of investment that needs to be mobilised from public or private sources in addition to the amount of investment already projects under the business- as-usual baseline.

When looking at the remaining financing gap, the total annual (2021-2030) mitigation financing gap (using a forward-looking baseline) amounts to 179 bn EUR’15. This total is composed of 168 bn EUR’15 of additional energy efficiency investment needs in the buildings, industry

COMPARED TO PROJECTED BUSINESS-AS- and transport sectors, as well as small additional finance volumes required

USUAL SPENDING ON MITIGATION ACTIONS, for grids (2 bn EUR’15) and power generation (9 bn EUR’15). This shows

THE ADDITIONAL FINANCING NEED IN EVERY that most of the additional investment that is required on an annual basis

YEAR BETWEEN 2021 AND 2030 AMOUNTS will need to be spent on energy efficiency. For comparison, when using a TO APPROXIMATELY 179 BN EUR’15 backward-looking baseline based on historic actual spending volumes, i.e. compared to average annual spending over the past decade, the order of magnitude for the annual remaining financing gap increases somewhat to a total ranging around 197- 220 bn EUR’15, excluding the transport sector.

While the estimation based on the forward-looking baseline is likely more accurate in terms of its reflection of future spending patterns (based on modelled scenarios), the order of magnitude range using a back-ward COMPARED TO AVERAGE ANNUAL SPENDING looking baseline offers an indication of the order of magnitude OVER THE PAST DECADE, THE ADDITIONAL where we are at today already compared to where we need to be FINANCING NEED IN EVERY YEAR BETWEEN in theory on an annual basis to achieve the agreed targets. So 2021 AND 2030 AMOUNTS TO when comparing the two gap estimates, it shows that the overall APPROXIMATELY 197-220 BN EUR’15 remaining financing gap is expected to narrow slightly in the future. However, to tackle the remaining amount – whichever the final value per year in the ranges of these orders of magnitude – it is crucial to address existing knowledge gaps so that improved domestic climate finance tracking can help monitor progress with this respect.

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Table 2-11 Summary Overview: Determining the remaining annual mitigation finance gap (i.e. the additional finance to be mobilised in addition to the projected business-as-usual spending) in Europe to achieve the EU’s 2030 climate and energy targets (based on historic spending trends and total future investment needs estimations), in Billion EUR’15 Backward-looking mitigation Forward-looking Estimated total Remaining annual Remaining annual spending baseline projected annual mitigation mitigation financing gapv mitigation financing gapvi (based on actual historic mitigation spending investment needs (based on backward- (based on forward-looking spendingii) baseline (based on latest EC looking baselines) baseline)) Scope: EU-28 (based on latest EC scenario achieving business-as-usual 2030 targetsiv) Unit: all figures scenarioiii) presented in Billion Annual average Annual average Annual average Annual average Annual average Annual average additional EUR’15 i spending, spending, spending projection, estimated total investment volumes investment volumes 2006-2010 2011-2015 2021-2030 investment needs, required in addition to required in addition to 2021-2030 historic spending projected spending volumes, volumes, 2021-2030 2021-2030 Total – Mitigation N/A N/A 944 1123 N/A 179 Total – Mitigation 162 190 234 382 197 – 224 148 (excl. TRA) Total – Demand sidevii N/A N/A 876 1044 N/A 168 Total – Demand side 91 106 166 303 197-213 137 (excl. TRA) EE- Industry 7 7 15 19 12 4 EE – Buildings 74 88 128 216 128-142 88 (households) EE - Buildings 10 11 23 68 57-58 45 (tertiary sector) Transport (TRA)viii N/A N/A 710 741 N/A 31

Total – Supply sideix 71 85 67 79 10-11 11 Grid infrastructurex 25 26 34 36 10-11 2 Power generation 45 58 33 42 0xii 9 (total)xi - RESxiii 34 44 25 34 0xiv 7 - Conventional 11 15 8 8 0xv 2 [Source: Trinomics (2017) own development based on EP (2017) and EC (2016)]

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i All figures from different sources have been converted into EUR’15 constant figures to enable a direct comparison. The inflation rates used to carry out this conversion are based on https://www.statbureau.org/en/eurozone/inflation-calculators. All figures have been rounded to full billions. This explains why some figures do not add up exactly to the totals presented in the table. ii European Parliament (2017). European Energy Industry Investments. Historic trends in actual spending for various periods as underlying Figure 8 on p. 35. http://www.europarl.europa.eu/RegData/etudes/STUD/2017/595356/IPOL_STU(2017)595356_EN.pdf iii EC (2016) Impact Assessment. The so-called ‘REF2016’ represents the latest business-as-usual scenario assuming all current (2016) existing and already planned policies will continue to be implemented in the future, but no additional efforts will be made. Figures converted from EUR’13 bn to EUR’15 bn. iv EC (2016) Impact Assessment. The so-called ‘EUCO30’ is the scenario that best represents achieving the latest set climate and energy goals of the EU, namely 40% GHG reduction, 27% RES share, 30% energy savings. Figures converted from EUR’13 bn to EUR’15 bn. v The remaining financing gap (based on a backward-looking baseline) can be defined as an order of magnitude indication of the additional investments that will need to be mobilised every year from public and/or private sources in order to achieve the European climate and energy targets by 2030; these financing gap volumes need to be realised in addition to what is assumed to be invested in any case annually based on the average historic annual spending levels that have been achieved already over the past 10 years. Therefore, this gap reflects only the amount for which additional efforts have to be made in terms of mobilising the finance. However, the total amount of finance needed annually per sector is much higher, i.e. the annual average historic spending amount plus the identified financing gap volume. vi The remaining financing gap (based on a forward-looking baseline) can be defined as an order of magnitude indication of the additional investments that will need to be mobilised every year from public and/or private sources in order to achieve the European climate and energy targets by 2030; these financing gap volumes need to be realised in addition to what is already projected to be financed under a business-as-usual pathway (i.e. projecting current financing volumes and existing policy measures into the future). Therefore, this gap reflects only the amount for which additional efforts have to be made in terms of mobilising the finance. However, the total amount of finance needed annually per sector is much higher, i.e. the business-as-usual projected spending amount plus the identified financing gap volume. vii Demand side: Investments on the demand side include energy equipment (covering appliances in households and tertiary sector, industrial equipment etc.) and direct energy efficiency investments (covering renovation of buildings improving their thermal integrity). Although not entirely accurate, it is the best order of magnitude figure currently available for representing the investments in energy efficiency. viii Figures for the transport sector are not available from the EP (2017) report. The EC (2016) Impact Assessment does include the transport sector. Here, the high numbers for transport (both for REF2016 and for EUCO30 scenarios) are due to the fact that this includes investments in transport equipment for mobility purposes (e.g. rolling stock but not infrastructure) as well as energy efficiency. They exclude investments in recharging infrastructure. However, the largest part of the additional investment needs (last column; EUR 31bn) between current versus needed investment levels for the transport sector can largely be attributed to clean energy investment needs. ix Supply side: Investments on the supply side (power generation) include grids as well as power generation (power generation plants and industrial boilers). x For both EP (2017) and EC (2016) ‘grid infrastructure’ includes distribution and transmission infrastructure. xi For both EP (2017) and EC (2016) ‘power generation’ includes power plants and steam boilers. xii It should be noted that a gap per se cannot go below zero, i.e. there is no financing gap if the current and/or estimated future investment levels are equal to or higher than the estimated needs. However, even for a sector where a zero additional financing gap is indicated, this this still means that current and/or future projected business-as-usual investment volumes into the specific sector (e.g. RES) will need to be achieved on an annual basis. xiii Breakdown RES/conventional from IEA WEO (2014): 75% RES for baseline; 80% RES for needs. xiv It should be noted that a gap per se cannot go below zero, i.e. there is no financing gap if the current and/or estimated future investment levels are equal to or higher than the estimated total investment needs. However, even for a sector where a zero additional financing gap is indicated, this still means that current and/or future projected business-as-usual investment volumes into the specific sector (e.g. RES) will need to be achieved on an annual basis. It should be noted that even an ‘overinvestment’ relative to the annual investment needs towards 2030 goals is certainly a very positive achievement when taking into account a 2050 perspective with power sector GHG reductions of about 98% and associated investment needs. xv It should be noted that a gap per se cannot go below zero, i.e. there is no financing gap if the current and/or estimated future investment levels are equal to or higher than the estimated needs. However, even for a sector where a zero additional financing gap is indicated, this this still means that current and/or future projected business-as-usual investment volumes into the specific sector (e.g. RES) will need to be achieved on an annual basis. It should be noted that even an ‘overinvestment’ relative to the annual investment needs towards 2030 goals is certainly a very positive achievement when taking into account a 2050 perspective with power sector GHG reductions of about 98% and associated investment needs.

State-of-Play of Climate Finance Tracking in Europe

The figures provided in Table 4-1 above are largely in line with other commonly referenced publications on financing gap estimations. . SWD IA (2016): the latest European Commission Impact Assessment accompanying the ‘Clean Energy for All Europeans’ policy package in late 2016 states the remaining financing gap (difference between REF2016 versus EUCO30 scenarios) to amount to 177bn EUR’13 on an annual basis between 2021 and 2030. This is essentially the same gap as identified in the forward-looking analysis for this report. The small variation in amounts is due to the conversion to EUR'15 units. . EP (2017): The investment needs and remaining financing gap estimations as provided in Table 6 of the recent European Parliament publication vary slightly from the ones provided in Table 4-1 above. This can primarily be explained due to the different timeframes used (EP (2017) goes up to 2050) and the fact that the EP (2017) publication was finalised prior to the publication of the ‘Clean Energy for All Europeans’ policy package. This means that the gap assessment in that report is based on the REF2016 (which was already available earlier in 2016) combined with the investment needs estimations from the previous European Commission Impact Assessment (2014), hence not the 2016 updated EUCO scenarios. . EIB (2016): The EIB in its ‘Restoring EU Competitiveness’ report states a remaining annual financing gap of 100 bn EUR’10. This lower order of magnitude in the total gap calculation can also largely be attributed to the fact that the EIB assessment has also been based on the older IA (2014) needs estimation.

Furthermore, Table 2-11 also allows for a disaggregated analysis of the total remaining financing gap split by mitigation action areas. What can be seen from the visualisation of this split (Figure 2-21) is that energy efficiency measures in private housing accounts for almost 50% of the total remaining mitigation financing gap, followed by energy efficiency measures in the building stock of the tertiary sector, energy efficiency measures in the transport sector, and to a much smaller amount in the RES and grid infrastructure sectors.

Figure 2-21 Total remaining financing gap (based on forward-looking baseline) split by mitigation action area

[Source: own development based on Table 2-11]

Though no reliable sufficiently disaggregated data currently exists on how this gap would likely need to be stemmed by the various sources of finance, it is possible to deduct a few indications as regards the

State-of-Play of Climate Finance Tracking in Europe

relative share of the various finance sources. Given the focus of the vast majority of the remaining financing gap around energy efficiency measures in the built-environment, the private sector – in particular small end-users in the form of households, as well as private companies as building owners – will have to play a crucial role in providing this additional finance on top of what is already considered business-as-usual investment volumes.

Nevertheless, there is no doubt that renewables will continue to play a major role in the transition to a clean energy system. To further encourage this transition, Europe has set itself a target to collectively reach a share of at least 27% renewables in the final energy consumption by 2030. The analysis presented in Ch. 2.1 confirms that Europe has successfully turned solar and onshore wind technologies from niche technologies into central players in the European power sector. Other types of clean energy sectors are likely to follow in these footsteps over the next decades to enter the market as fully established clean energy technologies. The ‘Clean Energy for all Europeans’ package has been notably set up to help further boost the investment in renewables over the coming years.

Finally, Box 2-18 provides a gap estimation based on the previously presented calculations for RES- electricity capacity investment needs, on the one hand, and the calculated current spending levels on the other hand.

Box 2-18 Calculation exercise: The remaining finance gap on RES-electricity investments on EU level Previously (see Box 2-5) the report presented a RES-electricity investment needs calculation on the EU level using data as provided by CEPA and the current (2015) EU28 investments using added capacity levels from IRENA (see Box 2-8). Additional information on the calculation method can also be found in Annex B, section 6.1.2 and 6.2.1.

For all renewable electricity technologies taken together the 2015 investments were estimated 46.0 bn EUR’15 in 2015. The investment level required between 2020 and 2050 to add RES-electricity capacity was estimated to lie between 20.0 and 30.0 bn EUR’15 annually. This indicates that no additional investments are required in the field of renewable electricity generation. In fact, the level of investments can be halved after 2015, as targets will already met with that level of investments. This could indicate that current investments into RES-electricity can possibly be redirected to other areas were additional finance is required.

An important note here is that the 46.0 billion is a snapshot of 2015. Especially as this exercise analyses additional capacity levels, the resulting investment levels may not best represent what has been invested in that year. Moreover, policy changes for example could influence the current situation in such a way that 2016 investment levels could either be much lower or much higher, i.e. the future trend cannot necessarily be extrapolated from the current spending levels.

Lessons learned

State-of-Play of Climate Finance Tracking in Europe

Comparing past added RES-electricity capacity levels to required future levels (combined with CAPEX data) allows to make a simplified gap assessment of RES- electricity investments. This study revealed that 2015 investments were double the amount of the required investments to reach EUCO30 targets until 2050. This surplus of around 16.0-26.0 bn EUR’15 could therefore be redirected to sectors where an investment gap is present, like for example the building sector. The 2015 level investments do not necessarily represent what can be expected after 2015, as this is just a snapshot and does not necessarily represent future expected investment levels.

A real challenge – but theoretically doable… In a recent study128, researchers conclude that the additional investments needed (2% of GDP annually) are a substantial amount, but is not impossible given the historical fluctuations in investment rates across Europe. In macro-economic terms, when looking at total annual investments into the European economy (gross capital formation), 10% of these would need to be in clean energy.129 For comparison, the annual military expenditures of EU Member States between 2005 and 2014 corresponded with 0.5- 2.5% of their respective GDPs.130

The publication of the European Commission’s proposed package to boost clean energy (2016 ‘Clean Energy for All Europeans’ Package)131 offers a comprehensive set of revisions and updates to existing policies and programmes combined with the introduction of some new initiatives in order to achieve the Union’s energy and climate targets set for 2030. The results of the accompanying impact assessments suggest that these measures would allow for a successful support of the clean energy transition and the associated investment challenge. In particular, the impact assessment concludes that the ‘Clean Energy for All Europeans’ policy package will help tackle investor uncertainty, increase cost- effectiveness, intervene against market failures, update the existing regulatory framework and increase citizen buy-in.

The EEA report on the ‘Trends and Projections in Europe 2016: Tracking progress towards Europe’s climate and energy targets’ confirms that to achieve the more ambitious longer-term energy and decarbonisation goals set by the EU for 2050, current efforts will have to be considerably stepped up. Further, the report confirms the “EU can achieve its 2030 target on renewables if the current pace across Europe is maintained. However, this will require additional efforts because regulatory changes affect investors’ confidence in renewables, while market barriers persist. Similarly, achieving the 2030 target on energy efficiency will require effective implementation of energy efficiency measures as well as a rapid change in consumer behaviour.”132

128 De Bruyn, Sander et al (2016). Investment challenges of a transition to a low-carbon economy in Europe. CE Delft. P.26 129 De Bruyn, Sander et al (2016). Investment challenges of a transition to a low-carbon economy in Europe. CE Delft. P.26 130 SIPRI (2015). Military Expenditure Database, Stockholm: Stockholm International Peace Research Institute (SIPRI). 131 https://ec.europa.eu/energy/en/news/commission-proposes-new-rules-consumer-centred-clean- energy-transition 132 EEA (2016). Trends and Projections in Europe 2016: Tracking progress towards Europe’s climate and energy targets.

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Box 2-19 Illustrative example of an EU fund contributing towards closing the remaining mitigation financing gap: estimated scale of EFSI2.0 contribution One way to assess the estimated scale of an EFSI2.0 contribution towards the remaining mitigation financing gap is by comparing the estimated remaining financing gap for delivering the EU’s climate and energy targets versus what the EFSI2.0 40% earmark policy measure: 40% of the EFSI ‘innovation and infrastructure window’ (which amounts to about EUR 350 billion combined EFSI and leveraged private/public finance when assuming the continuation of the current finance split between ‘Infrastructure and Innovation’ versus ‘SME’ windows)133 will be earmarked as mitigation-relevant investments: this amounts to EUR140 bn combined EFSI and leveraged private/public finance. Annually this translates to a total investment of ca. EUR 23.3 bn induced by the EFSI2.0 with a 40% earmark.

Table 2-12 Expected mitigation-relevant investment triggered via EFSI2.0 (in EUR bn) Total EFSI 2.0 Total EFSI ‘I & I Total EFSI for mitigation (40% Annual EFSI for by 2020 window’ by 2020 of total EFSI ‘I&I window) mitigation 500 350 140 23.3 [Source: own calculations based on current project pipeline database134]

According to the latest European Commission's projections, , the EU annual additional investments required over (2016-2030) to reach the EU’s 2030 climate and energy targets are 177 bn EUR’13 Therefore, a rough estimate would suggest that investments financed via EFSI could cover about 13% of overall additional investment needs to reach the EU's 2030 climate and energy target and objectives.

2.5.2 National level On the national MS level the remaining finance gap can be assessed for those countries where both financial needs and some reference flow is available. The difficulty of this type of gap assessment is that both types of investments need to be comparable in terms that they need to represent the same subjects. Most comparable are therefore figures presented in the same report, as they use the same methodologies to determine the investments needs and already invested flows. Below three types of gap assessments are presented which could be conducted (due to sufficient data availability) on the MS level using the information gathered on MS level as earlier presented in the sections 2.2.2, 2.3.2 and 2.4.2.

Remaining financing gap between reference and total investment needs scenarios Similar to the gap assessment presented in Table 2-11on the EU level, one can assess the gap on the national level for the studies which presented investment needs next to a reference scenario. This was at first the case for Belgium, reporting an annual investment need of 35.64 up to 50.96 bn EUR’13, as presented in Table 2-13 for five different decarbonisation scenarios. This analysis was constructed using the macroeconomic OPEERA model, covering the investment expenditures in the sectors: transport, buildings, power and industries. This analysis shows that at least EUR 2.7 bn needs to be mobilized

133 The total EFSI 2.0 is intended to amount to EUR 500bn. Of this amount, ca. 70% are allocated for the innovation and infrastructure window (based on percentage split between ‘SME’ versus ‘innovation and infrastructure’ windows of currently listed EFSI projects). Of this total amount for the EFSI ‘innovation and infrastructure window (ca. EUR 350bn), 40% would be earmarked for clean energy projects finance (amounts to ca. EUR 140bn). 134 http://www.eib.org/efsi/efsi-projects/index.htm .

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additionally yearly in order for Belgium to reach their 80% reduction scenario. In which sectors the gap is highest remains unfortunately unclear, as only aggregated figures are reported.

Table 2-13 Finance gap assessment for Belgium, comparing average yearly investments (2010-2050) in five decarbonisation scenarios to the reference scenario (in million EUR’13) EU Reference Core Behaviour Technology ‘High end’ integration scenario (80%) (80%) (80%) (95%) (87%) Investments 32 966 36 930 35 641 39 631 50 958 44 394 Difference with reference: + 3 964 + 2 675 + 6 665 +17 992 + 11 428 [Climact, Federal Planning Bureau & Oxford Economics (2016), Macroeconomic impacts of the low carbon transition in Belgium, presented in 2015 LCDS on ‘status of implementation’]

The Czech Republic reported a financial gap of 1400 bn CZK over 2020-2050. This translates to approximately 1.66 bn EUR135 annually. This is the difference between an 80% GHG reduction scenario by 2050 and the extrapolated State Energy Policy scenario136. This gap however includes more than solely capital investments. As fuel costs are in general lower in decarbonisation scenarios, partly weighing out high investment costs, we expect that the genuine capital investment gap is larger. This fact highlights why it is important to also assess certain benefits from fuel savings on top of the initial capital investments analysis.

Similar to the Czech Republic, the Netherlands also reported the financial gap itself separately in a very recent (2017) PBL publication on National energy costs in 2030137. The analysis used rather a bottom-up approach, estimating required investments of different sets of required additional ‘energy measure packages’. The results showed that 43% reductions in 2030 (on an 80% pathway to 2050) required 1.6- 2.5 bn EUR investments annually in 2030. 49% (on a 95% pathway to 2050) would require 3.5-5.5 bn EUR investments. As these investments are required on top of investments which can already be expected in a base scenario (as described in the National Energy Outlook 2016) 138, these investments represent the financial gap for mitigation investments in the Netherlands.

The investment gap as found for Belgium, the Czech Republic and the Netherlands look comparable in magnitude. Aside from the fact that the scope of the estimates differ, it remains complicated to compare these countries, as they are inherently different considering for example their economic situation, political environment (and accordingly climate targets) or the size of the country - and its population - itself.

Remaining financing gap between current actual spending and estimated total investment needs A second type of gap assessment to estimate additional required finance can be done by comparing the estimated investment needs to current or actual investment flows. Only comprehensive landscape assessments are suitable for this type of gap assessment, as one wants to compare estimated investment needs to the total current actual spending. However, even for the existing national climate finance landscapes this exercise has proven difficult, as elaborated in Box 2-20 for France.

135 Converted using the 2015 exchange rate of 27.28166 CZK/EUR as reported by OECD Data: https://data.oecd.org/conversion/exchange-rates.htm 136 Preliminary impact assessment (EIONET expert consultation) 137 Original document: Koelemeijer et al. (2017), Nationale kosten energietransitie in 2030, Den Haag: PBL 138 Original document: Nationale Energieverkenning 2016

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The issue of methodological differences is averted when comparing figures which are reported in the same studies and therefore use similar estimation methods. The current investment figures as reported in 2014 by the UK Department of Energy & Climate Change: ‘Delivering UK Energy Investment’ compared to the investment needs reported in the same study, do on the other hand give a good estimation of what needs to be acquired in addition to the mitigation efforts already in place currently. Notice that this is slightly different from a gap assessment which compares investment needs to reference scenarios. In their analysis they reported a total investment of 45 bn GBP’12 over 2010-2013 in electricity generation and networks, with another 100 required until 2020 (55.3 versus 122.9 bn EUR’12139). The gap can now be assessed by converting to average annual investments. This is presented in Table 2-14, including the investment gap for seven renewable electricity categories specifically.

Table 2-14 Gap assessment for the UK, comparing historical to required average annual investments (in bn EUR’12) Current Needs Gap

(2010-2013) (2014-2020) (2014-2020) Energy supply 13.83 17.56 3.73 - Renewables 8.88 7.03-8.78 (-)1.86-(-)0.10 - Onshore wind 2.34 0.65-1.02 (-)1.69-(-)1.32 - Offshore wind 2.12 2.85-3.74 0.72-1.62 - Biomass 1.94 0.88-1.04 (-)1.06-(-)0.90 - Marine 0.03 0.07-0.09 0.04-0.06 - Solar 1.97 2.09-2.28 0.12-0.32 - Hydro 0.06 0.07-0.09 0.01-0.03 - Other 0.43 0.39-0.42 (-)0.04-(-)0.06

These figures are specifically valuable as they allow to show the investment gap for seven individual RES-electricity technologies in the upcoming seven years. Interestingly, the conversion to annual average investments reveals that the annual investment needs into renewable electricity are slightly lower than the current investment levels, resulting in a negative investment gap of -1.86 to -0.10 bn EUR’12. Considering the individual sources this means that annual investments need to increase for the upcoming period at offshore wind especially, but also for solar, marine and hydro energy. The historical investment levels of onshore wind, biomass and ‘other’ renewable energy were on the other hand typically higher over 2010-2013. This indicates a slight shift within renewable energy investments, but it also indicates that more investments are required for the efficiency of electricity generation and the energy networks than prior to 2014.

139 Converted using the 2012 exchange rate of 55.32 EUR/GBP as reported by OECD Data: https://data.oecd.org/conversion/exchange-rates.htm

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Box 2-20 France: difficulties with comparability of data for the financing gap assessment The experts involved in drafting the French domestic climate finance landscapes over the past years have conveyed an important lesson-learned: even if a country has estimated investment needs data and current actual spending figures available, it is still not easy to compare these at face value in order to gather an order of magnitude for the remaining financing gap. Comparing investments covered in the Landscape report with those estimated as needed to implement the National Low-Carbon Development Strategy is challenging given the differences in perimeter and calculation methods applied. Due to these differences in scope and methodology, the experts chose to only estimate the financing gap for three sectors: the residential retrofitting, new housing and energy production sectors. The remaining financing gap for these three sectors amounts to approximately EUR 10-15bn per year in addition to the already realised EUR 16bn covered in the Landscape for these three sectors, in order to reach the average annual levels estimated as needed in the LCDS. The figure below illustrates this partial financing gap assessment.

Figure 2-22 Comparison of current actual spending with estimated investment needs to reach national climate objectives according to the national low-carbon development strategy (LCDS)

[Source: I4CE (2016). Landscape of climate finance in France, 2011-2014.]

Box 2-21 Calculation exercise : The remaining finance gap on RES-electricity investments on MS level In the former sections some calculation exercise was presented to make an estimation of the RES- electricity needs according to the 2020 NREAP plans including a 2030 projection and the current (2015) RES-E investments. This exercise showed that for all MS taken together, the current investment levels outweigh the future investment needs. Where current RES-electricity investments for additional installed capacity was estimated on 46.0 bn EUR’15 (Box 2-11), the needs between 2020 and 2030 were estimated to lie between 27.2 and 28.3 bn EUR’15 (Box 2-5). The top-down exercise showed similar investment needs and accordingly similar gap. The gap assessment on EU level was already discussed in Box 2-18 and concludes that this indicates that current investment levels for RES- electricity can almost be halved (or redirected to other mitigation areas), but caution is in place as 2015 levels do not necessarily represent future investments.

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Looking at the individual countries (comparison of Table 6-11 to Table 6-13) learns that for 15 countries the gap was found present, where needs were estimated higher than the 2015 investments. Figure 2-23 gives an indication of the financial gap in the MS, which shows the difference between the estimated needs (average between 2020 and 2030) and 2015 investment levels. The gap was largest in Spain, Italy and Romania. Specifically in the UK and Germany current levels far outweigh what is required annually between 2020 and 2030.

It is important to keep in mind that these figures should be viewed as an indication of the gap magnitude, as these exercises used simplified assumptions. Especially as the projections were based on possibly outdated NREAPs assessments, less importance should be laid on the individual figures. Especially for solar energy required 2020 capacities were already reached in 2015 and therefore corrected for to zero investment needs. As the total figure is comparable to the top-down exercise, the more aggregated figures are considered relevant, but technology investments on the MS level will not be discussed in further detail.

Figure 2-23 Indication of the finance gap

[Source: Own development according to calculation exercises as explained in Annex 6.1.2 and 6.2.1]

Remaining financing gap between planned public expenditures and total estimated investment needs At last the mitigation finance needs can also be compared to planned investments, to assess how much additional finance needs to be mobilised on top of the investments which are already planned. Planned investments are in general reported by (national) governments in terms of budgets, to show how they are contributing to – in this case – climate change mitigation. This assessment is therefore slightly different from a gap assessment which looks at business-as-usual scenarios as a reference of what can be expected to be invested in the upcoming year (without additional efforts). A reference scenario would include all sources of investments which can be expected in a business as usual scenario. If no such estimation is available, planned investments are an alternative type of reference. However, as national budgets are often the only publicly available type of reference flows, the difference with the total needs represent finance which needs to be mobilised on top of the pledged spending. The remaining gap therefore typically needs to come primarily from the private sector, but also EU-level funds and possibly local governments.

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With the available data such a gap assessment can typically be done for Slovenia, for which both costs of support and total investment figures required from 2010 to 2020 were reported in the 2010 National Renewable Energy Plan (NREAP). As was reported in the sections above, the investment needs for renewable energy over 2010-2020 were estimated on a grand total of 3 115 mn EUR, of which governmental support (in the form of subsidies) would cover 898 mn EUR. The gap - 2 217 mn EUR over the whole period – now represents what is required on top of the governmental support in the form of private sources mostly. Figure 2-24 shows the annual costs of support, required investments and the remaining finance gap for renewable energy (both electricity and heating & cooling) for eight different technologies. These figures show that especially for biomass a large part of the required investments is covered by supporting subsidies; for renewable electricity from biomass the subsidies even outweigh the required investments to reach the targets as described in the NREAP.

Figure 2-24 Remaining finance gap (annual average) for renewable energy sources in Slovenia between 2010-2020 (mn EUR), comparing costs of support to total investment needs (from NREAP, 2010)

A real challenge – but theoretically doable… Overall there is a clear willingness on MS level to learn more about how to calculate their remaining financing gaps based on the right type of input data. In general, LCDSs are gaining in importance and could serve as a relatively good starting point for locating relevant information sources per MS. Across MS only few impact assessments currently exist, and comprehensive domestic climate finance studies/landscapes are clearly lacking; these are required however in order to make a sound gap assessment, which in turn can provide the starting knowledge for developing a strategy intending to close the identified financing gap.

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Data and knowledge issues encountered

Aggregated total gap assessments are possible for a few countries by comparing the estimated needs to reference flows like a reference scenario, actual spending or planned flows. The following gaps were established here: . Belgium: 2.7 bn EUR’13 remaining gap annually over 2010-2050 compared to the reference scenario for the sectors transport, buildings, power and industries . Czech republic: 1.66 bn EUR remaining gap annually over 2020-2050 compared to the State Energy Policy scenario (including total energy-related costs) . The Netherlands: 1.6-5.5 bn EUR remaining gap in 2030, required for additional measures to reach 43-49% emission reductions in 2030. . United Kingdom: 3.73 bn EUR’12 remaining gap annually 2014-2020 compared to current (2010-2013) investment levels for electricity generation and networks. . France: 10-15 bn EUR remaining financing gap (in 2015) compared to landscape study for the three sectors of: residential retrofitting, new housing and energy production sectors . Slovenia: 0.202 bn EUR remaining gap compared to support costs for renewable energy sources For a meaningful gap assessment it is important to know what types of flows you are comparing. The chosen reference flow (business-as-usual scenario, current levels or planned flows) give distinctively different remaining gaps. It is specifically relevant to know what the ‘additional required investments’ involve, in order to formulate properly matching climate policies accordingly. The resulting gaps are comparable in magnitude, including the resulting estimates from our own calculation exercise. These do however cover a broad area, which therefore does not allow to show where additional efforts are specifically required. o Only for the UK a high disaggregated level was given, revealing slight shifts within renewable investments a shift from RES-electricity to other mitigation measures o Estimates as done by Slovenia revealed that investments on top of the support costs are least required for biomass technologies at both electricity and heating & cooling. o The RES-electricity calculation exercise also shows similar developments In general methodologies are incomparable, even with the most comprehensive landscapes. It is therefore recommended to base estimates which are presented in the same study, in order to assure matching methodologies and therefore comparability of data.

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3 Stock-taking of European adaptation finance information

Chapter at a Glance

This chapter presents all adaptation-relevant information gathered during the stock-taking exercise. Existing information on both European and Member State levels for the four different types of climate finance flows are presented. . Ch. 2.2 presents estimated adaptation investment needs . Ch. 2.3 presents existing information on actual adaptation spending (historic and current) . Ch. 2.4 presents any planned adaptation expenditure (mainly from public budgets) . Ch. 2.5 presents the remaining adaptation financing gap as identified by comparing the collected data from the previous sections. Encountered knowledge gaps are highlighted throughout the chapter.

Additionally, whenever relevant, case boxes are used to highlight a specific point in further detail or to provide specific examples.

3.1 Introduction

This chapter presents the results of the stock-taking exercise of European adaptation finance information. This means all accessed information and data related to adaptation finance flows, as well as corresponding knowledge issues are reported. For detailed information regarding the data collection and assessment methodologies, see Chapter 1.4. In a nutshell, the stock-taking exercise of European adaptation finance information focuses on both tangible infrastructure investments, as well as supporting intangible investments, such as for R&D or capacity building, relevant for adapting to anticipated climate change. This covers a wide array of relevant sectors in which the climate adaptation activities may occur (receive finance). All sources of finance are potentially relevant and therefore assessed; however, most emphasis is placed on tracking public sources since these currently provide the vast majority of adaptation finance.

The analysis (sub-sections) is presented per type of investment flow (investment needs, actual spending, planned expenditure, and remaining financing gap). Each sub-section first discusses results on EU level information before mapping the data availability across Member States. The data availability mapping has been scored along the following colour-coding140:

140 See Box 1-3 in Chapter 1.4.2 for a more detailed description of the results mapping.

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Each sub-section concludes by highlighting encountered knowledge issues.

It should be noted that for each section only the synthesised analysis results and key findings are presented. Additional supporting information is presented in Annex C.

3.2 Estimated investment needs

How much total investment is required to cope with the impacts of climate change?

As stated above, for each type of climate finance flow, the most relevant set of publicly available literature has been reviewed (primarily for information on European level). This has been complemented with feedback on Member State level collected via the EIONET survey. Estimated investment needs for adaptation include a wider spectrum of (partially) relevant cost-benefit type information in order to supplement the sparse sources that do provide overall estimates. It should also be noted that – contrary to mitigation investment needs – adaptation investment needs are pegged to a much vaguer European policy goal that cannot be quantified. This makes any assessment on the estimated investment need to achieve such a goal very difficult.

The main sources of information for the stock-taking exercise on adaptation investment needs include: EU level:  various estimates found in EU publications (7 key documents) to give an idea of the situation, not one complete; National level:  National Adaptation Plans / Strategies; and  EIONET survey results.

3.2.1 EU level The costs of climate and weather related natural disasters in recent years have increased. Weather and climate related damages in Europe between 1980 and 2013 were almost EUR 400 billion (EUR 393 billion, adjusted for inflation, in 2013 Euro values), on average EUR 11.6 billion per year, EUR 69,000 per square kilometre, or EUR 710 per capita (based on average population over the entire period 1980-2013).141 Only around 33% of the total losses were insured. Flooding, along with wind-related storms, is the most

141 Munich RE, 2014, ‘NatCatService Database’ (www.munichre.com/natcatservice). As a proprietary database, it is not publicly accessible. The period 1980-2013 is the entire Munich Re (MR) dataset provided to the European Environment Agency under institutional agreement (June 2014).

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important natural hazard facing Europe.142 A recent study by Jongman et al (2014)143 suggests that annual average economic losses caused by extreme floods could reach almost five times higher than 2013 values. These trends emphasise the urgency for action also on the issue of adaptation to climate change within Europe.

The EU Adaptation Strategy144, published in April 2013, is the main policy guidance document on European level aiming to deliver various climate adaptation related objectives. The Strategy is a powerful response to the climate hazards Europe is and will increasingly be facing. It demonstrates a dedicated long-term commitment to increase the resilience of the EU territory by enhancing the preparedness and capacity of all government levels to respond to the impacts of climate change. The EU Adaptation Strategy commits to delivering 3 Objectives, through the implementation of 8 Actions. These Objectives, and the associated Actions, are summarised in the table below. The Strategy also has a strong focus on sector145 aspects as well as actions taken at different levels (e.g. international, EU, national and sub-national action).

Table 3-1 Summarised overview of the key Objectives and Actions in the EU Adaptation Strategy

Objectives Actions 1: Encourage all Member States to adopt comprehensive adaptation strategies Promoting action 2: Provide LIFE funding to support capacity building and step up adaptation by Member States action in Europe. (2013-2020).

3: Introduce adaptation in the Covenant of Mayors framework (2013/2014). 4: Bridge the knowledge gap. Better informed decision-making 5: Further develop Climate-ADAPT as the ‘one-stop shop’ for adaptation information in Europe 6: Facilitate the climate-proofing of the Common Agricultural Policy (CAP), the Climate-proofing Cohesion Policy and the Common Fisheries Policy (CFP). EU action: 7: Ensuring more resilient infrastructure promoting 8: Promote insurance and other financial products for resilient investment and adaptation in key business decisions vulnerable sectors

In contrast to the mitigation challenge, however, the EU Adaptation Strategy does not provide specific nor quantified targets to work towards. The lack of such well-defined targets makes any attempt at a quantified assessment related to the Strategy very challenging.

In addition to the lack of a detailed target, the availability of estimations regarding the required investment needs associated with a successful transition to a climate-resilient Europe is very scarce. Partially, this lack of estimations can be related back to the large uncertainties associated with adaptation to climate change and consequently the associated costs.

142 ESPON (2013). “Natural hazards and climate change in European regions”, Territorial Observation no. 7, European Union ESPON, May 2013 143 Jongman, B., Hochrainer-Stigler, S., Feyen, L, 2014, ‘Increasing stress on disaster-risk finance due to large floods’. Nature Climate Change 4, 264–268. 144 http://ec.europa.eu/clima/policies/adaptation/what/documentation_en.htm 145 The Strategy makes explicit reference to the following sectors: Agriculture, Forestry, Biodiversity, Coastal areas, Disaster risk reduction, Financial, Buildings, Energy, Transport, Health, Water management, Marine and fisheries.

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Those estimates that do exist are often incomplete. According to the ECONADAPT146 research project, which carried out an in-depth analysis of available adaptation literature containing cost/benefit estimations, adaptation investment needs are also often underestimated.

Due to these inherent issues researchers are hesitant to present specific ranges of estimated adaptation finance needs. Additionally, often the objective of having such EU-wide estimates is not recognized as a necessity (such as is the case for mitigation), because climate adaptation is happening primarily on the local level and is very differentiated across a wide spectrum of possible measures, etc.147. Generally speaking, there is a better availability of global level estimates of investment needs for adaptation, or with a specific focus on developing countries. Additionally, other financial aspects of adaptation, such as (avoided) damage costs and operational costs are better covered across the literature than estimated investment needs (see Box 3-1).

This section highlights seven key studies, providing investment needs estimates required in Europe as a whole to adapt to the impacts of climate change. UNFCCC (2007), Investment and financial flows to address climate change; ClimateCost (2011), The impacts and economic costs of climate change in Europe and the costs and benefits of adaptation; Bruin, de et al. (2009), Economic Aspects of Adaptation to Climate Change: Integrated Assessment Modelling of Adaptation Costs and Benefits, OECD; Markandya, A. & Chiabai, A. (2009), Valuing Climate Change Impacts on Human Health: Empirical Evidence from the Literature; Ciscar et al. (2014), Climate Impacts in Europe. The JRC PESETA II Project; Forzieri et al. (2016), Resilience of large investments and critical infrastructures in Europe to climate change; and BASE (2016), EU-wide economic evaluation of adaptation to Climate change.

This selection of reports was done on the basis of comprehensiveness and date of publication. However, as mentioned above the availability of adaptation needs for Europe is not abundant. None of these studies give a full picture covering estimates for all identified adaptation categories (infrastructure, coastal zones, water supply and flood protection, agriculture, forestry & fisheries, human health, natural ecosystems and extreme weather events). Moreover, UNFCCC (2007) is a relatively old study, criticized as well148, but it is the earliest and most widely-cited reports, covering a comprehensive analysis of adaptation investment needs. Other reports which were amongst those reviewed, but are not further presented in this report, are: World Bank (2010), The economics of adaptation to climate change: Very comprehensive EACC study, therefore often quoted. However, it considers climate finance for developing countries in the ECA region (Europe & Central Asia), which therefore only partly overlaps our focus on EEA countries.

146 ECONADAPT (2015), ECONADAPT Policy Report 1: The Costs and Benefits of Adaptation 147 When speaking about climate change mitigation, on the other hand, action/or non-action in one Member State can affect the air quality and emissions in another country as well. 148 Parry et al. (2009), Assessing the costs of Adaptation to climate change. A review of the UNFCCC and other recent estimates. International Institute for Environment and Development and Grantham Institute for Climate Change, London.

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Agrawala et al. (2010), Plan or React? Analysis of adaptation costs and benefits using integrated assessment models: Uses a similar approach as Bruin et al. (2009) with IAMs. Does not report exact estimates, but reports investments only as % of GDP. Ciscar et al. (2011), Physical and economic consequences of climate change in Europe. Considers costs of not adapting, instead of investment needs to guard against the possible consequences of climate change.149 UNEP (2015), Adaptation finance gap report: This report focuses only on developing countries (globally), where the adaptation capacity is often lowest and the needs are the highest. BASE adaptation (2016) FP7 project: Provides only global estimated investment needs. New Climate Economy (2016), The sustainable infrastructure imperative: Financing for Better Growth and Development: Only global coverage.

The key documents selected here on estimated adaptation investment needs for the EU as a whole are especially difficult to compare as they cover different areas of adaptation; total estimates giving an overview on all areas of adaptation needs are lacking. Besides, the studies make use of different underlying models and timeframes, cover different geographical areas, use different financial costs as input data (see Box 3-1) and explore different future scenarios. As a result of these differences in scope the seven key studies offer a range of required investment needs estimations, presented in Table 3-2Table 3-2 EU-wide adaptation investment needs according to seven key documents.

Box 3-1 Explaining different financial aspects involved in adaptation finance This study focuses on the subject of investments; capital finance invested into the climate which need to be acquired in order to reach our climate targets. For adaptation, other costs are also of particular importance for this subject, commonly confused with the capital investments discussed here.

Damage costs: The opposite of the adaptation benefits are the damage costs from climate change. The damage costs would be the costs to rebuild a certain structure, whereas the benefits are the avoided costs of rebuilding, as the required adaptation measures were taken. Damage costs are more commonly reported on than the investment costs of adapting to agreed targets.

Cost-benefit analysis: Adaptation costs are often analysed simultaneous with adaptation benefits. The goal of this analysis is to show whether the costs of adapting outweigh the benefits. If this is the case, the investment should logically be carried out. A number of studies demonstrated that this is usually the case. Forzieri et al. (2014) used a cost-to-benefit ratio of 2.5 for infrastructure investments. Certain cost-benefit analyses are specifically common for easily monetisable aspects like infrastructure or coastal damages. When human health or natural ecosystems are the case of subject, this becomes more complex and ethical arguments may take over as the criteria to invest or not.

O&M costs: At adaptation it is common to include all expenditure costs within adaptation costs. However, this study is focused primarily on capital investments, not in operation and maintenance (O&M) costs. Forzieri et al. (2016) showed that only 30% of the expenditures of adaptation measures

149 It should be noted here that this is so to say a different part of the economic impact story, i.e. these types of cost figures are valuable to show what will likely happen in terms of response cost needs if no adaptation action is undertaken. Such figures when compared to adaptation investment needs figures can eventually help in the decision- making process of what activities to prioritise.

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for infrastructure consists of capital costs (see table below). It is however not common to report both cost items separately, as, for example, Ciscar et al. (2014) include O&M costs in their estimates of costs to adapt the European coast. For all other reports it remains unfortunately unclear whether the reported adaptation costs include O&M costs or not. One should take into account that these might cover a large part of the investments, presumably specifically the case for large tangible structures.

Capital cost now O&M costs Total cost of adaptation (bn €) (bn €/year) (bn EUR) 2011-2040 12 1.0 39 2011-2070 54 2.1 180 2011-2100 138 3.6 461

Lessons learned

Different analyses require different evaluation methods. ECONADAPT provides a more elaborate overview on their website150 on the different types of evaluation methods of costs which may be applicable for different types of assessments. Genuine investment costs – the case of subject of this study – may only represent a part of the analysis. It is important to carefully look into the cost figures as presented in a certain report and carefully assess what type of costs are represented.

With regard to the reported figures in these seven key studies, Markandya & Chiabai (2009) presented the lowest investment need, between 12-260 mn USD’00 annually between 2000 and 2030. These would however only cover adaptation measures in the human health in terms of diarrheal diseases, which is a small coverage of adaptation. Moreover, the timeframe is rather short. De Bruin et al. (2009) on the other hand present annual investment needs between 155 and 509 bn USD. The use of an exceptionally long timeframe (2025-2185) partly explains this height, as investment needs in general increase with time (when more climate change impacts are expected). Additionally, de Bruin et al. use a much broader scope, covering all sectors as available at Impact Assessment models. Annex 7.1 discusses more closely the methodological differences between the seven key documents and how they influence the estimates of required finance.

150 Methods ECONADAPT: http://econadapt-toolbox.eu/methods

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Table 3-2 EU-wide adaptation investment needs according to seven key documents (see Annex 7.1 for a methodological comparison)

Cumulative Average annual Source Geography Scenario Time horizon Unit Coverage investments investments UNFCCC (2007), Investment and financial OECD A1B - 26.8-39.6 Water supply, coastal zones (also in 2030 bn USD flows to address climate change Europe B1* - 7.9-10.9 maximum in 2080) and infrastructure 198 6.6 ClimateCost (2011), The impacts and A1B 525 17.5 2011-2040 economic costs of climate change in 858 28.6 Sea level rise, river floods and energy EU27 2041-2070 bn EUR** Europe and the costs and benefits of 192 6.4 (new air conditioning) 2071-2100 adaptation E1 351 11.7 498 16.6 All IA sectors: agriculture, other Base model 25 0.155 De Bruin et al. (2009), Economic aspects Western vulnerable markets, coastal, health, 2025-2185 tn USD of adaptation to climate change Europe non-market time use, catastrophic Higher damages 82 0.509 events and settlements (no split) Markandya & Chiabai (2009), Valuing S550 372-6 355 12-205 Europe mn climate change impacts on human health: S750 2000-2030 372-6 727 12-217 Human health (diarrheal diseases) (incl. CIS) USD’00 empirical evidence from the literature UE 372-8 060 12-260 2011-2040 ~30 1 Coastal impacts (dike building and Ciscar et al. (2014), Climate Impacts in A1B ensemble EU27 2041-2070 193 ~60 2 bn EUR’05 beach nourishments; no split), including Europe. The JRC PESETA II Project simulation 2071-2100 ~75 2.5 O&M costs Forzieri et al. (2016), Resilience of large A1B short 2011-2040 12 0.4 investments and critical infrastructures in EU+ A1B medium 2011-2070 54 0.9 bn EUR Critical infrastructures Europe to climate change A1B long 2011-2100 138 1.5 Range of two climate BASE (2016), EU-wide economic evaluation ~Europe and three socio- in 2050 - 32-56 bn USD’05 Floods, agriculture and health of adaptation to Climate change economic scenarios * For infrastructure the lower-bound scenario was based on Munich RE data, inherently different from the B1 scenario ** Investments are given here in constant 2005, 2006 and 2010 prices respectively for the areas sea-level rise, river floods and energy.

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The absence of comprehensive and comparable adaptation needs estimates is recognized by different studies, but the evidence base for national initiatives is growing as there is a clear demand for this type of information. This may as a matter of fact indicate that having such an EU-wide estimate is less relevant. With the growing demand for knowledge, different initiatives have been established to build the knowledge base, like CLIMATE-ADAPT, the European Climate Adaptation Platform. A recent study under the ECONADAPT (FP7) research project, has carried out a very elaborate literature review on economic analyses of climate change adaptation. In their extensive database151 detailed reports can be found covering cost estimates for all different adaptation areas. Considering overall European-wide estimates similar studies were cited here as presented in Table 3-2. Considering the overall knowledge availability, they conclude that the knowledge base moved beyond the focus of coastal zones to water management, floods, agriculture and the built environment. The areas ecosystems or even business, services and industry still lag behind. However, even ECONADAPT’s broad literature review across all adaptation-relevant fields did not deliver additional investment needs estimations on a comprehensive European scale (i.e. aggregated numbers).

Table 3-3 Coverage of the sectors in adaptation literature according to ECONADAPT152 Label Coverage Risk sectors Comprehensive coverage at o Coastal zones different geographical scales o Coastal storms and analysis of uncertainty o Floods (including infrastructure) o Water sector management (including cross- Medium coverage, with a sectoral water demand) selection of national or o Agriculture (multi-functionality) sectoral case studies o Over-heating (built environment, energy and health)

o Other infrastructure risks Low coverage with a small o Other health risks number of selected case o Biodiversity/ecosystem services studies or sectoral studies o Business, services and industry

3.2.2 National level Within the EU Adaptation Strategy, Member States are encouraged to adapt comprehensive adaptation strategies and associated National Adaptation Plans (NAPs). As a first point of entry in an attempt to look for financial data concerning climate adaptation investments, these National Adaptation Strategies/Plans of the EU-28 MS were screened. This scan (see Figure 3-1) shows that there are still a few countries which do not have – or do not report on – their National Climate Adaptation Strategy153. Latvia is expected to launch their adaptation strategy up to the 2030 in the middle of 2017. It must also be noted that three non-EU28 countries have voluntarily submitted adaptation strategies, to date: Norway, Switzerland and Turkey. Only the presented NAP by Turkey was available in English, but holds no investment figures.

151 Available on: http://econadapt-toolbox.eu/ 152 http://econadapt.eu/sites/default/files/docs/Deliverable%2011-3%20Policy%20Brief.pdf 153 Based on the reports available on the European Climate Adaptation Platform http://climate- adapt.eea.europa.eu/countries-regions/countries

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Interestingly, for Estonia a national adaptation strategy was made available through the EIONET survey, whereas it was not uploaded on the consulted database (EU Climate-Adapt Platform). Estonia’s strategy does include investment needs figures, hence the star indication despite not being available on the consulted database.

Figure 3-1 Status of reports on NASs available across Member States

Report includes investment needs figures

[Source: own development, map created with MapChart.net]

Figure 3-1 presents the availability of adaptation strategies across EU Member States, including an indication of the availability of estimated investment needs figures. The mapping indicates that only Estonia has indicated the availability of quantified figures of the total estimated investment needs required to adapt to their impacts of climate change. Where investment figures were reported, these are included in the relevant quantitative tables below.

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Data and knowledge issues encountered

Most MS have submitted their National Adaptation Strategy. However, this scan showed that there are still a few countries which do not have -or report on- their National Climate Adaptation Strategy154. Similar to the LCDS reports on the mitigation side, National Adaptation Strategies are reported in various forms (there is no one common template), under different titles (not always stating ‘climate adaptation’ on the main title) and are often only available in the national language. This is schematically shown in the figure above. Another important result of the analysis of the National Climate Adaptation Strategies, is that many of these reports do not include financial data. Of those that report any financial data, the most widely reported climate adaptation investment needs concern flood protection, and logically take place in the most vulnerable coastal countries, such as the Netherlands, Denmark- or islands – the UK and Malta.

Available investment needs estimates Figure 3-2 maps the level of data availability on estimated investment needs for domestic mitigation activities across Europe, as collected through the EIONET survey155, the scan of submitted NASs and additional desk research.156 A red label indicates that no data has been identified, a yellow label means data could not be verified (e.g. if survey respondents indicated availability, but reports are confidential), a light green label signals that some (but incomplete/patchy) data has been identified and finally a dark green label confirms the availability of comprehensive data detailing estimated investment needs related to set climate policy targets.157

It is important to keep in mind that this section only includes available figures which represent the required investments to reach a set policy goal. These are not necessarily equal to budgeted planned investments by the government, but rather include scenario explorations as done on the EU-wide level, e.g. via risk assessments (see section 3.2.1). A careful assessment on the found figures has been carried out to clarify – to the extent possible - what the figures present exactly. This explains why the survey responses do not necessarily match the analysis as presented here schematically in Figure 3-2 and more detailed in Table 3-2. Moreover, these results also include our desk literature research and the NAS findings, therefore representing the complete picture of data availability.

154 Based on the reports available on the European Climate Adaptation Platform http://climate- adapt.eea.europa.eu/countries-regions/countries 155 For the availability of estimated investment needs questions 4 and 5 of the EIONET survey were relevant (see Annex A). In Annex B the face-value survey results are presented. 156 It should be noted here that official documents submitted under the UNFCCC have not been scanned as part of the data availability search. They have been excluded from the scope given their primary focus on international climate finance. 157 A more detailed explanation of the assessment methodology can be found in Chapter 1.4.

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Figure 3-2 Availability of estimated domestic adaptation investment needs across EEA Member States

What can be concluded from the map is that the lack of adaptation investment needs estimations is significant across Europe: only two MS, namely Estonia and the Czech Republic, seem to have comprehensive adaptation investment needs estimations available, and another two MS (the Netherlands, Slovenia and Sweden) have partial data available on this topic.

Box 3-2 Estonia: the drafting process towards reporting comprehensive adaptation investment needs In 2016 Estonia finished its ‘Climate Change Adaptation Plan until 2030159. This plan is the final result of a careful review and drafting process. It started with a national climate change risks and vulnerability assessment for the most vulnerable sectors (8 prioritised sectors). The sectoral assessments were led by research organizations, bringing together scientists and representatives from the public and private sector in working groups, in order to share knowledge and discuss suggestions for adaptation activities and their cost figures. Based on the results of this analysis, the national climate change adaptation strategy „The Development Plan for Climate Change Adaptation until 2030“ and the National Action Plan until 2020 have been developed. In the Action Plan the measures for adaptation with the concrete activities are determined (sectorial measures and activities with estimated cost for the periods 2017–2020 and 2021–2030). According to estimations, financing of the amount of 43 745 000 EUR is needed in the period from 2017–2030 for implementing the National Climate Change Adaptation Strategy and associated Action Plan. These

158 For further information on the data availability scoring, see methodology chapter. 159 Original document: ‘Kliimamuutustega kohanemise arengukava aaastani 2030’. http://www.envir.ee/et/eesmargid- tegevused/kliima/kliimamuutustega-kohanemise-arengukava

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cost estimations are specified in Section 6 of Estonia’s Climate Change Adaptation Plan 2030 (p. 42/43). For the period 2017–2020 the financing needs are estimated at 6 700 000 EUR. The financing resources are coming from the state budget (mainly in the budget of the Ministry of the Environment, but also in the other ministries budgets depending on the measures, i.e. climate mainstreaming), from the Environmental Investment Centre Environmental Programme and also from foreign investments (EU structural funds, EEA grants). Investments to the bio-economy (incl. agriculture, forestry, fishery, hunting, tourism, peat production) and natural environment (incl. biological diversity, terrestrial ecosystems, freshwater ecosystems and environment, the Baltic Sea and marine environment, ecosystem services) sectors are expected to take the largest part of total funding.

Nevertheless, a positive trend in terms of the interest to develop such investment needs estimates can be observed from the EIONET survey as several of the respondents have indicated potential availability of (upcoming) information. These include:  Croatia: The National Adaptation Strategy is currently being developed and will be published in November 2017. As part of this strategy an estimation of needed financial resources for adaptation activities will be carried out.  Finland: The National Adaptation Strategy of Finland extending to the year 2020 states that all sectors should quantify their own investment needs and prepare separate cost/benefit analyses to support decision-making. As data gathering and analysis has proved difficult, none of these analyses is completed as of this moment.  Greece: Not yet verified (under translation) as report is in local language. (Ministry of Environment & Energy (2016) Address climate change and air quality - National strategy for climate change adaptation160). If the respondent could guide us to the relevant section of the report, this would be much appreciated.  Latvia: The country is actively working on its upcoming adaptation strategy up to 2030, which will be launched mid-2017, which will hold extensive cost-benefit analysis for the next 50 years.  Turkey: Information may be available in the upcoming ‘Revision Study of the National Environmental Strategy’ document.

Table 3-4 presents those adaptation investment needs estimations that have been reported, including a short clarification on the scope of the figures. It should be noted here that this data is reported to provide an indication of the type of available figures on estimated investment needs on a national level. The orders of magnitude provide an initial indication of where countries need to head towards, but are not comparable between each other at face value given the wide range in scopes and level of detail, etc.

160 Original document: ΥΠΟΥΡΓΕΙΟ ΠΕΡΙΒΑΛΛΟΝΤΟΣ & ΕΝΕΡΓΕΙΑΣ (2016) ΔΙΕΥΘΥΝΣΗ ΚΛΙΜΑΤΙΚΗΣ ΑΛΛΑΓΗΣ & ΠΟΙΟΤΗΤΑΣ ΤΗΣ ΑΤΜΟΣΦΑΙΡΑΣ - ΕΘΝΙΚΗ ΣΤΡΑΤΗΓΙΚΗ ΓΙΑ ΤΗΝ ΠΡΟΣΑΡΜΟΓΗ ΣΤΗΝ ΚΛΙΜΑΤΙΚΗ ΑΛΛΑΓΗ

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Table 3-4 Available data on estimated adaptation investment needs on Member State level Country Cumulative Unit Timeframe Average annual Source National Adaptation Action Plan, adopted in January 2017 (EIONET expert 1303 mn CZK 2017-2020 325.75 consultation) Czech Republic Coverage: The costs as presented in the 2017 National Adaptation Plan to implement the highest ‘priority 1’ measures (834 mn CZK), additional ‘priority 2’ measures (415 mn CZK) and on top of that 54 mn CZK for education and public awareness in the area of adaptation. 43.75 mn EUR 2017-2030 3.12 Ministry of the Environment (2016), Climate Adaptation Plan 2030161 Coverage: Public funding required to implement the Climate Adaptation Plan 2030 at eight prioritized sectors (health & rescue capability (5.6 M€), land use & Estonia* planning (6.6 M€), natural environment (6.0 M€), bio-economy (16.9 M€), economics (1.0 M€), society, awareness & cooperation (7.1 M€), infrastructure & buildings and energy & security (0.3 M€)). From 2017-2020 yearly adaptation needs are distinguished, coming to a total of 6.7 mn EUR cumulative. See also Box 3-2. The latest ‘Inter-institutional Action Plan of 2016 and relevant sectorial 972 mn EUR 2013-2020 121.5 development plans (EIONET expert consultation) Lithuania Coverage: Costs cover ‘measures for adaptation to climate change’. Figure was separately provided through survey response, unclear how comprehensive the scope of this estimate is. Adaptation policies will cost ‘several billions of Euros’ in the WUR (2007), A qualitative assessment of climate adaptation options and Netherlands. some estimates of adaptation costs Netherlands Coverage: Summarizes costs and benefits of various adaptation options to respond to climate change. The study is already 10 years old and does not provide a concrete investment needs estimate nor a clear timeframe (therefore labelled light green). Draft version of the National Strategic Framework for adaptation to 96.9 bn EUR 2016-2050 2.77 climate change162 (EIONET expert consultation) Slovenia Coverage: No real comprehensive review of adaptation costs exists. The figure presented here covers additional investments required to safeguard against flooding: 1.7 bn EUR annual until the first decade after 2020, until the first decades after 2050 this is expected to grow to 3.4 bn EUR annually. Such measures can be highly cost-effective. Swedish Commission on Climate and Vulnerability (2007), Sweden facing Sweden 10 bn EUR 2010-2100 0.11 climate change – threats and opportunities.

161 Original document: Keskkonnaministeerium (2016) Kliimamuutustega kohanemise arengukava aaastani 2030 162 Original document: Ministrstvo za okolje in prostor (2016) Osnutek Nacionalnega strateškega okvirja za prilagajanje podnebnim spremembam

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Coverage: Estimated costs for Sweden to prevent damages to society related to flooding, erosion and land-slides in priority high risk/high cost areas. The estimate was based on roughly 30-50% (the part designated to national funding) of the current annual needs during a ten year period in identified areas in the report subdued to high vulnerability of climate change (high risk) combined with large damage costs. According to the more recent SMHI study163, adaptation costs in the cities will amount 100-300 mn SEK annually. This figure was a proposal from the Commission in 2007 for a new national budget area.

163 Original document: SMHI (2015), Underlag till kontrollstation 2015 för anpassning till ett förändrat klimat

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Data and knowledge issues encountered

The following initial conclusions on encountered knowledge issues can be drawn: There is a precedent of existing adaptation investment needs estimates from which others can learn, namely Estonia, Sweden and the Netherlands.

Looking across the different types of investment flows covered in this stock-taking exercise, estimated adaptation investment needs reveal the largest data and information gaps across all sources of finance. This can be flagged as a rather concerning knowledge issue as it is deemed rather crucial to at least try to get a better grasp as to the overall anticipated costs for achieving set policy goals. According to a recent literature study by ECONADAPT under the FP7 research project, the evidence on cost estimates is growing particularly on the national level164. Studies in general tend focus on a certain risk sector, which tend to move beyond coastal zones only.

 One of the important shortfalls even of those MS that do provide investment needs estimations is that they do not give an indication on how much of the burden the private financing sources should carry. Only the UK’s NAP at least emphasises the importance of thinking about how to mobilise the private sector financing sources more for adaptation purposes (see Box 3-3).

Box 3-3 UK NAP emphasis on the importance of bringing in private finance for adaptation The National Adaptation Plan (NAP) demonstrates how the government is beginning to place greater importance on mobilising private finance for adaptation. In its NAP the government states: “If adapting to climate change is in the private interests of an individual and an organisation then it should occur naturally and without the government’s intervention (except in areas of the government’s responsibility). This is already happening in some cases. However, barriers to adaptation do exist. To take advantage of the economic and social benefits of adaptation we need to overcome these barriers. Recent research identifies these barriers and the role of the government.

3.3 Actual spending

How much is already being invested in climate adaptation?

The next type of adaptation finance flow to be assessed in terms of data availability is actual spending. This category aims to report on what is already being invested in climate adaptation. Actual spending

164 Available on: http://econadapt-toolbox.eu/

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takes into account historic investment trends, current (most recent available year), as well as reference flows – all eventually serving as a baseline to compare with the future estimated investment.

The analysis on the current state of information regarding actual spending is based on the following primary sources:

EU level:  Court of Auditors Report on EU Budget spending (combined mitigation & adaptation);  Other supporting elements from the wider literature review; National level:  Three existing domestic landscape studies; and  EIONET survey results.

3.3.1 EU level The actual EU Budget spending for the 2014-2016 period has been described in section 2.3.1 above. Since the EU Budget is currently reported jointly for both mitigation and adaptation measures, please refer to this previous section. The table below provides an estimated split of the actual EU Budget spending for adaptation measures based on expert judgment.

As can be seen from the table, approximately 63% of the total climate-relevant EU Budget is currently being spent on adaptation measures on average in the period of 2014-2016.

Table 3-5 EU Budget for current spending, split for adaptation-relevance

EU BUDGET (in EUR bn; rounded) 2014 2015 2016 2014-2016 Avg. annual EU budget total (EUR bn) 118 159 151 428 143 Climate-relevant part of EU Budget (EUR bn) 16 28 32 76 25 Adaptation total (EUR bn) 10 18 20 48 16

Adaptation as share of total EU Budget 9% 11% 13% Adaptation as share of climate-relevant EU Budget 63% 63% 63%

As regards an overall estimation on total (from private and public sources) spending trends on European level it should be noted that experts have indicated that it may not be that important to develop such a figure as adaptation occurs locally. Even on a national level this might counteract having a national estimate of spending as the information is so scattered and disaggregated. Nevertheless, in order to eventually fill in the full picture of a European domestic climate finance landscape, these local spending would eventually need to be aggregated on national and then to a European level.

3.3.2 National level Figure 3-3 maps the data availability on actual adaptation spending across MS. The mapping indicates that only a handful of countries were able to provide partial information on actual adaptation finance flows in their country. Even though Belgium is the only identified MS that has engaged in a detailed review of its current adaptation finance flows as part of its landscaping exercise, the scope of the reported financing volumes is very narrow due to a lack of data availability.

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Figure 3-3 Availability of actual adaptation spending data across EEA Member States

Similar to the data and information gaps on adaptation investment needs, the stock-taking regarding knowledge on actual adaptation spending is not much better developed.

Where some patchy actual spending figures were reported, these are included in the relevant quantitative table below.

165 For further information on the data availability scoring, see methodology chapter.

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Table 3-6 Available data on actual adaptation spending on Member State level Average Country Cumulative Unit Timeframe Source annual Ministry of Agriculture, Forestry, Environment and Water Management (2012), The Austrian strategy for 12 mn EUR 2008-2010 4 adaptation to climate change (NAS submission) Austria Coverage: A total of 74 projects commissions under the Austrian Climate Research Programme (ACRP), with a thematic focus ranging from research on the effect of climate change and resulting adaptation requirements, to inter- and transdisciplinary vulnerability studies and risk management approaches. -- mn EUR 2013 302 Trinomics & EY (2016). Belgian Landscape of Climate Finance. Coverage: Belgian climate adaptation investments in 2013 were limited, based on the slow development process of the federal and regional adaptation plans. Tangible climate adaptation activities in 2013 include only public investments in water management and flood control by the Flemish waterway operators. The scope of climate adaptation activities is narrow (only flood control was considered in 2013). This explains the limited amount of tangible adaptation investments in 2013: EUR 45 million in 2013. Activities related to Belgium increasing local resilience to climate impacts and preparing for changing climate hazards are mostly situated in the readiness phase (R&D and consultancy) rather than actual implementations. Intangible climate adaptation activities, on the other hand, are reflected in the amount of climate services related to climate adaptation (R&D, engineering and consultancy activities): the total climate service related cost EUR 258 million in 2013. Climate services will leverage further climate adaptation investments. 59 mn DKK 2007-2008 59 The Danish Government (2008), Danish strategy for adaptation to a changing climate (NAS) Denmark Coverage: The 2008 NAS submission reported investment figures relevant to climate research only. Considering adaptation, 20 mn DKK over 2007/2008 was designated for maritime environment research with a focus on climate adaptation and 39 mn DKK in 2007 for healthy and safe food research. The latest ‘Inter-institutional Action Plan of 2016 and relevant sectorial development plans (EIONET expert 221 mn EUR 2014-2016 73.67 consultation) Lithuania Coverage: Costs for ‘measures for adaptation to climate change’. Figures were separately provided through survey response, unclear how comprehensive the scope of this estimate is. No adaptation finance originates from the Climate Change Special Programme, this only covers mitigation measures. Geloof & Kruik (2012), Adaptation and mitigation expenditures due to climate change of the general government 8.04 mn EUR 2007-2010 2.01 2007-2010 Netherlands Coverage: Flood control-related expenditure of the general government, split up for central (2.61 M€), provinces (0.42 M€) and municipality (5.02 M€). Not all flood expenditures are adaptation- related. Adaptation is more than just flood control. However, according to several experts from Wageningen University, flood control covers about 90% of adaptation needs in the Netherlands. 21.60 mn EUR 2015-2016 10.8 Expert consultation (EIONET survey) Spain Coverage: Under PIMA ADAPTA in 2016 12.1 M€ was spent on 46 actions developed in coastal areas, the public water sector and national parks. In 2017 9.5 M€ investments were planned which additionally included the biodiversity foundation, but excludes coastal areas.

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25 mn SEK 2015 25 SMHI (2015), On the 2015 checkpoint for adapting to climate change (Klimatologi Nr 12, 2015)166 Sweden Coverage: Current available funds for municipalities to apply for support to avoid natural hazards. United 5.2 mn GBP 2015 5.2 Defra (2013), The National Adaptation Programme – Making the country resilient to a changing climate Kingdom Coverage: Grant scheme launched by Defra to support community-led projects to improve resilience to flooding. 4 mn GBP from Defra, 1.2 mn GBP from councils.

166 Original document: SMHI (2015), Underlag till kontrollstation 2015 för anpassning till ett förändrat klimat

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The following box highlights some lessons that can be learned from the only identified case on national level that has attempted to track detailed information on adaptation finance volumes.

Box 3-4 Belgium : lessons learned regarding the tracking of adaptation spending Generally speaking, there is nearly no information available related to adaptation due to the reason that most of climate adaptation related activities are still in the planning phase (the reason why in the French and the German case it is left out).

Due to this information availability issue, the Belgian study focused primarily on infrastructure investments to flood control by adjusting dike heights and the construction of flood gates and flood reservoirs. Consequently, most of the adaptation related investments are currently made under the section climate services (e.g. R&D and consultancy expenses).

Data and knowledge issues encountered

Several take-home messages can be synthesised from the stock-taking exercise on data availability levels for current adaptation spending: It should be noted that many MS (in the survey) indicated that they did not have an aggregated figure due to the fragmented nature of adaptation activities (local, in municipalities). The handful of countries that did report figures were only able to report very patchy information that does not allow for sizing up the overall adaptation investment volumes per MS.

Similar to the investment needs and planned expenditure figures, there are a few sectors that are more dominantly covered in existing tracking exercises than others. The best covered sectors are flood/water management and coastal protection, whereas health, agriculture and extreme events are not yet included for the majority of the available data.

Based on the detailed tracking exercise carried out for Belgium, there is an indication that most adaptation spending is currently used for intangible investments in R&D and other services – even for the infrastructure and coastal management.

3.4 Planned expenditure

How much is planned to be invested in climate adaptation in the future?

This section covers the stock-taking of all information related to planned future adaptation expenditure. Most of the information available on planned future spending stems from public budgets – both on EU level as well as for Member States. There are no total (incl. private) planned expenditure

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figures available. This is not however a data availability gap but rather the nature of this type of financing volume: the private sector financiers typically do not use budget planning over a given future period as a tool. Nevertheless it is interesting to gain a better understanding on planned expenditure – even if only covering public sector financiers – in order to gauge the future direction of public sector efforts.

The analysis on the current state of information regarding planned expenditure is based on the following primary sources:

EU level:  Court of Auditors Report for EU Budget figures (combined mitigation & adaptation) for the 2018-2020 period;  Other supporting elements from the wider literature review; National level:  National Adaptation Plans; and  EIONET survey results.

Furthermore, it should be noted that those countries that have based their planned expenditure in detail on their National Adaptation Plans, it has been assumed that the planned expenditure is equal to the estimated investment need. The only ‘issue’ with interpreting this is that it appears as if there is no need for private finance for adaptation. This is not true of course, but given the fact that many adaptation-related measures are often also a matter of national safety, etc. and has primarily been provided by the public sector in the past, the governments therefore plan for meeting the total needs; however, where and whenever private finance comes in, this frees up government resources for additional adaptation measures or other activities.

3.4.1 EU level The planned EU Budget expenditures have been described in section 2.4.1 above. Since the EU Budget is currently reported jointly for both mitigation and adaptation measures, please refer to this previous section. The table below provides an estimated split of the planned future EU Budget expenditure for adaptation measures based on expert judgment.

As can be seen from the table, approximately 63% of the total climate-relevant EU Budget is anticipated to be spent on adaptation measures in the period of 2017-2020.

Table 3-7 EU Budget – planned adaptation expenditure (based on estimated adaptation/mitigation split)

EU BUDGET (in EUR bn; rounded) 2017 2018 2019 2020 2017-2020 Avg. annual EU budget total (EUR bn) 154 157 160 164 635 159 Climate-relevant part of EU Budget (EUR bn) 30 31 32 32 125 31 Adaptation total (EUR bn) 19 19 20 20 79 20 Adaptation as share of total EU Budget 12% 12% 13% 12% Adaptation as share of climate- relevant EU Budget 63% 63% 63% 63% [Source: own development based on EU Budget under MFF 2014-2020]

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3.4.2 National level Figure 3-4 maps the data availability on planned future adaptation-related expenditure across MS. The mapping indicates that only about a handful of countries were able to provide partial information on planned expenditure in their country. Two countries (Estonia and Germany) have provided a detailed assessment on their planned budgeting.

Figure 3-4 Availability of planned adaptation expenditure data across EEA Member States

The mapping of the stock-taking results indicates a slightly better availability of planned future expenditure on adaptation measures in Northern Europe. Box 3-5 highlights a specific approach applied by the Netherlands to finance and budget its planned public adaptation expenditure via a dedicated fund set-up. There may be even some more detailed information available for some of these countries with partial data availability as indicated by the survey responses:  Denmark: Respondent indicates data availability on the level of municipalities, which were required to make their own national adaptation plans.  Ireland: Budgeting on annual and multi-annual levels are carried out by the Local Authorities and the Office of Public Works in Ireland, where the adaptation projects itself take place. Request whether an order of magnitude of these numbers can be made public.  Latvia: Respondent indicated that a comprehensive study on adaptation funding is currently being executed for the six most vulnerable sectors. This research includes an analysis of primary & secondary climate change impacts, a risk & vulnerability assessment and a cost-

167 For further information on the data availability scoring, see methodology chapter.

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benefit & cost-effectiveness assessment of adaptation measures. The study is scheduled to be completed by March 2017. Is this already available? Depending on the actual methodology applied and figures available, this may actually be an investment needs estimate rather than planned expenditure.  Sweden: In a 2015 follow-up report168 to the Swedish Commission on Climate and Vulnerability Report (2007)169, confirms that most adaptation-relevant investments are made as an integrated part of other investments (and as a result are still difficult to track). In addition, there is reason to believe that future needs are not met due to fact that the financial responsibility is not clear in all areas. Examples for this are given in the 2015 report in section 3.4 on financing, section 7.1 on how Sweden measures on the 5 areas in the EU scoreboard of adaptation, chapter 9 on the status of preparedness in different societal sectors since 2007. The 2015 update report also outlines a possible structure for how a Swedish national adaptation plan can be operational. o In parallel, there is an ongoing national commission, Ett stärkt arbete för anpassning till ett förändrat klimat, Dir 2015:115, on how to clarify the responsibilities of local, regional and national governments as well as private actors in term of climate adaptive investments and planning. The commission will present its results on May 31, 2017.

Box 3-5 The Netherlands: using a dedicated fund structure to finance national adaptation efforts The Netherlands is a low-lying, flood-prone country. The government wants to protect the land against flooding and to secure freshwater supplies, now and in the future. In order to prevent a repetition of the 1953 flood disaster and of river flooding, as in the 1990s, the Dutch government designed the Delta Programme which is carried out jointly by various public authorities and (semi-) private organisations. In 2008, it was agreed that the Delta Programme needs a statutory basis, which resulted that the statutory agreements of the Delta Programme are set out in the Delta Act since 2011 (evaluated in 2016). The Ministry of Infrastructure and the Environment is the responsible national authority oversees the implementation of the annual work programme, under the supervision of the nominated Delta Programme Commissioner.

With the Delta Programme having a statutory basis nowadays, a Delta Fund has been established which should fund the activities and actions under the (annual) Delta Programme. The Delta Fund contains financial resources which the central government has earmarked to fund investments in flood risk management, freshwater supply, and water quality, and the associated management and maintenance by the central government. The annual work programme for the Delta Programme, together with the provisional spending under the Delta Fund, needs to be presented by the Delta Programme Commissioner and approved by the Dutch Parliament after the presentation of the annual State Budget (i.e. ‘Prinsjesdag’).

The Delta Fund receives funding from the national state budget, and currently the financial resources have been secured up to and including 2030. For the 2017-2030 period, around EUR 16.3

168 Swedish Commission on Climate and Vulnerability Report (2015), Underlag till kontrollstation för anpassning till ett förändrat klimat. http://www.smhi.se/polopoly_fs/1.86326!/Menu/general/extGroup/attachmentColHold/mainCol1/file/Klimatologi%20Nr% 2012.pdf 169 For more information on this report, see Swedish information in section 2.2.2.

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billion will be available, which generates an average annual budget of close to EUR 1.2 billion170. For 2017, close to EUR 905 million is budgeted under the Delta Fund, with the remaining budget being in a not-allocated pool for unexpected expenditures and/or programme/policy potential cost items.

Next to the Delta Fund funded by the central government, the district water boards are responsible for funding the improvement of the primary flood defenses, following the Water Act. In the 2016- 2019 period, the aggregate district water boards expect to invest a total of EUR 5 billion. Together with the investments from the Delta Fund, this comprises more than 90% of the public-sector investments in climate adaptation needs in the Netherlands171.

The central government has reinforced the financial foundation of the Delta Programme, by extending the Delta Fund up to and including 2030. Assuming that the annual programme budget remains available via the Delta Fund between 2031 and 2050, approximately EUR 23 billion will be made available via the national budget.

The next table presents those quantified planned expenditures that have been identified across MS.

170 https://deltaprogramma2017.deltacommissaris.nl/viewer/paragraph/1/1-delta-programme-/chapter/delta- fund/paragraph/1-resources-from-other-partners 171 Expert opinion Wageningen Environmental Research

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Table 3-8 Available data on planned adaptation expenditure on Member State level Country Cumulative Unit Timeframe Average annual Source 2.7 mn DKK 2012 2.7 How to manage cloudburst and rain water – Action plan for a climate-proof Denmark (2012) Denmark Coverage: Denmark’s submission of their National Adaptation Action Plan (similar to the NAS) includes various figures related to adaptation investments, but a clear coverage of these figures is often lacking. The most concrete figure is presented here, involving granting to eight projects where local partners collaborately create adaptation solutions. 43.75 mn EUR 2017-2020 3.12 Ministry of the Environment (2016), Climate Adaptation Plan 2030172 Coverage: The Estonian National Adaptation Strategy and action plan provides on estimation regarding planned expenditure between 2017-2020 and up to 2030, split out for five Estonia responsible ministries. For the period 2017-2020 6.7 M€ is budgeted, of which the national budget expenditure represents 3.31 M€, and is supported by external sources among which the Environmental Investment Centre Environmental Programme and EU public sources amounting to 3.39 M€. Over the long timeframe (2017-2030) this split is: 23.4 M€ to 20.3 M€.

Ministry of Economic Affairs and Employment of Finland (2017), Government report on the National Energy and 363.08 mn EUR 2017-2020 90.77 Climate Strategy for 2030. The figures have been calculated based on tables 1 and 2 of Chapter 4.3 Finland Coverage: 9.28 mn EUR is covered by the intangible ‘advice’ measure. The remaining 353.8 mn EUR consists of the following tangible budget lines: balanced use of nutrients, incorporation of slurry into fields, control of runoff waters, environment management grasslands and wetland management. Deutsche Bundesregierung. Fortschrittsbericht zur Deutschen Anpassungsstrategie an den Klimawandel 1 680 mn EUR 2016-2020 336 (16.11.2015); Anhang 3 des Fortschrittsberichts, Aktionsplan Anpassung II Coverage: The timeframe of the update runs until 2020. So the measures that have been taken into account here are between 2016 and 2020. What is important to keep in mind is Germany that the quantified planned investments must represent only a share of the actual public investment into climate adaptation: approximately half of the measures listed in the plans currently do not have a financial indication attached (it is only mentioned that they are included in the relevant ministries’ budget line). The most important adaptation measure is the GAK Special Framework Plan on Coastal Protection Measures due to Climate change, granted 37.5 M€ annually in the accelerated implementation plan as presented in the 2011 NAS173. 5 bn EUR 2016-2019 1.25 Delta Programme 2017 Netherlands Coverage: Delta fund for water safety and fresh water supply. Together with funding from the district water boards for primary flood defences (5 billion over 2016-2019) these funds comprise 90% of the public sector investments in climate adaptation (see case study Box 3-5). 6.4 mn NOK 2017 6.4 Environment Agency (2017), Subsidies for climate adaptation174 Norway Coverage: Subsidy for municipalities to finance knowledge building and studies for specific climate adaptation measures.

172 Original document: Keskkonnaministeerium (2016) Kliimamuutustega kohanemise arengukava aaastani 2030 173 Adaptation Action Plan of the German Strategy for Adaptation to Climate Change adopted by the German Federal Cabinet on 31st August 2011 174 Original document: Miljødirektoratet (2015), Tilskudd til klimatilpasning (available on: http://www.miljodirektoratet.no/no/Tema/For-offentlig- sektor/Tilskuddsordninger/Tilskudd-til-klimatilpasning/)

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700.00 mn EUR 2014-2020 100.00 Ministry of Environment (2016), Information on Senate Committees175 Poland Coverage: Adaptation measures under the Operational Programme Infrastructure and Environment (2014-2020), with support from the National Fund for Environmental Protection & Water Management and the Coordination Centre for Environmental Projects. 2.45 bn GBP 2012-2015 0.61 Defra (2013), The National Adaptation Programme – Making the country resilient to a changing climate United Coverage: Investments in flood and coastal erosion risk management, as elaborated in the 2013 NAS. 2.3 bn GBP comes from the government itself; private and local council funding of Kingdom 148 mn GBP already came forward as of 2013 to pay for flood defences. The risk assessment also shows that 1 bn GBP of economic benefits is potentially delivered.

175 Original document: Ministerstwo Srodowiska (2016) Informacja na temat źródeł finansowania zadań z zakresu ochrony środowiska w Polsce, roli Narodowego Funduszu Ochrony Środowiska i Gospodarki Wodnej oraz wojewódzkich funduszy ochrony środowiska i gospodarki wodnej oraz stanu wykorzystania środków finansowych na ochronę środowiska

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Data and knowledge issues encountered

What can be learned regarding knowledge issues involved regarding the planned expenditure type of adaptation finance flows can be summarised as follows: Similar knowledge issues were encountered for planned expenditure as for the other two types of financing flows on adaptation: the current state of information is rather fragmented and patchy. In the case of planned expenditure, this is likely due to the following factors: The implementation of adaptation measures happens on local levels and therefore the respective budget lines are very dispersed across local governments and agencies. This poses a large organisational barrier to collecting more comprehensive figures on planned adaptation budgets on an aggregated level. When eventually trying to draw up quantitatively the European climate finance landscape, one would have to be very careful not to double-count potential EU contributions that may have been reported under planned national expenditures (e.g. as is the case for Latvia and Portugal, for example), as well as under EU level budgeting.

Most of the planned expenditures only represent public planned investments for adaptation measures. For private sources, on the other hand, there is almost no planned expenditure information available (the UK is one of the few cases that does indicate a small share from the private sector). Often this lack of information regarding planned resources from the private financing sources is that these do not work with planned budgets.

3.5 Remaining financing gap

What is the additional amount of investments required on top of existing reference investments in order to reach set adaptation targets?

Finally, having discussed data availability on European and national levels for estimated overall investment needs as well as actual spending and planned expenditure, it is possible to attempt an analysis of the remaining adaptation financing gap, i.e. the difference between what is needed and what is currently already invested and/or planned to be invested. To recap, the remaining financing gap is therefore the amount of additional investment needed to reach European adaptation targets – this amount is needed on top of / in addition to the business-as-usual investment volumes.

The current lack of data – very patchy investment needs data on European level combined with a rather vague, unquantified adaptation goal – make it impossible to calculate the remaining adaptation financing gap as such on European level. What the EU-level section attempts never-the-less is at least estimate the relative contribution of the EU Budget towards total overall investment needs.

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On a national level, most Member States also do not have sufficient data available to carry out a gap calculation. Those that do are presented in section 3.5.2.

3.5.1 EU level Due to the many knowledge and therefore resulting data gaps, a financial gap assessment as done for mitigation in Section 2.5.1 is impossible for the subject of adaptation. The availability of estimated investment needs for the EU as a whole is already very limited, but the availability of actual spending figures of adaptation investments that are already taking place is even less accessible. With the little information as was synthesized in the chapter above, the best possible comparison that can be made concerns the EU budget figures. Comparing these figures to the adaptation investment needs shows how much should be invested on top of the EU budget contribution to adaptation finance in the EU as a whole. Notice that this is not a genuine gap assessment, as the difference does not necessarily represent the finance gap at adaptation; other sources will also contribute to fulfilling investment needs. These sources could be for example national governments, municipalities and private sources. However, as these figures are not readily available the remaining finance gap could not be estimated.

The EU budget is compared to two adaptation needs studies presented above in Table 3-2, which are considered most comprehensive in terms of coverage176. The EU budget data as presented in Table 3-5 reported current historic investments of 16 bn EUR’15 annually over 2014-2016. According to the BASE (2016) study, investment needs in Europe amount up to 35-62 bn EUR’15177 in 2050. According to the EU Budget split for this report (see Appendix B, section 6.2.2), the 2050 contribution of the EU budget for adaptation is expected to amount up to 28 bn EUR’15 annually (see Table 3-9).

When looking at the available data, what can be seen is that the current EU Budget covers approximately 3 up to 45% of total annual adaptation investment needs. The remainder of the needs figure may either already be invested by national administrations and/or private actors (but data on such current spending is not readily available), or a part of it may also currently not yet be provided from any financing source and hence represent a remaining financing gap. Such gap, however, would only be able to be determined once better/more data becomes available. When looking at the estimated future potential contribution of the EU Budget towards overall adaptation investment needs, the increasing EU budget (based on the assumption that 20% will be spent on climate-relevant measures) may even be able to play a more significant role that it is currently already playing.

176 UNFCCC (2007) study also covers a wide range of sectors, but as it is rather outdated and has been criticised often, we excluded these estimates here 177 Figures as provided in Table 3-2 in original unit, here converted to 2015 constant Euros using an online Inflation Calculator (Westegg.com) and OECD exchange rates: https://data.oecd.org/conversion/exchange-rates.htm

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Table 3-9 The EU budget contribution to the estimated EU adaptation investment needs (in bn EUR’15) Future (post- Current EU 2016) EU budget budget Current Estimated contribution contribution Estimated (EU adaptation- future EU towards towards annual relevant Budget adaptation estimated total estimated investment annual avg. relevant annual total annual needs 2014-2016) budget178 adaptation adaptation investment investment needs in Europe needs in Europe BASE study 35-62 26-45% 45-79% (2016) 16 28 De Bruin et 158-518 3-10% 5-18% al. (2009) [Figures differ from original unit values as provided in Table 3-2, here converted to 2015 constant Euros using an online Inflation Calculator (Westegg.com) and OECD exchange rates: https://data.oecd.org/conversion/exchange-rates.htm]

The BASE study does not cover all areas of adaptation, but only the sectors floods, agriculture and health. Some infrastructure is covered as under flood protection, but adaptation of buildings and other infrastructure is excluded. Also coastal zones are excluded in the BASE model. Taking into account the estimates of Ciscar et al. (2014) and Forzieri et al. (2016), covering respectively coastal impacts and critical infrastructures, adaptation needs may reach 3 bn EUR’15179 higher in 2050. Correcting for this would lead to current contribution of 24-41% and a future contribution of 43-72%.

De Bruin et al. (2009) covering all impact assessment model sectors found a much higher investment needs level of 158-518 bn EUR180 (average annual). The high estimate can partly be explained by the use of an extremely long timeframe (2025-2185), as one can expect required investments to increase in time when climate impacts also increase.

Data and knowledge issues encountered

A gap assessment to determine the remaining finance gap is unfortunately not possible due to the lack of data availability in terms of a complete picture of actual adaptation investments in Europe. Only a careful assessment of the contribution of the EU budget to the total adaptation finance needs in Europe could be done, showing a considerable share of the EU budget both now and in the future. . Comparing to the high needs estimate of Bruin et al. (2009) gives a contribution of 3% now, 5% in 2050. Comparing to the low estimates of the 2015 BASE study results in a contribution of 45% now up to 79% in the future. The availability of data based on different methods (timeframes, coverage, etc.) makes the comparison of figures very complex. The figures presented here should be seen as an indication of the

178 Figure as provided in Table 3-1 in original unit, here converted to 2015 constant Euros using an online Eurozone inflation calculator (StatBureau.org) 179 Figures as provided in Table 3-2 in original unit, here converted to 2015 constant Euros using an online Eurozone inflation calculator (StatBureau.org) 180 Converted using the 2009 (publication year) exchange rate of 0. 719843 EUR/USD as reported by OECD Data: https://data.oecd.org/conversion/exchange-rates.htm

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magnitude in this case of the EU contribution, very carefully taking into account the implications of the methodological figures.

3.5.2 National level On a national level it is even more difficult to draw up a quantified remaining financing gap, due to the limited amount of quantified data. This is the case for both needs estimates and reference levels. This in itself is an important conclusion from the stock-taking exercise, which emphasises the urgent need to start tackling knowledge issues. Only for Estonia, Lithuania, the Netherlands and Sweden we were able to make a careful comparison between needs and any available reference level of investments. Only for Estonia however this comparison said something about the genuine remaining finance gap considering the challenge of mobilizing additional finance for adaptation.

Estonia: In the 2016 Climate Adaptation Plan 2030181 the Estonian Ministry of the Environment reported adaptation finance needs for eight prioritized areas over both 2017-2020 and up to 2030, as set out in Table 3-4 and Box 3-2. The action plan also explains how the needs will be covered (Table 3-8), making the budget split for the responsible ministries, including a split for the finance source (state budget or external sources). The split for the prioritised areas and the ministries are schematically shown in Figure 3-5. About 54% is sourced by the state budget, 46% by external sources like the Environmental Investment Centre Environmental Programme and also from foreign investments (EU structural funds, EEA grants).

Figure 3-5 Needs (in eight prioritised sectors) and planned investments (for six ministries) in Estonia (total 43.75 mn EUR between 2017-2030)

[Source: Ministry of the Environment (2016), Climate Adaptation Plan 2030182]

The financial needs for adaptation in Estonia are the implementation costs of their National Adaptation Plan, which are planned to be covered by six Ministries, coming from both the State budget and foreign sources. As explained in Section 3.2.2, the costs of implementing an adaptation plan are considered equal to ‘a-best-guesstimate’ of the finance needs of a country, as the action plan in theory represents the country’s total adaptation needs. For the case of Estonia, this therefore means that no finance gap exists, as the costs are planned to be covered for completely.

181 Original document: Keskkonnaministeerium (2016) Kliimamuutustega kohanemise arengukava aaastani 2030 182 Original document: Keskkonnaministeerium (2016) Kliimamuutustega kohanemise arengukava aaastani 2030

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Lithuania: The country reported in their Inter-institutional Action Plan of 2016, that up 972 mn EUR is required over 2013-2020 to implement the plan with the described required measures for adaptation to climate change. According to the EIONET survey respondent, investments of 5, 92 and 124 mn EUR have been reached over 2014-2016 for implementation, which means that from up to 2020 another 751 mn EUR is required. This does not represent a genuine remaining financing gap, as a part of these remaining needs will already be planned for to be financed by certain sources. An estimation on the remaining financing gap could not be done with the data available.

Figure 3-6 Required financing needs associated with the implementation of the Lithuanian Inter- Institutional Action Plan of 2016 (in EUR mn)

[Source: own development based on EIONET expert consultation, EUR estimates from the Inter-institutional Action Plan of 2016]

The Netherlands: According to the 2007 study of Wageningen University & Research (WUR), adaptation in the Netherlands will cost ‘several billions of Euros’. The study covers various adaptation options, but more detailed information like a timeframe lacks. As of 2008 the Delta Programme was established, providing a dedicated fund on a statutory basis for water safety and fresh water supply (see also Box 3-5). The 2017 Delta Programme made available 16.3 bn EUR for the 2017-2030 period. Over 2016-2019 the district water boards additionally expect to invest 5 bn EUR for funding flood defences. As flood control comprises 90% of the adaptation measures in the Netherlands183, these numbers indicate that the required adaptation finance at least for flood control is completely covered for by these sources. This does assume that the ‘several billions’ per year estimation of the total adaptation investment need is still relevant in 2017.

Sweden: In 2007 the Swedish Commission on Climate Vulnerability estimated that 10 bn EUR is required between 2010-2100 to prevent damages from flooding, erosion and land-slides (average annual of 110 mn SEK). The more recent SMHI study “On the 2015 checkpoint for adapting to climate change”184, estimates adaptation costs in the cities alone on 100-300 mn SEK already annually. The same report states that 25 mn SEK of funds are available for municipalities to avoid national hazards. Comparing these figures therefore implies that 8-25% of the adaptation finance required in is (at least in 2015) covered for by the fund for municipalities. The remainder will need to come from other finance sources. Whether these are sufficient to cover all needs leaving no remaining finance gap is unclear.

183 According to WUR expert consultation. 184 Original document: SMHI (2015), Underlag till kontrollstation 2015 för anpassning till ett förändrat klimat

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Data and knowledge issues encountered

One of the main assumptions taken in this section – in order to at least make an attempt in estimating a remaining adaptation financing gap – is the assumption that the financing needs stated in the National Adaptation Action Plans equals the total estimated investment needs for adaptation in the given country. If a country then indicated to cover all these financing needs via its planned budget, this is therefore implying that no private investment is needed. This is certainly an over- simplification. However, traditionally adaptation type of activities have typically been provided primarily by the public sector. . It is therefore very important to realize and state when comparing needs to reference figures, what the difference tells. o For Lithuania: remaining adaptation financing needs for the future (EUR 751 mn) o For the Netherlands: only about the order of magnitude, flood seems covered o For Sweden: this estimation only includes contribution of municipalities (%).

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4 Roadmap towards closing current data and knowledge gaps

Chapter at a Glance

This final chapter can be read as a self-standing synthesis chapter capturing the key findings of the report. Hence, this chapter restates the broad context and main objectives of the report and summarises the key findings from previous chapters. Sections 4.1 and 4.2 synthesise the knowledge issues that emerged from Ch. 2 (mitigation) and Ch. 3 (adaptation) into an overview of key knowledge gaps for domestic climate finance tracking in Europe. In a nutshell, sections 4.1 and 4.2 thus indicate WHERE the knowledge gaps are (in terms of boxes in the European domestic climate finance landscape diagram) In turn, in order to move forward with improved European climate finance landscaping, these knowledge gaps need to start being addressed. In order to do so, the most urgent knowledge gaps are prioritised based on their relative level of data accessibility combined with the estimated investment needs for tackling them. Finally, Section 4.3 offers suggestions of some building blocks that could be used to start developing a strategy for tackling the current knowledge gaps.

The main sources of information forming the basis of this study’s stock-taking assessment included:  Publicly available studies and policy documents (primarily for top-down information and data on European level);  A status of knowledge survey circulated via the EIONNET experts network to all EEA Member States (for bottom-up information and data available on national and sub-national levels);  Qualitative feedback from Member States via the EIONNET survey (complemented with bilateral follow-up discussions in some instances); as well as  Conclusions from the EEA/I4CE expert workshop on domestic climate finance tracking. This stock-taking of the existing data and knowledge was then also complemented with own estimations in order to provide additional inputs for the analysis when relevant.

Before delving into the results of the analysis, a brief recapitulation of the essence of the report is provided below.

Study context: the climate finance challenge

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challenges that need to be tackled urgently. Aligning financial flows with the EU and national climate- related targets185 - expressed in among others Low-Carbon Development Strategies, Integrated National Energy and Climate Plans and National Adaptation Plans - will be key for a smooth and cost-effective transition towards a low carbon, climate resilient and competitive economy.

However, shifting and scaling up financial flows to meet national climate and energy objectives requires an improved knowledge base. Systematic tracking of domestic climate investment and related financing flows, also called domestic climate finance “landscapes”, is a powerful process for supporting the development, enforcement and strengthening of national climate and energy policy, contributing to the transition towards to a low-carbon and climate-resilient economy. Nevertheless, tracking domestic climate finance is only in its initial stages of development (as compared to the much more developed international climate finance tracking). To this end, the European Environment Agency (EEA) has launched the stock-taking exercise as presented in this report to determine the current status of data availability on domestic climate finance in Europe.

This report: objectives and focus

This report assesses the current state of play on domestic climate finance tracking in Europe186. The report does not set out to deliver a full picture (see Figure 4-1) of the quantitative European climate finance landscape as such, but rather to carefully review the existing available data and information on the various aspects of the European domestic climate finance landscape (e.g. different sources of finance, different climate action areas, etc.). To the extent possible, the report provides a consolidated overview of the available data on estimated investment needs for mitigation and adaptation across Europe, the available data on current actual climate finance spending as well as any planned future expenditure.

The main focus of this review is to map the specific data gaps (e.g. from a specific source of finance) and broader knowledge/process gaps (e.g. insufficient technical knowledge on the topic of domestic climate finance, etc.) currently involved in tracking domestic climate finance in Europe.

185 As regards mitigation, the EU has set a binding target of at least 40% domestic reduction of greenhouse gas emissions by 2030 (compared to 1990 levels). This target is part of the 2030 climate & energy framework (COM (2014) 15), which also aims to have at least 27% of EU energy coming from renewable sources and a 27% improvement in energy efficiency. These targets follow on the 20/20/20 targets of the EU 2020 climate & energy package, which should be reached by the time the Paris agreement enters into force. The long term goal of the EU is to achieve 80-95% emission reductions by 2050 (COM (2011) 112). As regards climate change adaptation, the Paris Agreement places unprecedented importance on actions needed— both nationally and globally—to help people adapt. The agreement calls on each country to develop and communicate national adaptation plans and provides guidance for planning and implementation. On EU level, the current EU Adaptation Strategy (COM (2013) 216) was published in April 2013. The Strategy is a powerful response to the climate hazards Europe is and will increasingly be facing. It demonstrates a dedicated long-term commitment to increase the resilience of the EU territory by enhancing the preparedness and capacity of all government levels to respond to the impacts of climate change. 186 The assignment focuses entirely on domestic climate finance in Europe. This means that the research and analysis focuses on tracking those mitigation and adaptation investments that are made within Europe (EEA Member States), i.e. the public and private investment flowing into national climate mitigation and adaptation activities (or climate component of activities) within EEA Member States, as well as relevant investments from the EU institutions to the MS.

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In order to determine where the current data and knowledge gaps are, it is therefore important to first understand what (which data points) – in an ideal world – are required in order to draw up the European domestic climate finance landscape. In a nutshell these include the following three data dimensions: 4. Climate action areas a. Mitigation (both tangible investments in in physical infrastructure, as well as supporting investments (R&D, research, etc.) b. Adaptation (both tangible investments in physical infrastructure, as well as supporting investments (R&D, research, etc.) 5. Sources of finance a. EU budget & financial institutions b. National (and sub-national) budgets & financial institutions in Member States c. Private sources (banks, investors, private companies, small end-users) 6. Types of climate finance flows/volumes a. Total estimated investment needs to reach an agreed target (e.g. up to 2020/2030/2050): Knowing these volumes of total investment needs allows for putting current or planned investment levels into perspective and for prioritising certain areas of spending. b. Actual spending (historic trends/current volumes) on climate-relevant activities: Knowing historic/current investment trends serves as an important baseline to compare future estimated investment needs to. c. Planned expenditure (in a future period) on climate-relevant activities: Knowing future planned investment volumes (in combination with actual spending) allows for a more accurate assessment of the remaining investment challenge. d. Remaining financing gap, i.e. the additional finance required in addition to the business-as-usual spending pathway in order to achieve the agreed climate change targets: Knowing the remaining financing gap allows for clearly targeting policy efforts towards mobilising sufficient levels additional finance from public and/or private sources and targeted towards the most urgent climate-action areas.

The linkages and interactions between the climate action areas (right-hand column) and the different sources of finance (left-hand column) and their investment instruments (middle column) can be visually mapped in form of a European domestic climate finance landscape as depicted in Figure 4-1. This figure best serves the visualisation of both actual spending as well as future planned expenditure flows. It should be noted that estimated investment needs, as well as remaining financing gaps are presented in total volumes (rather than flows) and are therefore not mapped in such landscape format.

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Figure 4-1 European domestic climate finance landscape

[Source: Own elaboration, 2017] [Note: theoretical illustration; no values attached]

In an ideal situation, one would be able to fill in all boxes and arrows of this diagram with relevant quantitative and qualitative information from both European and Member State levels on historic/current trends and/or planned future spending.

Bearing the three data matrix dimensions and the mapping of the European domestic climate finance landscape in mind, the remainder of Chapter 4 discusses the specific data gaps involved and broader knowledge/process issues encountered during the stock-taking exercise and brings forward suggestions on first steps that could help to tackle them. But prior to presenting these findings, it is important to briefly present the main findings from Chapter 1.

Key messages from Chapter 1

In addition to providing the methodological background to this study (Ch. 1.4), the first chapter engaged in a review and discussion of the current status quo regarding terminology, definitions and scope involved when talking about and assessing European domestic climate finance tracking (Ch. 1.3).

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The key message from this analysis is that currently there is a lack of common definitions, scope and methodologies, which represents in itself the first knowledge gap that Knowledge gap #1 the report has identified. At this point in time most Member States and wider European or international organisations all use their own tailored LackLack of common definitions, definitions and scope. Many compile data in a very ad-hoc manner; scope and tracking some have developed their own tracking methodologies, such as methodologies Germany187, France188 and Belgium189. This lack of a common basis so-to- say, in turn, makes it very challenging to compare and contrast any of the identified data in the consequent chapters – both on EU and on MS levels – as most of them are based on different sets of underlying assumptions, scope, definitions, etc.

Chapters 2 and 3 have presented the detailed findings as regards the stock-taking exercise on European and Member State levels on the different types of climate finance flows for both mitigation (Ch. 2) and adaptation (Ch. 3). These chapters presented all the currently available data and information this study has been able to Knowledge gap #2 collect on a European as well as on Member State levels. Limited technical knowledge Throughout these two chapters knowledge issues encountered on the topic of domestic have been reported, including recurring underlying barriers such climate finance tracking as insufficient technical knowledge among stakeholders on the among key stakeholders topic of domestic climate finance (and tracking thereof). Sections 4.1 and 4.2 below present the key findings from this in-depth assessment.

4.1 Synthesis of findings regarding European mitigation finance data and knowledge gaps

This section draws together the main findings and key messages in terms of knowledge and data gaps on European mitigation finance. The stock-taking exercise has resulted in the identification of various specific data accessibility gaps across the European domestic climate finance landscape, as well as broader more generic knowledge and process gaps underlying these data accessibility gaps. The detailed analysis supporting these conclusions is described in Chapter 2.

4.1.1 Overview of data accessibility The following figure presents a colour-coded European domestic climate finance landscape diagram. This diagram is a visual summary of the findings presented in Ch. 2 as regards the relative data accessibility on current as well as planned future spending levels. The colour-coding here represents the relative degree of public data accessibility with respect to the different sources of finance, climate action areas and types of climate finance flows relevant for mitigation. The colour-code scoring has thus been made from the viewpoint of public knowledge gaps, i.e. what is publicly accessible knowledge. The score colour for each box in essence is based on whether or not with the currently accessible knowledge it is possible to ‘fill in’ this specific part of the European climate finance landscape.

187 Juergens et al (2012). The landscape of climate finance in Germany. Climate Policy Initiative. http://climatepolicyinitiative.org/wp-content/uploads/2012/11/Landscape-of-Climate-Finance-in-Germany-Full-Report.pdf 188 Hainaut et al (2015). Landscape of climate finance in France 2011-2014. I4CE Institute for Climate Economics. http://www.i4ce.org/download/landscape-of-climate-finance-in-france-2015-edition-full-report/?wpdmdl=13071 189 Rademaekers et al (2016). Landscape of climate finance in Belgium. Federal Public Service (FPS) Health, Food Chain Safety and Environment, Belgium. http://www.klimaat.be/files/4914/6901/4152/Landscape_of_climate_finance_in_Belgium.pdf

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The summary overview presented in Figure 4-2 captures primarily what is available from a top-down European perspective, i.e. the relative availability of data on renewables investments for Europe as a whole for example. The only ‘boxes’ where the MS level findings informed the European landscape diagram (and hence the colour-code) are the ‘National Public Administration’ and ‘National Promotional Bank’ boxes where a rough average of the data availability across MS was used for the availability score. For more detailed data availability perspectives for specific Member States, see the geographic summary maps provided in the beginning of each section 2.2.2, 2.3.2, 2.4.2, 2.5.2 (also included in this summary section further below).

Figure 4-2 European mitigation finance landscape: colour-coded for availability of data

[Source: own elaboration based on Ch. 2 results] [Note: The score colour for each box is based on whether or not with the currently accessible knowledge it is possible to ‘fill in’ this specific part of the European climate finance landscape.]

The following explanations help guide through the colour-coded scores across the European mitigation finance landscape. They synthesise the currently available quantitative (and qualitative) data per box represented in the diagram above.

Mitigation action areas – degree of data availability for Europe When looking at the data gaps on the right-hand side of the mitigation finance landscape diagram, the information availability generally speaking is much more developed for renewables as compared to energy efficiency. It should be noted that this assessment is for the European level as a whole.

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. RES (tangible): the data availability for RES has been judged as comprehensive from a European perspective because the stock-taking exercise has shown that relevant data exists (at least from a top-down approach) via various independent information sources on the different financial flows for RES investments. . RES intangible: from a top-down perspective, data is also available to offer an indication of the order of magnitude dimensions of supporting investments for RES in Europe. . Grids and storage: for a detailed investment analysis see the recent EP (2017) report ‘European Energy Industry Investments’. Generally speaking, data does exist from a top-down perspective but it is not yet as comprehensive as it should be. . EE (tangible): o For EE buildings: this box scored light green because aggregate estimates exist on a European scale; however it is very difficult to access any disaggregated information from the bottom-up to compare/contrast these estimates. This can primarily be explained by the fact that the most important sources of finance for EE in buildings (i.e. small end users for their own houses, private companies for their own buildings and some larger private investors for bigger investments in the tertiary sector) are those that currently do not have easily publicly accessible data available (see discussion below). o EE Industry: similarly, the energy efficiency information for industry has been scored as light green. While aggregate estimates are available on a European scale, as well as some patchy information from other sources and levels, there is currently no clear tracking methodology and/or reporting channel for this climate action area. Hence it is rather difficult to locate the information even if it does exist somewhere. o EE Transport: this type of mitigation action area has been labelled as yellow in terms of the degree of accessibility of climate-related investment data because currently there is no tracking/aggregation methodology, however the pure (none climate- specific) investment figures for the transport sector are available (e.g. Eurostat). o EE Agriculture/Forestry: the mitigation action area with the least amount of accessible data on EE-relevant investment levels is agriculture and forestry. For this mitigation action area some information could be available on EU budget level (if the budget would be disaggregated between different climate-relevant sectors). Similarly, most MS do not yet report on EE for this sector, nor do the larger private sector information providers, such as BNEF. . EE intangible: from a top-down perspective, not much data is available to offer an indication of the order of magnitude dimensions of supporting investments for EE in Europe.

Sources of mitigation finance – degree of data availability for Europe Generally speaking, as regards sources of finance (left hand side of the diagram), those data series that are available from the public sources are relatively transparent. Whereas the information might be available internally at various private sources, this is most often not readily available publicly. It is interesting to mention that the colour scoring explained below in a way closely matches the data accessibility challenges on the climate mitigation action side of the diagram, i.e. information for those sources typically financing EE activities is less known.

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. National sources: the national information sources are currently represented as partially available because they are depicted as an average aggregated representation across all Knowledge gap #3 Member States and the different types of climate finance flows. While some Member States have no Insufficient data available or very limited accessible information, others across different types of have partial data, and to this date only three MS financing flows from MS level have carried out detailed domestic climate finance landscapes (FR, BE, DE). Generally speaking, the information on MS level is already more developed for data on actual spending as compared to the availability of planned expenditure data. It should therefore be noted that the overall European domestic climate finance landscape and corresponding figures attached may look very different if one – in an ideal case - were to carry out bottom-up landscapes per MS and then aggregate these for a European figure. . EU sources: from a broader European perspective, comprehensive data is available on historic trends in actual spending (Europe as a whole including both public and private spending; as well as EU Budget spending), as well as information on planned future Knowledge gap #4 EU Budget expenditures. Nevertheless, even when judged as ‘comprehensive accessibility of data’ in this stock-taking exercise, it Lack of disaggregation of may still mean that the available information could be further total EU Budget figures improved to facilitate domestic climate finance tracking. For example, available for climate-relevant the EU Budget figures are currently not further disaggregated between spending (no adaptation / mitigation versus adaptation activities and there have been some mitigation split) concerns raised by the European Court of Auditor’s review of climate- relevant spending of the EU Budget as regards the applied tracking methodology. . Private sources: All private sources of finance are currently labelled ‘red’ due to the very limited accessibility of climate investment information for all types of flows. However, it should be noted that with additional effort, some information (on aggregate level) can be made Knowledge gap #5 available from private sources, e.g. commercial banks. This has been shown in the existing Lack of publicly available French190 and Belgian191 climate finance data from all private sources landscapes, which do include information on of finance investment volumes from private finance sources. This suggests that (at least) some of the private sources do track their climate-relevant investments internally, but this information may be kept confidential at the moment. In addition it should be mentioned that private sector research and data provision companies, namely Bloomberg New Energy Finance (BNEF) do have data on transaction volumes available, but currently do not disclose this type of data to non-paying members.

190 Hainaut et al (2015). Landscape of climate finance in France 2011-2014. I4CE Institute for Climate Economics. http://www.i4ce.org/download/landscape-of-climate-finance-in-france-2015-edition-full-report/?wpdmdl=13071 191 Rademaekers et al (2016). Landscape of climate finance in Belgium. Federal Public Service (FPS) Health, Food Chain Safety and Environment, Belgium. http://www.klimaat.be/files/4914/6901/4152/Landscape_of_climate_finance_in_Belgium.pdf

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Types of climate finance flows – degree of data availability for Europe Given identified specific data- and broader knowledge and process gaps for the various sources of finance and corresponding financing instruments, as well as the relevant mitigation action areas, it is currently rather challenging to determine the size of and/or the exact direction of flows192 through the European domestic mitigation finance landscape (i.e. the size and direction of the arrows depicted in Figure 4-1). As a consequence they are all represented in ‘grey’ in the diagram above (Figure 4-2); essentially the size and direction of flows can only be answered accurately once all the ‘input’ and ‘output’ boxes would be known on a relatively disaggregated level that would allow for a certain degree of differentiation. Nevertheless, the analysis in Chapter 2 signalled the following key messages as regards the availability of data on actual spending as well as on planned expenditures: . Actual spending: Some information (especially for RES) exists regarding aggregated European investment volumes and historic trends. These are often disaggregated by type of RES or EE investment, but not by sources of finance. The only indications on the size and direction of actual spending is provided in the three existing domestic climate finance landscapes for Germany, France and Belgium. This in-depth analysis gives a better understanding and a flavour of what these flows and directions of flows could look like on European level (see Box 2-10 in Chapter 2). The following map provides a visual representation of the status-quo on actual spending information available across EEA Member States.

Figure 4-3 Availability of actual mitigation spending data across EEA Member States

. Planned expenditure: As regards planned expenditure for a certain timeframe in the future, the only available data on both European and national levels are planned budget figures. These do provide a useful indication of the intended public contribution to the mitigation financing challenge over the coming years. However, such information on planned expenditure is not available for private sources of finance. The following map provides a summarised overview of the stock-taking on planned expenditure information across EEA Member States.

192 For a qualitative discussion of the key influencing factors determining the size and direction of flows, see EC (DG ENER) (2017 forthcoming) report on ‘Assessing the European clean energy finance landscape’, Chapter 4. 193 For further information on the data availability scoring, see methodology chapter.

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Figure 4-4 Availability of planned mitigation spending data across EEA Member States

4.1.2 Prioritisation of mitigation finance related data gaps Having summarised the current status quo regarding the accessibility of climate mitigation finance data in Europe, the question arises which ‘boxes’ and/or ‘flows’ should be prioritised to be unlocked and be turned ‘greener’, in the sense of improved data availability?

Estimated mitigation investment needs and remaining financing gap To this end it is useful to review the data accessibility gaps in relation to the remaining financing challenge (i.e. the estimated total investment needs versus current/planned spending levels). From a top-down European perspective, sufficient quantitative and qualitative analysis and scenario work is available from various independent sources including EU institutions, WorldBank, International Energy Agency, to make an overall judgment on the order of magnitude of the remaining financing challenge (see Table 4-1 below and also Chapter 2.5) and on where the most COMPARED TO PROJECTED BUSINESS-AS- urgent challenges lie (see Section 4.1.2). When looking at the remaining USUAL SPENDING ON MITIGATION ACTIONS, financing gap, the total annual (2021-2030) mitigation financing gap THE ADDITIONAL FINANCING NEED IN EVERY (using a forward-looking baseline) amounts to 179 bn EUR’15. This total YEAR BETWEEN 2021 AND 2030 AMOUNTS is composed of 168 bn EUR’15 of additional energy efficiency investment TO APPROXIMATELY 179 BN EUR’15 needs in the buildings, industry and transport sectors, as well as small additional finance volumes required for grids (2 bn EUR’15) and power generation (9 bn EUR’15). This shows that most of the additional investment that is required on an annual basis will need to be spent on energy efficiency. For comparison, when using a backward-looking baseline based on COMPARED TO AVERAGE ANNUAL SPENDING historic actual spending volumes, i.e. compared to average annual OVER THE PAST DECADE, THE ADDITIONAL spending over the past decade, the order of magnitude for the FINANCING NEED IN EVERY YEAR BETWEEN annual remaining financing gap increases somewhat to a total 2021 AND 2030 AMOUNTS TO ranging around 197-220 bn EUR’15, excluding the transport sector. APPROXIMATELY 197-220 BN EUR’15

While the estimation based on the forward-looking baseline is likely more accurate in terms of its reflection of future spending patterns (based on modelled scenarios), the order of magnitude range using a back-ward looking baseline offers an indication of the order of magnitude where we are at today already compared to where we need to be in theory on an annual basis to achieve the agreed

194 For further information on the data availability scoring, see methodology chapter.

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targets. So when comparing the two gap estimates, it shows that the overall remaining financing gap is expected to narrow slightly in the future. However, to tackle the remaining amount – whichever the final value per year in the ranges of these orders of magnitude – it is crucial to address existing knowledge gaps so that improved domestic climate finance tracking can help monitor progress with this respect.

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Table 4-1 Summary Overview: Determining the remaining annual mitigation finance gap (i.e. the additional finance to be mobilised in addition to the projected business-as-usual spending) in Europe to achieve the EU’s 2030 climate and energy targets (based on historic spending trends and total future investment needs estimations), in Billion EUR’15 Backward-looking mitigation Forward-looking Estimated total Remaining annual Remaining annual spending baseline projected annual mitigation mitigation financing gapxx mitigation financing (based on actual historic mitigation spending investment needs (based on backward- gapxxi spendingxvii) baseline (based on latest EC looking baselines) (based on forward-looking Scope: EU-28 (based on latest EC scenario achieving baseline)) business-as-usual 2030 targetsxix) Unit: all figures scenarioxviii) presented in Billion Annual average Annual average Annual average Annual average Annual average Annual average additional EUR’15 xvi spending, spending, spending projection, estimated total investment volumes investment volumes 2006-2010 2011-2015 2021-2030 investment needs, required in addition to required in addition to 2021-2030 historic spending projected spending volumes, volumes, 2021-2030 2021-2030 Total – Mitigation N/A N/A 944 1123 N/A 179 Total – Mitigation 162 190 234 382 197 – 224 148 (excl. TRA) Total – Demand N/A N/A 876 1044 N/A 168 sidexxii Total – Demand side 91 106 166 303 197-213 137 (excl. TRA) EE- Industry 7 7 15 19 12 4 EE – Buildings 74 88 128 216 128-142 88 (households) EE - Buildings 10 11 23 68 57-58 45 (tertiary sector) Transport (TRA)xxiii N/A N/A 710 741 N/A 31

Total – Supply sidexxiv 71 85 67 79 10-11 11 Grid 25 26 34 36 10-11 2 infrastructurexxv Power generation 45 58 33 42 0xxvii 9 (total)xxvi - RESxxviii 34 44 25 34 0xxix 7 - Conventional 11 15 8 8 0xxx 2

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[Source: Trinomics (2017) own development based on EP (2017) and EC (2016)]

xvi All figures from different sources have been converted into EUR’15 constant figures to enable a direct comparison. The inflation rates used to carry out this conversion are based on https://www.statbureau.org/en/eurozone/inflation-calculators . All figures have been rounded to full billions. This explains why some figures do not add up exactly to the totals presented in the table. xvii European Parliament (2017). European Energy Industry Investments. Historic trends in actual spending for various periods as underlying Figure 8 on p. 35. http://www.europarl.europa.eu/RegData/etudes/STUD/2017/595356/IPOL_STU(2017)595356_EN.pdf xviii EC (2016) Impact Assessment. The so-called ‘REF2016’ represents the latest business-as-usual scenario assuming all current (2016) existing and already planned policies will continue to be implemented in the future, but no additional efforts will be made. Figures converted from EUR’13 bn to EUR’15 bn. xix EC (2016) Impact Assessment. The so-called ‘EUCO30’ is the scenario that best represents achieving the latest set climate and energy goals of the EU, namely 40% GHG reduction, 27% RES share, 30% energy savings. Figures converted from EUR’13 bn to EUR’15 bn. xx The remaining financing gap (based on a backward-looking baseline) can be defined as an order of magnitude indication of the additional investments that will need to be mobilised every year from public and/or private sources in order to achieve the European climate and energy targets by 2030; these financing gap volumes need to be realised in addition to what is assumed to be invested in any case annually based on the average historic annual spending levels that have been achieved already over the past 10 years. Therefore, this gap reflects only the amount for which additional efforts have to be made in terms of mobilising the finance. However, the total amount of finance needed annually per sector is much higher, i.e. the annual average historic spending amount plus the identified financing gap volume. xxi The remaining financing gap (based on a forward-looking baseline) can be defined as an order of magnitude indication of the additional investments that will need to be mobilised every year from public and/or private sources in order to achieve the European climate and energy targets by 2030; these financing gap volumes need to be realised in addition to what is already projected to be financed under a business-as-usual pathway (i.e. projecting current financing volumes and existing policy measures into the future). Therefore, this gap reflects only the amount for which additional efforts have to be made in terms of mobilising the finance. However, the total amount of finance needed annually per sector is much higher, i.e. the business-as-usual projected spending amount plus the identified financing gap volume. xxii Demand side: Investments on the demand side include energy equipment (covering appliances in households and tertiary sector, industrial equipment etc.) and direct energy efficiency investments (covering renovation of buildings improving their thermal integrity). Although not entirely accurate, it is the best order of magnitude figure currently available for representing the investments in energy efficiency. xxiii Figures for the transport sector are not available from the EP (2017) report. The EC (2016) Impact Assessment does include the transport sector. Here, the high numbers for transport (both for REF2016 and for EUCO30 scenarios) are due to the fact that this includes investments in transport equipment for mobility purposes (e.g. rolling stock but not infrastructure) as well as energy efficiency. They exclude investments in recharging infrastructure. However, the largest part of the additional investment needs (last column; EUR 31bn) between current versus needed investment levels for the transport sector can largely be attributed to clean energy investment needs. xxiv Supply side: Investments on the supply side (power generation) include grids as well as power generation (power generation plants and industrial boilers). xxv For both EP (2017) and EC (2016) ‘grid infrastructure’ includes distribution and transmission infrastructure. xxvi For both EP (2017) and EC (2016) ‘power generation’ includes power plants and steam boilers. xxvii It should be noted that a gap per se cannot go below zero, i.e. there is no financing gap if the current and/or estimated future investment levels are equal to or higher than the estimated needs. However, even for a sector where a zero additional financing gap is indicated, this this still means that current and/or future projected business-as-usual investment volumes into the specific sector (e.g. RES) will need to be achieved on an annual basis. xxviii Breakdown RES/conventional from IEA WEO (2014): 75% RES for baseline; 80% RES for needs. xxix It should be noted that a gap per se cannot go below zero, i.e. there is no financing gap if the current and/or estimated future investment levels are equal to or higher than the estimated total investment needs. However, even for a sector where a zero additional financing gap is indicated, this still means that current and/or future projected business-as-usual investment volumes into the specific sector (e.g. RES) will need to be achieved on an annual basis. It should be noted that even an ‘overinvestment’ relative to the annual investment needs towards 2030 goals is certainly a very positive achievement when taking into account a 2050 perspective with power sector GHG reductions of about 98% and associated investment needs. xxx It should be noted that a gap per se cannot go below zero, i.e. there is no financing gap if the current and/or estimated future investment levels are equal to or higher than the estimated needs. However, even for a sector where a zero additional financing gap is indicated, this this still means that current and/or future projected business-as-usual investment volumes into the specific sector (e.g. RES) will need to be achieved on an annual basis. It should be noted that even an ‘overinvestment’ relative to the annual investment needs towards 2030 goals is certainly a very positive achievement when taking into account a 2050 perspective with power sector GHG reductions of about 98% and associated investment needs.

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Furthermore, Table 4-1 also allows for a disaggregated analysis of the total remaining financing gap split by mitigation action areas. What can be seen from the visualisation of this split (Figure 4-5) is that energy efficiency measures in private housing accounts for almost 50% of the total remaining mitigation financing gap, followed by energy efficiency measures in the building stock of the tertiary sector, energy efficiency measures in the transport sector, and to a much smaller amount in the RES and grid infrastructure sectors.

Figure 4-5 Total remaining financing gap (based on forward-looking baseline) split by mitigation action area

[Source: own development based on Table 4-1]

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So what can be concluded from the quantified remaining mitigation financing gap estimation? While the exact amount is not known and various assumptions are at play with the provided quantified estimations, at least they allow for checking what dimensions we are speaking about in terms of the additional finance that needs to be mobilised from public and private sources over the coming years. In addition to this realisation regarding the total amount, the estimations also allow for realising which mitigation action areas are facing the highest financing gap, i.e. energy efficiency in buildings, and which are likely the key financing sources that are expected to stem the largest share of the additional, not-yet-realised investment.

Prioritisation matrix for identified mitigation data gaps Combined with the identified level of data accessibility (see Figure 4-2 above), these two sets of information can help form a mitigation data gap prioritisation matrix (Figure 4-7). Such a matrix is an excellent tool for figuring out what data gaps to focus on urgently in order to better monitor and report on progress via improved domestic climate finance tracking. Essentially all items scoring low in terms of their degree of data accessibility and high in terms of the size of (or expected contribution to) the remaining mitigation financing gap are those that should be prioritised in order to significantly improve the information available in those areas most relevant for the remaining financing gap.

For data availability gaps on mitigation action areas (right-hand side of the landscape diagram), when juxtaposing the degree of data accessibility with the remaining financing needs, it becomes clear that the highest priority for filling current data gaps relate to energy efficiency in buildings (EE- Buildings) due to the fact that this mitigation action area is facing by far the largest remaining financing gap and data accessibility is currently rather limited (only top-down based on scenario estimations).

Figure 4-6 Data gap prioritisation based on size of the remaining financing challenge and relative data accessibility

[Source: Own development (2017)]

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Additionally, but with less urgency (due to smaller financing gap, but lower data accessibility), improvements in data accessibility for EE-Transport would also help improve the current database on European domestic climate finance.

Finally, it should also be noted that this stock-taking exercise found only very limited information on both EU and MS levels on energy efficiency investments in agriculture and forestry sectors. This could be another potential topic with urgent data improvement needs, however, also the investment needs estimations on European level currently do not provide a clear indication of the relative role these sectors may play in terms of achieving the energy and climate targets.

When looking at data availability gaps on sources of finance (left-hand side of the landscape diagram), three groupings of data gaps can be identified.

Figure 4-7 Mitigation knowledge gap prioritisation matrix for sources of finance

[Source: own development (2017)]

On the one hand, all private sources of finance have a very important role to play in terms of filling the remaining financing gap. At the same time, there is currently only very limited publicly accessible information on their investment pattern and volumes. Hence, this is a clear priority for improved data collection. On the other hand, the stock-taking has shown that data availability from MS levels varies widely from no data availability to comprehensive landscaping studies. Improving data inputs from bottom-up MS level analysis would require different types of actions, but would certainly also contribute to improving the accuracy of the overall European domestic climate finance landscape. Finally, while the availability of the total EU-level financing figures are available, it would nevertheless help the analysis if these were split between mitigation and adaptation, and further across the various climate action areas. For example, the EU Budget is currently not reported with a split for mitigation versus adaptation and therefore all figures presented in this report involving the EU Budget have been based on a best-guess approach. Further disaggregation of such data could therefore significantly improve current orders of magnitude presented.

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4.2 Synthesis of findings regarding European adaptation finance data and knowledge gaps

This section synthesises the main findings and key messages in terms of knowledge gaps on European adaptation finance. The stock-taking exercise has resulted in the identification of various specific data accessibility gaps across the European domestic climate finance landscape, as well as broader more generic knowledge and process gaps underlying these data accessibility gaps. The detailed analysis supporting these conclusions is described in Chapter 3.

4.2.1 Overview of data accessibility The following figure presents a colour-coded European climate finance landscape diagram. This diagram is a visual summary of the findings presented in Ch. 3 as regards the relative data accessibility on current as well as planned future spending levels. The colour-coding here represents the relative degree of public data accessibility with respect to the different sources of finance, climate action areas and types of climate finance flows relevant for adaptation. The colour-code scoring has thus been made from the viewpoint of public knowledge gaps, i.e. what is publicly accessible knowledge. The score colour for each box in essence is based on whether or not with the currently accessible knowledge it is possible to ‘fill in’ this specific part of the European climate finance landscape.

The summary overview presented in Figure 4-8 captures primarily what is available from a top-down European perspective, i.e. the relative availability of data on water management for adaptation purposes for Europe as a whole for example. For more detailed data availability perspectives for specific Member States, see the geographic summary maps provided in the beginning of each section 3.2.2, 3.3.2, 3.4.2, 3.5.2 (also included further below in this summary section).

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Figure 4-8 European adaptation finance landscape : colour-coded for data availability

[Source: own development (2017)] [Note: The score colour for each box is based on whether or not with the currently accessible knowledge it is possible to ‘fill in’ this specific part of the European climate finance landscape.]

One important fact that should be highlighted is that available data primarily (if data is available at all) focuses on either providing an investment needs estimation or presenting costs of damages, but most of the time they do not directly cover capital expenditure (capex) costs of ‘installing’ adaptation measures. Therefore, the investment volumes discussed in the adaptation section differ from those in the mitigation section, which do focus primarily on capex investment costs.

The following explanations help guide through the colour-coded scores across the European adaptation finance landscape. They synthesise the quantitative and qualitative information per box represented in the diagram above.

Adaptation action areas – degree of data availability for Europe When looking at the data gaps on the right-hand side of the adaptation finance landscape diagram, it becomes clear that the current stock-taking exercise has shown the difficulties in finding usable information on adaptation finance from the various relevant sectors and areas where adaptation is/should be mainstreamed; only some sectors demonstrate relatively comprehensive coverage of adaptation-relevant investment volumes. . Water management: investment/cost data for water management is relatively well covered on European and MS levels due to clear regulations and reporting structures attached which make it a well-documented and tracked sector in general (therefore also possible to

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disaggregate for the climate-relevant data). Furthermore, it is relatively straight-forward what activities under water management can be countered towards adaptation. . Infrastructure: The information availability on adaptation costs for critical (and other infrastructure) is rather patchy and it is unclear from those data points that are available how much / what it exactly includes. The mainstreaming process across infrastructure-relevant sectors still needs to be encouraged. Part of the issue could be because there is no clear reporting mechanisms directly linking infrastructure and adaptation in a straight-forward way. As a consequence any potentially collected datasets may not be easily accessible for the purpose of domestic climate finance tracking. . Agriculture/forestry/fisheries: these sectors are similarly well regulated and monitored as is the case for water management on European and MS levels. The adaptation mainstreaming process is clearly ongoing. Most issues/improvements here relate to an improved tracking methodology (e.g. how much of a measure to count towards adaptation). Due to this methodological challenge neither the EU Budget nor most of the other studies available on European level provide a clear picture on the different adaptation finance flows and volumes for these action areas. . Extreme events / disaster management: the currently available literature on European level does not provide good quality data regarding the investment needs or actual spending on adaptation-relevant disaster management activities. Most of the available data currently focuses on stating the amount of ‘prevented losses’ due to a certain measure, but not the actual capex costs of carrying out the measure itself. A positive sign is the close collaboration between the two fields. As a consequence better data integration and cross-feeding of knowledge should be possible. Hence, this adaptation action area could be flagged as an “easy win” for prioritisation. . Natural ecosystems: This is another adaptation action area with very little, mainly case study based information available. Given the vast variety of possible adaptation-relevant measures across natural ecosystems, this is an important topic to gain a better understanding of. In addition to this rather incomplete coverage, most of the available data is on costs versus benefits of a specific measure applied in a specific location. . Coastal zones: coastal zones, similar to broader water management is one of the areas that offers most comprehensive adaptation finance data to date. Coastal zones have been the topic of in-depth research and – like for water management – it is relatively straight-forward as to what measures can be attributed as adaptation-relevant. Existing studies provide overall European level investment needs estimates, as well as for relevant MS. . Human health: a lot of quantified data exists on the topic as such, but not in terms of relevant spending that can be counted towards climate adaptation. Some existing studies on European level have reported on adaptation finance related to human health, but it remains unclear how comprehensive these findings are, i.e. reported investment needs on diarrheal outbreaks, but no quantified cost figures on the effects of heatwaves for example. . Intangible adaptation investments: contrary to the ‘capex-like’ investment cost figures for the ‘installation’ of physical adaptation measures, the investment volumes in intangible adaptation-relevant spending is relatively well covered already. R&D figures for adaptation relevant research, etc. exist on both European and MS level. Still improvements are needed for this data as well in order to further disaggregate this information, as well as to include tracking the amounts spent on other intangible adaptation-relevant areas, such as services and training, etc.

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Sources of adaptation finance – degree of data availability for Europe As regards the left-hand side sources of finance, those data series that are available from the publicly available information sources are only on national level and EU level public financing sources. Data from the private financing sources, on the other hand, is very much inaccessible on both EU and MS levels currently (identified Knowledge gap #5). . National sources: Not all MS have comprehensive overall adaptation investment figures available to date. Nevertheless, it is important to highlight that for adaptation, national financial figures seem to be developing/improving at a faster pace than for the European level as a whole. This might be due to the fact that adaptation is implemented much more locally often in a location-specific context in contrast to mitigation measures where a European effort-sharing approach makes sense (in terms of achieving overall GHG reductions). . EU sources: The EU Budget already contains total climate finance spending as well as planned expenditure figures. However, it currently does not provide a breakdown of this data between mitigation and adaptation (see identified Knowledge Gap #4). Hence, an estimation based on expert judgment is currently the best available source of information for the adaptation- relevant EU Budget contribution. . Private sources: All private sources of finance are currently labelled ‘red’ due to the very limited accessibility of adaptation investment information for all types of flows. However, it should be noted that – contrary to mitigation where the private sector is contributing the largest relative share of the financing volumes – adaptation measures across the various risk sectors are traditionally more a responsibility of public spending, e.g. flood protection, healthcare, etc., and therefore the private sector contribution to the overall adaptation finance volumes is expected to be significantly lower than the public sector contribution.

Types of climate finance flows Given identified data and knowledge gaps for the various sources of finance and corresponding financing instruments, as well as the relevant adaptation action areas, it is currently impossible to determine the size of and/or the exact direction of flows through the European domestic adaptation finance landscape. As a consequence they are all represented in ‘grey’ in the diagram above; essentially the size and direction of flows can only be answered accurately once all the ‘input’ and ‘output’ boxes would be known on a relatively disaggregated level that would allow for a certain degree of differentiation. Nevertheless, the analysis in Chapter 3 signalled the following key messages per type of climate finance flow: . Actual spending: Similarly, the level of available information on European-wide or MS-level actual spending trends over the past years is rather scarce and patchy at best. Even from the three in-depth domestic climate finance landscapes that have been carried out to date, only Belgium included a (limited) tracking exercise for adaptation finance.

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Figure 4-9 Availability of data on actual adaptation spending across EEA Member States

. Planned expenditure: On European level, the EU Budget total planned expenditures for domestic climate action are known, but not yet disaggregated to mitigation versus adaptation specific planned future contributions. On MS level, several countries have linked their planned future expenditure estimations with the planned adaptation measures as presented in their National Adaptation Plans. It should be noted here that this assumes that all the budgeted expenditure is provided by the public sector. It remains unclear how to then account for and bring in the contributions from the private sector financiers, including in particular private companies and small-end users, such as farmers and households.

Figure 4-10 Availability of planned adaptation spending data across EEA Member States

4.2.2 Prioritisation of adaptation finance related knowledge gaps

Estimated adaptation investment needs and remaining financing gap In summary, contrary to the mitigation challenge, there are currently no investment needs estimations on the adaptation challenge that best reflect the total, comprehensive (across all adaptation-relevant action areas and sectors) investment needs for Europe. The estimations that do exist cover rather different scopes and underlying assumptions. As a very rough indication, the following table summarises

195 For further information on the data availability scoring, see methodology chapter. 196 For further information on the data availability scoring, see methodology chapter.

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the estimated adaptation investment needs that best capture the adaptation areas, European scope and relevant timeframe.

Table 4-2 Defining an order of magnitude range for European adaptation investment needs Source Coverage Unit Estimated annual investment needs range BASE study (2016) Bn 35-62 Europe De Bruin et al. (2009) EUR’15 158-518 [Source: based on estimations from De Bruin (2009) and BASE study (2016)] [Figures differ from original unit values as provided in Table 3-2, here converted to 2015 constant Euros using an online Inflation Calculator (Westegg.com) and OECD exchange rates: https://data.oecd.org/conversion/exchange-rates.htm]

Since these sources suggest a very broad range of anywhere between 35bn EUR’15 up to more than 500bn EUR’15 and because there is no availability of reference scenarios as is the case for the mitigation field, it is currently impossible to establish a remaining financing gap for adaptation. However, what is clear from the analysis is that despite the many knowledge gaps and uncertainties involved, there is an urgent need for continued and up-scaled investment in climate adaptation across Europe.

Prioritisation matrix for identified adaptation data gaps Having summarised the current status quo regarding climate adaptation finance in Europe, the question arises which ‘boxes’ and/or ‘flows’ should be prioritised to be unlocked and be turned ‘greener’ in the sense of information accessibility? Chapter 3 has shown that when looking at the estimated total adaptation investment needs an overall figure including all adaptation-relevant sectors is rather unavailable on European level. On a Member State level these figures are already more advanced in some cases, covering detailed total investment needs associated with the established National Adaptation Plans. Also, current actual spending (both from private and public sources) is difficult to track due to mainstreaming across a large variety of sectors and budgets both on European and MS levels. As regards planned expenditure, while no detailed information is available on European level, some MS do state that they have budgeted to invest at least a large part of what has been estimated as their total investment need to implement the National Adaptation Plan. This also means that with the currently available data it is not possible to define a reliable quantified remaining adaptation financing gap range.

Bearing these thoughts in mind, it would make sense to prioritise the following data improvements on European level: . As regards adaptation action areas o Improved data collection on infrastructure; o Improved accounting methodologies for data from agriculture, forestry and fisheries; o Better cross-feeding of data/information among responsible ministries/units for extreme events/disaster management; o Analysis on how to take into account the often unquantified information for adaptation measures related to natural ecosystems; and o More comprehensive indicators and data on adaptation-relevant human health measures. . As regards sources of adaptation finance o Information from all private sources of adaptation finance; and

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o Data for all adaptation-relevant climate action areas/sectors on Member State level. o EU Budget information split between adaptation versus mitigation relevant activities.

Similarly to the mitigation side, it should also be noted here, that sometimes any other ‘quick wins’ on other ‘boxes’ in the domestic adaptation finance landscape diagram would also certainly further the current understanding and interpretation.

4.3 Building blocks for improved European climate finance tracking

This section translates the identified specific data gaps and more generic knowledge and process gaps into proposed building blocks for improved European climate finance tracking.

Specific data gaps to be addressed The previous two sections have summarised the findings of the stock-taking exercise on existing information and resulting data gaps of the European domestic climate finance landscape. Based on a combined analysis of these data accessibility gaps and the remaining quantified financing challenge, several ‘boxes’ of the landscape diagram have been highlighted as priority for action.

Table 4-3 Overview of prioritised mitigation and adaptation specific data gaps Specific data gaps A Mitigation: Lack of disaggregated energy efficiency finance data – in particular for energy efficiency in buildings. B B: Adaptation: Lack of comprehensive total investment needs estimation. C Adaptation: Lack of sufficiently comprehensive finance data across various adaptation action areas.

One general conclusion regarding these specific data gaps is that for mitigation generally better data availability is observed on European level as compared to MS level; whereas for adaptation better data availability exists on MS level as compared to European-wide data.

All three of these specific data gaps boil down to the fact that currently there is not enough investment data available across all levels (EU, MS and private sector). In order to be able to deliver on this data it is therefore important that the proposed building blocks help engage and train the various actors in order to be able to deliver improved data in the future.

Broader generic knowledge and process gaps to be tackled In addition to the above-listed specific data gaps encountered for the European domestic climate finance landscape, the stock-taking exercise also revealed several broader knowledge and process gaps that are applicable across the mitigation and adaptation challenges, as well as from top-down (EU- level) versus bottom-up (MS-level) information gathering approaches.

These broader knowledge and process gaps can be summarised as follows:

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Table 4-4 Overview of identified broader knowledge and process gaps Knowledge and process gaps D Lack of common definitions, scope and tracking methodologies making it challenging to compare any of the data that is available, leads to potential misinterpretations and makes it harder to feed lessons learned from elsewhere into own national processes. E Limited technical knowledge on the topic of domestic climate finance tracking among key stakeholders. This may have also hampered the data collection processes of this study. F Insufficient data availability across different types of financing flows from MS level as input for a European domestic climate finance landscape. G Lack of disaggregation of overall EU Budget and EU Financial Institution investment figures available for climate-relevant spending (no adaptation / mitigation split). H Lack of publicly available data from all private sources of finance.

These identified broader knowledge and process gaps directly feed into the formulation of building blocks below. The building blocks should also help (indirectly) to address the prioritised specific data gaps listed above.

Developing building blocks for improved European climate finance tracking Looking at these identified prioritised specific data gaps and additional broader knowledge/process gaps, they can now be translated into a set of so-called ‘building blocks’ that are jointly forming initial food-for-thought for a roadmap on next steps to start closing these gaps and to start sharing best practices and learning experiences among EU and national public and private climate finance actors.

The main objectives of such a roadmap is to strengthen the process around knowledge sharing on current climate finance tracking methodologies and reporting procedures, and to enhance capacity of experts active within public and private sector institutions in the climate finance sector. The suggested building blocks for the roadmap support accelerating climate finance tracking knowledge development and best practices. Figure 4-11 presents an overview of the identified building blocks. The overall starting point (BB-1) is to develop a common understanding on definitions, scope and terminology of climate finance and climate finance tracking specifically in each of the pillars of the EU climate finance landscape diagram. For this development of a common set of terminology, lessons and best practices can be learned from existing reporting methodologies (BB-2) and existing reporting procedures (BB-3) to improve the knowhow and understanding about the technicalities of climate finance tracking. Next to the sharing of existing knowledge, it is important to enhance the capacity of climate finance practitioners in the public and private sector via dedicated training and capacity building programme (- s) across relevant stakeholders (BB-4), as well to establish an EU expert network on climate finance tracking (BB-5) that can serve as a platform for sharing expert views, experience (-s), and (new) knowledge among relevant public and private sector institutions. This EU expert network would be able to feed, and improve, the building blocks around knowledge sharing and to contribute to closing the (current) knowledge gaps. Under all these building blocks, differentiated roles and/or actions can be defined for the different actors involved (e.g. the different sources of finance). For example, while on EU level the tracking process of the EU Budget under the MFF can be reviewed for possible improvements under BB-2 on European level, Member States could review their LCDS, climate and energy plans and/or national adaptation plans for ways to improve the tracking of financial information within these.

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Figure 4-11 Building blocks for a roadmap on closing existing knowledge gaps on climate finance tracking in Europe

[Source: own development (2017)]

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The following sections describe each of the building blocks listed above and identify some concrete actions and suggestions for the short- and long-term.

4.3.1 Building block # 1: Developing a common terminology and definitions

There are some striking differences in the methodologies used by the different stakeholders in the climate finance sector in Europe, especially in the way climate finance is tracked in the administrative systems. In order to improve comparability of climate-relevant investments by public and private sector stakeholders in Europe, we suggest to establish a common set of definitions and terminology that is widely supported among climate finance practitioners. Although there are no internationally agreed definitions for climate finance and modalities for climate finance tracking yet, it is important to come to a harmonised approach for monitoring domestic climate finance spending in Europe. This means, among others, that definitions around the scope of climate-relevant activities, what climate and non- climate flows are, how funding of intermediaries (like EIB) is attributed to EEA countries, etc. need to be developed and agreed upon among relevant stakeholders.

The majority of the survey respondents indicated that no specific climate finance reporting methodologies and/or reporting procedures currently exist for monitoring domestic climate finance, mainly due to a lack of (technical) knowledge and understanding about the subject matter. From the countries reporting that no tracking methodologies or reporting procedures exist at the moment, a large share indicated that they do have intentions to (further) develop methodologies and processes for collecting (climate finance) data information such that a domestic landscaping exercise could be carried out.

Box 4-1 Relevant lessons learned from the EEA-I4CE expert workshop  Increasing the usefulness for investors by expanding into on the project pipeline side and adding analysis on how different types of instruments can help leverage different kinds of finance sources.  Expanding the scope to include the non-climate flows, i.e. financial flows supporting carbon- intensive infrastructure and projects. These flows include a potential for redirection at the country level.

Relevant actors Basically all stakeholders, on European as well as on MS levels, on the private as well as the public side, should engage in this process, as a widely accepted terminology and definitions can only be created when all relevant stakeholders are consulted. The creation of an EU-level working group that steers the discussions and development of a harmonised approach in Europe could support this process. It should however be noted that some existing initiatives in the climate-aid development sector, like the OECD-

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DAC Research Collaborative on Tracking Climate Finance, do look into and research common definitions and frameworks for tracking (international) climate finance that can provide cross-learning experience in the process of defining a common terminology within Europe.

Proposed timing Based on the survey results, it is clear that there is a clear interest at the level of EEA members to build knowledge and establish an overarching reporting framework for tracking domestic climate finance. Therefore, some momentum could be created for bringing together (at least) relevant public sector institutions from the different geographical levels to steer this process. Since establishing a common terminology and definitions (under building block 1) are key to develop a common understanding and base for further developments of knowledge, methodologies and reporting procedures, ideally this process should start at the soonest occasion possible.

4.3.2 Building block # 2: Reviewing and learning from existing tracking methodologies and data collection processes

This report produced a very first assessment of the current state-of-play on domestic climate finance tracking methodologies and reporting procedures in Europe, but this is only a starting point for further cross-learning effects and knowledge sharing between EEA countries – particularly the public sector institutions – after the jointly defined terminology and definitions under building block 1. A first step in implementing this building block could be to agree on a common set of instructions and a shared data collection template for all relevant actors (both public and private sector), in order to facilitate their efforts in gathering data. Such a process would be helped by clear guidance, methodologies and processes at the EU level on methodologies to assess and track mobilised climate finance.

Relevant actors The reviewing process of existing tracking methodologies and data collection processes should probably be centred around a core team of climate finance practitioners (can be both public and private sector experts) that carry out the comparative assessment of existing materials and processes – this could also be the proposed EU-level working group in BB-1. This core team will need support from, in particular, public sector stakeholders in each of the EEA countries – ideally one focal point per EEA country – in terms of delivering the relevant domestic information and data for the comparative assessment. The core team could contain some independent experts that have a helicopter view of the relevant discussions around (domestic) climate finance in Europe. Also for building block 2, it is important that the different funders of climate finance in Europe (both public and private sector) are well-represented in the list of stakeholders to be consulted for sharing their practices and experiences.

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Proposed timing As mentioned under building block 1, there is a clear interest at the level of EEA members to learn more about (domestic) climate finance processes and procedures, and that some momentum should be created to make it a coordinated action to start addressing the knowledge gaps. In parallel to develop a common terminology and definitions (BB-1), the actions needed under BB-2 could be started, such that the review and learning process can feed back the gained knowledge, best practices and experiences into the discussions around a harmonised set of principles. It is therefore suggested that BB-1 and BB-2 are started in parallel such that clear feedback loops and synergies can be created with the aim to (further) enhance the knowledge sharing process.

Illustrative examples: EU level On EU level, such review and learning process could start with a review of the EU Budget (the multi- annual financing framework) and what can be learned with regards to (a) the current tracking methodologies applied, as well as (b) potential future improvements as regards tracking for mitigation and adaptation activities separately.

Illustrative examples: Member State level Not all EEA members and/or public and private sector institutions in EEA countries currently collect the relevant data around (domestic) climate finance. Most respondents to the survey indicated that they are not aware about any (ongoing and intended) domestic climate finance research and data collection processes in their country, nor do they have access to a centralised database or platform that ‘stores’ data and information on climate mitigation and climate adaptation flows (actual investments). Several countries do though report that (partial) assessments have been made, or are ongoing, regarding (domestic) knowledge gaps and/or organisational/procedural gaps in relation to implementation towards their national energy and climate-related targets. In addition to identifying funding needs, and leveraging the necessary finance to meet the anticipated gaps, a robust framework for tracking progress towards the long-term climate goals will be essential to ensure transparency and accountability in EU climate-related expenditure as well as helping to target this spending.

Box 4-2 Belgium: degree of transferability of the Belgian climate finance tracking methodology The methodology developed and used for the Belgian landscaping exercise197 can be replicated and applied in other EEA countries, however, it is important to flag that the application of the ‘Belgian methodology’ is quite time consuming which can be a major hurdle for applying this methodology in other countries. Moreover, it should be noted that the applied methodology isn’t easily replicable for successive years as the Belgian methodology is a snapshot of a specific timeframe. Until certain statistics (i.e. proxies) will become available, the bottom-up exercise would have to be repeated for every year. This is different in the German and French landscaping exercises, as these reports use generic figures as input that are produced on an annual basis.

197 Rademaekers et al (2016). Landscape of climate finance in Belgium. Federal Public Service (FPS) Health, Food Chain Safety and Environment, Belgium. http://www.klimaat.be/files/4914/6901/4152/Landscape_of_climate_finance_in_Belgium.pdf

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Box 4-4 France: transferability of lessons learned during their landscaping process198 The French experience199 in tracking investment and finance of low-carbon projects has resulted in a number of elements that could be useful for other EEA countries to take into account, such as:  A description of the perimeter of eligible investments, with a description of the sources and reasoning for inclusion or exclusion of some projects;  A framework for the identification and tagging of investment & financial flows, which includes provisions to distinguish between: o Various sectors (transport, buildings, industry, agriculture, energy production), o Various low-carbon applications (energy efficiency, renewable energy, infrastructure), o The type of project manager (households, companies, public agencies, etc.), o The type of financial instrument (grants and subsidies, concessional and commercial debt, own funds, etc.), o The method of mapping and contextualizing individual financial flows within the broader “Landscape” – whether from source to intermediary, intermediary to project manager, or project manager to final project;  Excel templates to present graphically and manage efficiently the tagging and tracking of annual data, including specific provisions for expanding coverage to upcoming years;  Feedbacks on solving specific issues, such as: o The conversion of plurennial financial commitments into annual disbursement flows (when necessary to correspond with annual investment figures); o Keeping track of public support for soft loans, in case the support is in the form of tax abatement on interest, guarantees, etc.; o Methodologies to match public spending in support for investment with various public revenue streams (such as general budget, taxation, debt raised at the central or local level).

It is important to note that due to the current work being funded by French public institutions, the most up-to-date documentation is unfortunately only available in French. Transfer to European counterparts could thus require specific time dedicated to translation and sharing of the existing material and tools.

Private sector On the private sector side, lessons could be learned from existing investment tracking tools (if the owners of these are willing to share such information with a wider group for learning purposes). For example, one could explore the detailed methodology, assumptions, etc. behind BNEF’s worldwide RES investment tracking.

198 The information contained in this box represents feedback provided to the authors of the study by H. Hainaut, I4CE – Institution for Climate Economics. 199 Hainaut et al (2015). Landscape of climate finance in France 2011-2014. I4CE Institute for Climate Economics. http://www.i4ce.org/download/landscape-of-climate-finance-in-france-2015-edition-full-report/?wpdmdl=13071

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4.3.3 Building block #3: Leveraging existing reporting procedures for gathering improved domestic climate finance information

One of the main messages of this report is that data and knowledge gaps around (domestic) climate finance exist in and between EEA countries across all levels, in terms of understanding and knowhow about the technical concepts of climate finance, as well in terms of data collection processes and tracking mechanisms for reporting purposes. Where earlier building blocks focus on the development of a structured framework that works with a common and harmonised set of principles around climate finance definitions and terminology (BB-1) and receives feedback from existing reporting practices, procedures and data collection processes by individual actors and climate finance practitioners at the national (and European) level (BB-2), it is important as well to mainstream the collected disaggregated data and information into a centralised reporting procedure.

We therefore suggest that common reporting modalities are developed, ideally at the EU level, such that national countries use the same standards and templates when reporting on their actual (domestic) climate finance spending, their planned investments in domestic climate mitigation and adaptation projects and programmes, as well on the identified investments needs for achieving their national energy and climate change targets and objectives. However, before putting new and additional reporting obligations in place for EEA member countries, it should be researched whether existing and established reporting procedures at the EU level could be used and leveraged for developing a structured reporting procedure on (annual) domestic climate finance expenditures. The recently published special report200 by the EU Court of Auditors on climate spending from the EU budget under the current Multi-annual Financial Framework (MFF) makes a key recommendation to the Commission to develop a comprehensive reporting framework on the EU’s and Member State’s actions and investments to progress their performance on their target to spend 20% of their (national) budgets on climate action. Although the Commission only partly accepted this recommendation from the ECA report, this may start some momentum in any case to review some existing reporting procedures and see how these could be possibly improved to accommodate some of the actual information needs around domestic climate finance at the European level.

Box 4-5 Relevant lessons learned from the EEA-I4CE expert workshop  The expert meeting identified a growing potential to include data disclosed by financial institutions and companies under requirements set up by the non-financial reporting directive, or other national legislation.

200 http://www.eca.europa.eu/Lists/ECADocuments/SR16_31/SR_CLIMATE_EN.pdf

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Relevant actors Also here, the reviewing process of existing reporting procedures and mechanisms should probably be centred around a core team of climate finance practitioners (can be both public and private sector experts) – this could also be the proposed EU-level working group under the previous building blocks.

Proposed timing The review process and planned activities should probably follow on the work under BB-1 and BB-2, as it is important to have a widely accepted common understanding about the technicalities of domestic climate finance reporting and tracking in place. This provides a certain knowledge base of the EU-level working group, or the climate finance practitioners working on BB-3, to make a proper and thorough assessment how any necessary reporting requirements for domestic climate finance can be ‘merged’ into existing reporting procedures, if applicable.

Illustrative examples: EU level On EU level, as mentioned under BB-2, the most obvious existing tracking procedure that could be leveraged on and further optimised for the purpose of domestic climate finance tracking is the MFF tracking process of the EU Budget. More specifically, following the recommendations in the Court of Auditors report, and strengthened by the Council conclusions of 21 March 2017201, it would be useful to differentiate between climate mitigation and climate adaptation spending in the EU budget.

Illustrative examples: MS level On Member States level, various existing formalised reporting procedures already contain some sort of reference to financing aspects. These should be reviewed and leveraged in order to minimise additional reporting burden and fast-track the ways in which to collect domestic climate finance information from Member States. The national low-carbon development strategies (LCDSs), for example, do include a section on financing needs for implementing actions that support countries to meet their national energy and climate change targets and priorities. This annual reporting obligation may be an opportunity for including domestic climate finance tracking and reporting elements in there. Similarly, a clear description of investment needs and an obligation to report on past investment trends may fit well within the context of the combined national energy and climate plans.

Along similar lines, when talking about adaptation finance, the national adaptation plans (NAPs) might be a mechanism for including improved reporting requirements on domestic adaptation finance;

Illustrative examples: Private actors When looking at private actors, the leveraging of existing reporting mechanisms may be slightly more challenging. What would need to be reviewed is any type of existing structures that would be able to help gather investment information from private companies, banks, and other financial market actors. This may be possible if disclosure obligations are considered. Such an option could be further explored via the ongoing High-Level European Group on Sustainable Finance, for example.

In addition, investment information from small end users (e.g. their investments in energy efficiency measures in their homes) is also very much inaccessible at the moment. Reviewing any existing mechanisms that may be able to help fast-track the collection of this type of data should also be

201 http://data.consilium.europa.eu/doc/document/ST-7495-2017-INIT/en/pdf

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prioritised because households are expected to stem a large part of the remaining climate financing gap between now and 2030.

4.3.4 Building block #4: Training and capacity building on climate finance across stakeholders

Aside from the need to create a certain knowledge base (and level) and share existing knowledge, best practices, experiences and other relevant insights with and between relevant climate finance practitioners, it is important to enhance capacity and knowledge of existing and new stakeholders active in the domestic climate finance landscape in Europe. The stock-taking exercise has shown a clear need for further knowledge building and training across all levels of stakeholders: MS level, EU level and the private sources of finance. The analysis of the EIONET survey results furthermore observed that the majority of the respondents, for example, did not report their national EU ETS auctioning revenues as domestic climate finance. Although it was not possible to find clear arguments why most of the respondents did not report on this, one reason could be that there is a lack of knowledge and understanding that such EU ETS auctioning revenues can, and should, be reported as domestic climate finance.

Box 4-6 Relevant lessons learned from the EEA-I4CE expert workshop  Capacity building, approached on country level, would be needed to ensure a more widespread uptake and use of the methodologies and tools underpinning climate finance landscapes across Europe.

In order to enhance the knowhow and capacity of responsible stakeholders, it is suggested to develop dedicated training and capacity building programmes on climate finance across the relevant public and private sector stakeholders involved on this subject matter. It might very well be that capacity building programmes should be tailored towards specific sets of practitioners (i.e. national policy makers, bankers, public finance institutions, etc.) and/or towards a regional grouping of countries that have similar energy and climate action or investment needs (i.e. in terms of instruments used in their economy) challenges at the national level. Some examples of potential actions and activities that could be deployed under this building block are:  Development of training sessions and workshops on a regular basis with a ‘fixed’ group of relevant climate finance practitioners, both at the national level but also regional level, to make sure that knowledge exchange and joint learning happens between countries that face similar challenges in addressing their investments mobilisation or climate finance reporting systems (or other matters);  Developing and testing of serious gaming aspects on climate finance with different types and categories of practitioners. Real-life or hypothetical case studies on project-financing certain climate mitigation or adaptation actions should be addressed in a climate finance game, in

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which relevant stakeholders take different ‘heads’ – for example, national decision-makers approach such a project case from a commercial bank’s perspective, and vice-versa. Currently, Trinomics is testing the ground for such serious gaming exchanges for the international climate finance community;  Development of a Massive Online Open Course (MOOC) that is accessible for relevant climate finance practitioners from all over Europe, or even outside Europe for bringing in experiences and knowledge from other geographies, which could also serve as an online knowledge sharing and dissemination platform.

The capacity building and training could also be dedicated to very specific data gaps identified during the stock-taking exercise. This could help solve some of the prioritised data gaps. For example, improved coverage and further disaggregation of energy efficiency in buildings investment data is urgently needed in order to better understand, and consequently address, the large remaining financing gap for this mitigation action area. To this end, key actors involved (such as the typical sources of finance, i.e. households, private companies and commercial banks), as well as the relevant actors on MS and EU levels could work together to review current methodologies, suggest how to improve coverage of this particular topic, and then introduce relevant training sessions in order to disseminate and roll out the agreed approach.

4.3.5 Building block #5: Setting up a European expert network on domestic climate finance tracking

As a follow-up to an EU expert workshop with climate finance practitioners from the public sector, jointly organised by EEA and I4CE, in Copenhagen, I4CE already has taken the initiative to propose the creation of a European expert network on domestic climate finance tracking. The objectives of this expert network are to:  Promote research on climate finance tracking in Europe;  Link and share knowledge and opportunities between interested stakeholders;  Develop a contact database with relevant actors from EU, national, local levels, etc.;  Increase visibility and importance of the subject on European and national levels, including the promotion of existing and upcoming national or European initiatives;  Engage private financiers in discussions and further development processes to further their understanding of the urgency of this topic;  Increase policy relevancy and use of the climate finance landscape products, through engagement with EEA countries.

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Relevant actors Potential members of the EU expert network could include:  Individuals and institutions that are ready to declare an interest in conducting work on tracking & analyzing climate finance in Europe for the benefit of better public policies;  Condition to join is to show interest and be able to participate to one or two annual meetings/calls.

Connections should be made whenever possible with existing networks and initiatives such as the OECD Research Collaborative on Tracking Climate Finance. Moreover, opportunities for engagement with broader climate finance and/or green economy events was highlighted as an opportunity for the potential EU expert network. In particular, links could be drawn to the High-Level Expert Group on Sustainable Finance (DG FISMA), the FSB Task Force and the G20 hosted by Germany in Berlin in July 2017).

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5 Annex A: EIONET survey

This Annex contains the survey as held among EIONET experts in order to gather information on a national level, executed next to our desk research. Additionally the survey provided important qualitative inputs uncovering important information concerning climate finance tracking on a national level. Annex A1 shows the original survey as set out among the EIONET experts in the field. Annex A2 provides the most important original first-entry inputs

A1: The EIONET survey

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A2: First-entry (face value) survey results

The table below shows a face-value of the original results as submitted by the EIONET respondents. By first-entry we mean before additional follow-up, as for a number of cases additional correspondence with the respondents revealed that their initial entries required slight adjustments. Note also that due to our own verification of the reports or with other field experts, these face-value survey results do not necessarily match the results of our study as presented in Chapter 3. Moreover, sometimes the additional provided information revealed that the initial response may not have been the appropriate answer as we intended with our question.

The table only shows which boxes were ticket by the respondents, qualitative information which was provided at the specification boxes is not presented here. The label system is shown in the following legend below, where green indicates ‘Yes’, orange ‘I don’t know’ and red ‘No’. If no response was received at all the cells are left blank, if questions were skipped they are grey. Notice that there was a skip-logic built in in the survey; in the case where the respondent indicated that no information was available (Q4 for example), the following question requesting access to the information was automatically skipped (grey label). For the access questions, the orange label indicates that another institution holds the data. A red label here indicates that the available information is confidential. At Q1-3 orange signifies that partial contact information was provided. At Q23 the orange label represents that the respondent ticked the box labelled ‘maybe’, whereas at the other questions an orange label indicates ‘don’t know’.

Legend: Grey Respondent skipped answer Green Respondent answered 'Yes' Organge Respondent answered 'I don’t know' Orange (Q1-3) Respondent provided partial contact information Orange (Access questions) Respondent answered ‘No, another institution holds the data’ Orange (Q23) Respondent answered ‘Maybe’ No Respondent answered 'No' No (Access questions) Respondent answered ‘No, information is confidential’ Blank No response was received at all

For Q12 up to Q16 we were interested whether the respondent was aware of a described scope used for climate finance within their member state. Green therefore means that the country does have some definition of a scope; 'red' means they were not able to give a definition of their scope. Also if respondents skipped the scope questions, it was labelled with a red no. Question 17 is labelled green if the respondent referred us to an institution/expert who would be able to help us further with the scope question; grey if left unanswered.

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Availability of Defined Knowledge Info estimate figures methodology aquirement Q12 Q1-3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 -16 Q17 Q18 Q19 Q20 Q21 Q22 Q23

infoContact needs Mitigation Access? needs Adaptation Access? flows Mitigation Access? flows Adaptation Access? Scope contact Follow Specifc research Finance assessment Access? gap research Gap develop Plan to Learn more

Albania Austria Belgium Bosnia/Herzegovina Bulgaria Croatia Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Iceland Ireland Italy Kosovo Latvia Liechtenstein Lithuania Luxembourg Macedonia Malta Montenegro Netherlands Norway Poland Portugal Romania Serbia Slovakia Slovenia Spain Sweden Switzerland Turkey United Kingdom

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6 Annex B: Additional information from the mitigation stock-taking exercise

This annex provides supporting evidence for Chapter 2 of the main report.

6.1 Supporting evidence on estimated investment needs

6.1.1 EU level: comparative analysis of available literature During the research and analysis for this report several major studies have been reviewed. Most of these studies stem from bodies such as the European Commission and the IEA/OECD, providing an independent and objective analysis of pathways to achieve a low-carbon economy. Due to the use of different scopes across the reports, the resulting investment needs estimates are – in essence – not comparable at face-value. To be able to make a meaningful assessment of the current state of play of estimated mitigation investment needs for the EU as a whole, four key reports were selected and assessed in further detail, namely: EC (2011), Energy Roadmap 2050; SWD (2014) 16, Impact Assessment of the 2030 climate and energy framework; OECD/IEA (2014), World Energy Investment Outlook; EIB (2016), Restoring EU competitiveness202; and SWD (2016) 405, Impact Assessment for a revised Energy Efficiency Directive.

The main requirements for this selection were that the reports’ estimates needed to be in line with the latest set targets at least up to 2030 (i.e. 27% renewable energy share and 30% energy savings)203, taking a broad scope including at least (most) of the sectors relevant for mitigation.

The other reports initially reviewed, but not presented in the main report, include: OECD/IEA (2016), World Energy Outlook: Does not include figures on investment needs for a low-carbon economy (the 450 scenario); only includes figures on the EU level for the new policies scenario, which is a reference scenario. OECD/IEA (2016), World Energy Investment Outlook: Only includes figures on the EU level of current (2015) investments. OECD/IEA (2015), WEO Special Report Energy and Climate Change: Includes only an INDC and a Bridge scenario on the EU level. The most relevant scenario to reach a low-carbon economy is (the 450 scenario) is more thoroughly discussed in OECD/IEA 2014. Barclays (2011), Financing the low carbon economy: Only includes power supply figures between 2011-2020. Ecofys (2011), Financing Renewable Energy in the European Energy Market: Only includes renewable energy between 2011-2020. More detailed information on these reports is presented in Annex B, Section 1.

202 It should be noted here that the EIB (2016) report, while listed here as one of the reports providing investment needs figures, it is not analysed in further detail throughout this section because its investment needs estimations are “EC estimates of average annual investment in EU28 over the period 2016 to 2030, supplemented on occasion by EIB estimates. The scenario assumes compliance with all existing EU legislation, plus adoption of a 40% GHG target by 2030.” This signifies that the underlying scenario and assumptions largely correspond to those of the SWD (2014) 16. 203 The presented figures were selected to only include scenarios complying to the EU climate targets of 27% RE, 30% EE and 40% GHG in 2030 (and 80% GHG cuts in 2050). For the SEC (2011) Energy Roadmap 2050 and the OECD/IEA (2014) World Energy Investment Outlook such scenario results are not given. Therefore for these reports it remains unclear whether the investment needs estimates they present are sufficient to reach the current targets.

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Even the four key studies are rather difficult to compare, as the scope is different (what is taken into account), they use different underlying models and assumptions, take into account different pathways to reach the low-carbon economy and concern different timeframes. Consequently, the result is that these studies offer a wide range of estimates (see Table 6-1). Depending on the main interest/goal of the reader, one may select one of these sources to serve as the main reference point on EU level investment needs estimations. For the purpose of this report, the most recent impact assessment by the European Commission as part of the 2016 ‘Clean Energy for All Europeans’ package is used as the main reference as it is the one most clearly in line with all the most recent policy targets and is most comparable with current EU budget spending and planned expenditures in the following sections.

As regards the reported quantified investment needs estimates, the lowest total investment need for Europe is estimated at 300bn USD’12 annually, in the World Energy Investment Outlook (WEIO) by OECD/IEA (2014). The other reports indicate a minimum investment need of 900 bn EUR’10 (SWD, 2014) to reach the low-carbon economy in the EU. When increasing the level of ambition, for example by setting a target of 40% energy efficiency increase, annual investments may reach up to almost 1600 bn EUR’13 (SWD, 2016). Below, the report presents a close analysis of these investment figures and explains why they differ as a result of the use of different methodologies. It should be noted that these are total investment needs, thus including all relevant investments that need to be made in the upcoming future, not only those that would be required in addition to the business-as-usual development.

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Table 6-1 EU-wide mitigation investment needs according to four key documents and their most important scenario outputs Annual Cumulative Energy system % EE savings Electricity mix Time investment Primary energy % RES (in gross % GHG reduction Source Scenario investment Unit perspective (figures (PEC) vs 2007 (incl. % RES- horizon needs demand (Mtoe) FEC) (vs 1990) needs split) projection electricity) (average) 1729 in 2030 23.9% in 2030 -5.3% in 2030, Reference 39,320 983 -39.2% in 2050 40.3% in 2050 1763 in 2050 25.5% in 2050 -3.5% in 2050* - Energy system capital 1452 in 2030 27.6% in 2030 -20.5% in 2030, High EE 56,400 1410 -80% in 2050 64.2% in 2050 1084 in 2050 57.3% in 2050 -40.6% in 2050* cost Diversified EC (2011), Energy - Energy system direct 1534 in 2030 27.7% in 2030 -16% in 2030, supply 2011-2050 50,400 1260 bn EUR'08 -80% in 2050 59.1% in 2050 Roadmap 2050 efficiency investment 1217 in 2050 54.6% in 2050 -33.3% in 2050* technologies costs 1510 in 2030 31.2% in 2030 -17.3% in 2030, High RES 50,120 1253 (split made for grid -80% in 2050 83.1% in 2050 1134 in 2050 75.2% in 2050 -37.9% in 2050* investments) 1489 in 2030 28.8% in 2030 -18.5% in 2030, Low nuclear 50,600 1265 -80% in 2050 64.8% in 2050 1137 in 2050 57.5% in 2050 -37.7% in 2050* 2011-2030 16,320 816 1611 in 2030 24.4% in 2030 -21% in 2030 -32.4% in 2030 31.0% in 2030, Reference 2031-2050 18,980 949 Energy system: 1630 in 2050 28.7% in 2050 36.8% in 2050 GHG40/ - Generation & boilers 2011-2030 17,580 879 1433 in 2030 30.3% in 2030 -30.1% in 2030 -40.7% in 2030 39.7% in 2030 SWD (2014) 16, IA EE/RES30 - Grid bn EUR'10 2030 2031-2050 26,660 1,333 - Industry 1125 in 2050 59.2% in 2050 63.4% in 2050 - Residential & tertiary GHG45/ 2011-2030 18,180 909 - Transport 1364 in 2030 35.4% in 2030 -33.7% in 2030 -45.1% in 2030 47.3% in 2030 EE/RES35 2031-2050 26,660 1,333 1102 in 2050 61.7% in 2050 66.7% in 2050 OECD/IEA (2014), NPS 5,384 245 - Energy supply World Energy 2014-2035 bn USD'12 (power+fuel) Investment 450 scenario 6,526 297 - End-use efficiency Outlook Current 2001-2015 1,950 130 Energy sector: EIB (2016) - Energy networks Restoring EU bn EUR’15 - EE in Buildings & competitiveness Required 2016-2030 3,450 230 Industry - 40% in 2030 - Power gen. (incl. RES) Reference 9,380 938 Energy system: 1436 in 2030 24% in 2030 -23.9% in 2030 -35% in 2030 42% in 2030 - Generation & boilers EUCO30 11,150 1115 1321 in 2030 27% in 2030 -30.0% in 2030 -41% in 2030 49% in 2030 SWD (2016) 405, - Grid 2021-2030 IA on Energy bn EUR'13 - Industry EUCO+33 12,320 1232 1260 in 2030 28% in 2030 -33.2% in 2030 -43% in 2030 49% in 2030 Efficiency - Households EUCO+35 13,240 1324 - Tertiary 1220 in 2030 28% in 2030 -35.3% in 2030 -44% in 2030 48% in 2030 EUCO+40 15,650 1565 - Transport 1129 in 2030 28% in 2030 -40.1% in 2030 -47% in 2030 51% in 2030 * Versus actual 2005

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Geography The scope of this study covers 39 countries (the EEA member states and six cooperating countries). The key reports presented here (except the WEIO) have been initiated by the European Commission. These reports therefore only cover the 28 Member States of the European Union. In fact, the Energy Roadmap 2050 (SEC, 2011) only covers EU27, as it was published before the inclusion of Croatia. To truly gain an up-to-date overview of the estimated mitigation investment needs for all 39 EEA Member States thus requires additional analysis. It may be most suitable to add the mitigation investment needs of the missing countries204 to the identified overall EU investment needs.

Table 6-2 shows how different geographic coverages influence investment estimates, as reported by the World Energy Investment Outlook (OECD/IEA, 2014). While the OECD countries in Europe cover less countries than the current EU (only 25 countries), the climate investments here are estimated 16.7% higher. This difference can likely be explained by the fact that the OECD includes relatively large countries like Norway and Turkey, while excluding Bulgaria, Croatia, Cyprus, Lithuania, Malta and Romania. For comparison to the global situation, European estimated investment needs comprise 11- 14% (depending on the scope) of the total global investment needs estimations.

Table 6-2 Annual investments in bn USD’12 between 2014 and 2035 for three different geographic areas

Reference scenario 450 pathway

EU28 245 297 OECD Europe 286 346 World 2 189 2 405 [Source: OECD/IEA, 2014]

Timeframe As was shown in Table 6-1 , only SEC (2011) and SWD (2014) use the same timeframe, both giving investments between 2011 and 2050. SEC (2011) estimated cumulative investment needs to reach 50.1 to 56.4 trillion EUR’08. Three years later the SWD (2014) scenarios showed a cumulative investment need between 40.8 and 44.8 trillion EUR’10. The difference between both estimates is very large, amounting up to around 10 trillion Euros. This difference must therefore be explained by other differences in the investment calculations, like the scope or the prices.

The reason why figures covering different timeframes should not be compared, lies in the fact that investment needs typically increase over time. This is explained by the fact that the cheapest decarbonisation options would generally be applied first, with the more expensive investments coming later in time. Also, it is possible that during a delayed investment in the early years, investment volumes in later years would have to be significantly higher in order not to fail the cumulative investment needs. This point therefore complicates the comparability to studies using different timeframes when no sub- time intervals are distinguished.

204 Beyond EU28, the EEA countries cover five members (Iceland, Liechtenstein, Norway, Switzerland and Turkey) and six cooperating countries (Albania, Bosnia and Herzegovina, Kosovo, Macedonia (FYROM), Montenegro and Serbia).

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It is therefore not strange that the investment needs over 2021-2030 as given by SWD (2016) lie above the SWD (2014) estimates which cover the timeframe 2011-2030. SWD (2016) estimates investment needs in the range of 1036-1565 EUR’13, SWD (2014) estimates amount only 879-909 EUR’10.

Macroeconomic model inputs and outputs To assess future investment needs, all four key reports use the PRIMES/GAINS framework model to analyse the long-term energy, transport and GHG emission trends. These models are based on the latest projections of for example economic development and demographic changes.

Table 6-3 shows the most important differences in the methodological set-up of the studies’ underlying macro-economic assumptions. The most striking difference in inputs is the change of GDP projections over the years. In 2011 the SEC used much higher growth rates (2.0% between 2010 and 2030). This interrelates with the oil prices, which are overall increasing with the downward adjusted GDP projections. Another important model input is population growth, which was similar for the reports. How different macroeconomic changes affected the eventual needs estimates requires an in depth analysis of all the parameters and is beyond the scope of our study.

Table 6-3 Overview of important macro-economic model inputs Key report GDP growth Energy pricing (per boe) 2.0% (2010-2030) 106 USD’08 in 2030 SEC (2011), Energy roadmap 2050 1.5% (2030-2050) 127 USD’08 in 2050 1.5% (2010-2020) SWD (2014) 16, Impact 121 USD’10 in 2030 1.6% (2020-2030) Assessment 143 USD’10 in 2050 1.4% (2030-2050) OECD/IEA (2014) World Energy ~1.7%* 128 USD’12 in 2035 Investment Outlook SWD (2016) 405, Impact 1.2% (2010-2020) 110 USD’13 in 2030 Assessment 1.5% (2020-2050) 130 USD’13 in 2050 [* Not available in OECD/IEA (2014); this figure is presented in OECD/IEA (2015)]

Important macroeconomic outputs are shown in Table 6-4 below. Comparing the ETS prices of the different reports clearly shows that the price per tonne CO2 equivalent was estimated higher (40) for 2030 in the 2011 SEC report compared to both SWD reports (35 and 34 respectively ). The 2050 price on the other hand is estimated twice as high by SWD (2014) compared to SEC (2011).

Table 6-4 Overview of important macro-economic model outputs

CO2 pricing (per Cost of electricity Total system cost Scenario / Key report tonne CO2-eq) in (per MWh) in (average annual) pathway EUR’08 EUR’08 in EUR’08 Reference 40 / 52 / 50 154.8 / 151.1 2704 High EE 25 / 87 / 234 154.4 / 146.7 2788 SEC (2011), Energy Diversified 52 / 95 / 265 159.6 / 146.2 2735 roadmap 2050 High RES 35 / 92 / 285 164.4 / 198.9 2795 Low nuclear 63 / 100 / 310 168.2 / 157.2 2772 Unit: EUR’08 in 2030/2040/2050 in 2030/2050 up to 2050 Reference 35 / 100 176 / 175 2067 / 2520

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GHG40/EE/RE 11 / 152 178 / 192 2089 / 2891 S30 SWD (2014) 16, GHG40/EE/RE Impact Assessment 14 / 85 196 / 197 2102 / 2925 S35 Unit: EUR’10 in 2030/2050 in 2030/2050 up to 2030/2050 OECD/IEA (2014) NPS ~33 NA NA World Energy 450 NA NA NA Investment Outlook Unit: EUR in 2030 NA NA Reference 34 158 1928 EUCO30 27 157 1952 SWD (2016) 405, EUCO+33 27 158 1977 Impact Assessment EUCO+35 20 157 2014 EUCO+40 14 159 2077 Unit: EUR’13 in 2030 in 2030 up to 2030

Pathways to a low-carbon economy – comparison of scenarios Studies often look at different pathways to reach the low-carbon economy. This can inform policy- makers on how different pathways towards the same broad policy goal can still imply that the associated total investment needs figures differ from one another. For example, if the pathway rejects nuclear energy, this needs to be substituted by other (possibly more expensive) technologies. This has consequences for the required investments to reach the decarbonisation targets. Some of the studies also explore more ambitious pathways reaching higher decarbonisation levels than required by the currently set targets.

Therefore, the inclusion of different pathways to reach the low-carbon economy, results in a range of total mitigation investment needs figures. This range can deviate substantially.

Below, different pathways with increasing ambition levels are set out. The reference scenarios are also discussed (‘0’ pathway), representing a business-as-usual situation. The difference between the decarbonisation pathways and the reference scenarios represents the remaining mitigation financing gap.

EC (2011) energy roadmap 2050: The 2011 Energy Roadmap 2050 by the European Commission analysed four different decarbonisation pathways where at least the current RES targets were met: 0) Reference scenario (983 bn EUR’08): this reference scenario includes current trends and long-term projections on economic development, rising fuel prices and policies implemented by March 2010. No further policies after 2020 are modelled. 1) High EE (1410 bn EUR’08): driven by political commitment of very high primary energy savings including a very stringent implementation of the Energy Efficiency plan. 2) Diversified supply technologies (1260 bn EUR’08): a pathway where all energy sources can compete on a market basis, therefore displaying a significant penetration of CCS and nuclear energy. 3) High RES (1253 bn EUR’08): aims to achieve an overall higher RES share, very high RES penetration in power generation relying mainly on domestic supply.

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4) Low nuclear (1265 bn EUR’08): similar to ‘diversified supply technologies’, but with a lack of public acceptance of nuclear energy.

SWD (2014) 16, Impact Assessment for the 2030 climate and energy framework: Distinguishes two scenarios where the targets are met: GHG40/EE/RES30 and GHG45/EE/RES35. The second scenario is basically more ambitious than the first scenario. 0) Reference scenario (883 bn EUR’10): this reference scenario explores the consequences of current trends, including full implementation of policies adopted by late spring 2012. 1) GHG40/EE/RES30 (1106 bn EUR’10): this pathway is mainly driven by explicit ambitious energy efficiency policies and pre-set RES target (30%) that ensure progress by addressing market imperfections and failures. CO2-price for both ETS and non-ETS sectors, but not main driver (lower ETS-price than in reference scenario). 2) GHG45/EE/RES35 (1121 bn EUR’10): this scenario has a high ambition in terms of GHG emission reduction. Driven by very ambitious energy efficiency policies and pre-set RES target (35%). CO2- price for both ETS and non-ETS sectors, slightly higher than in scenario 1 up to 2030, but not main driver (lower ETS-price than in reference scenario).

OECD/IEA (2014) World Energy Investment Outlook: At the WEIO only one pathway besides a reference scenario was explored which takes into account reaching the climate targets. 0) Reference scenario (245 bn USD’12): this scenario is commonly referred to as the New Policies Scenario. This takes into account broad policy plans and commitments that have been announced by the Member States. 1) 450 scenario: for this scenario a pathway is set out which is consistent with a 2°C temperature rise

by limiting the concentration of GHGs to 450 parts per million of CO2.

European Commission SWD (2016) 405, Impact Assessment – Proposal for a revised EE Directive: The European Commission’s 2016 impact assessment considers five different pathways, all taking into account the 2030 targets205. However, as in 2015 the EU parliament called for three binding energy and climate targets for 2030, the ‘+’ scenarios consider more ambitious scenarios anticipating unforeseen changes. 0) Reference scenario (236 bn EUR’13): assumes no new policies beyond those adopted by the end of 2014 and adheres to binding 2020 targets. 1) EUCO30 (1115 bn EUR’13): policy pathway with 30% reduction of primary energy consumption, the current minimum energy efficiency ambition level. 2) EUCO +33 (1232 bn EUR’13): policy pathway with 33% reduction of primary energy consumption and higher RES shares 3) EUCO+35 (1324 bn EUR’13): policy pathway with 35% reduction of primary energy consumption and higher RES shares 4) EUCO+40 (1565 bn EUR’13): policy pathway with 40% reduction of primary energy consumption and higher RES shares

The four analysed documents show a large variety of pathways to reach the climate targets. Most comparable between reports are the decarbonisation scenarios with the lowest level of ambition,

205 It should be noted that the EUCO27 scenario is not presented here as it would not achieve the latest agreed EE ambition of 30%.

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numbered ‘1’. However, the underlying policy scenarios also differ substantially, as the scenarios aim to include the latest announced policies, which can change very regularly. It therefore seems valuable to anticipate on certain developments by looking at more ambitious pathways. However, as the above analysis shows this also leads to a large range of estimates.

Technological and sectoral coverage The differences in technological and sectoral scope between the studies makes up the key reason for the differences in the total mitigation investment needs estimates. The different scopes (or perspectives) applied are subsequently discussed below.

SEC (2011): Capital costs and direct efficiency investments: In the Energy Roadmap 2050 the estimates were least detailed. Table 6-5 extracted capital costs plus direct efficiency investment costs. Capital costs include installations such as power plants, energy infrastructure, energy-using equipment, appliances and vehicles. Direct efficiency costs cover for example house insulation, control systems and energy management.

Table 6-5 Average annual energy system costs in EUR’10 (2011-2050) according to SEC (2011) Energy Roadmap 2050 Low Reference High EE Diversified High RES nuclear Capital costs 955 1115 1100 1089 1104 Direct efficiency investment costs 28 295 160 164 161 Total investment expenditure 983 1410 1260 1253 1265 (excluding energy purchases) * Excluding auction payments and disutility

Besides these large items, the SEC (2011) also separately reported investments in the power sector. These are given in Table 6-6. In the decarbonisation pathways the investments for the power sector reach 3.7 to 5.4 trillion EUR. Annually this translates to 91.7 to 134.9 bn EUR, about a tenth of the total investments in the energy system.

Table 6-6 Cumulative/average annual investments in EUR’10 (2011-2050) in the power sector (SEC, 2011) Energy Roadmap 2050 Reference High EE Diversified High RES Low nuclear Grid* (EUR’08) 1269/31.7 1518/38.0 1712/42.8 2195/54.9 1793/44.8 Generation** (EUR’05) NA 2150/53.8 2450/61.3 3200/80.0 2500/62.5 Power supply (EUR) 1269+/31.7+ 3668/91.7 4162/104.1 5395/134.9 4293/107.3 * In the original document also intervals were distinguished up to 2020 and 2030, showing increasing grid investment costs with each interval ** Estimated from figure

SWD (2014 and 2016): Energy system investment expenditures: Both impact assessments of 2014 and 2016 make an almost similar division of investment expenditures required in the different sectors. The 2016 impact assessment also split up investments in households and the tertiary sector, which were grouped together in the 2014 assessment. We assume that these figures include the same subsectors for both assessments, which means that the differences are not explained by a different coverage scope, but by other aspects including a difference in timeframes, unit of measurement, decarbonisation pathways and underlying models.

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Table 6-7 Average annual investment needs : comparing the two EC Impact Assessments SWD (2014) SWD (2016) in EUR’13 Average annual 2011-30 / 2031-50 Average annual 2021-2030 in EUR’10 In EUR’13 REF GHG40EERES30 GHG45EERES35 REF 30 +33 +35 +40 Industry 19/30 37/152 31/148 15 19 24 29 51 Households 127 214 286 337 455 50/38 84/221 97/148 Tertiary 23 68 119 157 257 Transport 660/782 662/841 662/834 705 736 729 733 740 Grid 37/41 40/47 42/52 34 36 34 31 26 Generations 50/59 55/72 68/67 33 42 40 37 36 & boilers Total 816/949 879/1333 909/1333 938 1115 1232 1324 1565

Comparing these figures to SEC (2011), it looks like the impact assessments included the same demand and supply sectors. However, as the SEC (2011) is unclear in what is included in the total investments, and therefore it is not possible to confirm this. The power supply on the other hand is clearly comparable to SWD (2014), which also estimates cumulative investments between 2.5 and 2.7 trillion EUR’10. Striking are the relatively low power supply investments at SWD (2016), almost half the size in SWD (2014). This is however explained by the focus on efficiency measures; investments in the demand sectors are therefore on the other hand relatively large compared to SWD (2014).

OECD/IEA (2014): Energy supply and efficiency investments: Detailed figures split by energy supply and demand sectors are given in the tables below.

Table 6-8 Energy supply investments 2014-2035 in Bn USD’12, based on WEIO (OECD/IEA, 2014)

Reference (NPS) 450 scenario

Cumulative Average Cumulative Average

investment annual investment annual Oil 394 17.9 358 16.3 Fossil fuel Gas 531 24.1 453 20.6 supply Coal 19 0.9 16 0.7 Fossil fuels 224 10.2 161 7.3 Nuclear 166 7.5 242 11.0 Renewables 1 182 53.7 1 513 68.8 Power supply Generation 1 572 71.5 1 916 87.1 Transmission 139 6.3 153 7.0 Distribution 516 23.5 497 22.6 Grid 655 29.8 650 29.5 Biofuels 44 2.0 136 6.2 Total energy supply 3 214 146.1 3528 160.4

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Table 6-9 Energy efficiency investments 2014-2035 in Bn USD’12 based on WEIO (OECD/IEA, 2014) Reference (NPS) 450 scenario Cumulative Average Cumulative Average

investment annual investment annual Industry 93 4.2 172 7.8 Transport 1 250 56.8 1 771 80.5 Buildings 961 43.7 1 382 62.8 Total energy efficiency 2 303 104.7 3 325 151.1

One of the most visible differences is that the WEIO includes fuel supply as investments. This is not the case for the three other reports, where fuel supply was reported separately as energy purchases instead. The power supply figures are to a large extent comparable with the other publications. Total power supply investments amount up to about 116 USD’12 annually in the 450 scenario. This translates to 90.3 EUR’12206. Between 2011 and 2030 the investments were estimated 95 EUR’ by SWD (2014) in the most comparable scenario of GHG40/EE/RES30.

Another important difference between the WEIO and the impact assessments is present at the demand sectors, which are estimated significantly higher at the SWD impact assessments. The largest difference is found at the transport sectors, showing investment expenditures about ten times as high compared to WEIO. The explanation to this lies in the fact that the impact assessments included investments in total purchases of transport equipment for households and businesses. The differences have a large impact on the total needs estimates and signify how a difference in scope could lead to very large differences, as the total needs of the WEIO are about a third the size of the other reports, while it does include fuel supply investments. In this case it is more meaningful to compare the gaps at both reports. This reveals only additional investments required for the low-carbon economy, with that excluding items which cancel each other out as they are present at both the reference and decarbonisation scenarios. In that case the additional investments required at the demand sectors between the WEIO and the EC’s impact assessments become much more comparable.

6.1.2 RES-electricity investment needs exercise

Top-down EU level On the EU level an investment needs estimation was conducted based on cost and deployment trend predictions by Cambridge Economic Policy Associates (CEPA). These figures are based on the EUCO30 scenario, where the EU reaches the 2030 targets and 80% GHG reductions by 2050. The used figures in terms of installed capacities and the associated capital costs are shown here in Table 6-10. To calculate the investment needs, the additional capacities (difference with installed capacity) are multiplied by the average capital expenditure (CAPEX) costs over the concerned period.

The main disadvantage of this data is that the capacities are given in Gigawatts, which leads to rather rough estimations of capital investments. This also means that small changes of installed capacities are not reported, leading to zero investment needs for these cases. This also implicates that for the non- established technologies (marine and geothermal) no investment needs could be estimated, as no Gigawatts of installed capacity came forward at CEPA. It is important to notice that this is in fact very

206 2012 exchange rate of 0.778294 EUR/USD, from: https://data.oecd.org/conversion/exchange-rates.htm

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valuable information, as especially finance for non-established renewables is difficult to obtain and therefore it is important to have estimations on required investments including these technologies.

Table 6-10 CAPEX costs (in 2015 EUR/kW) and installed capacity (GW) in the EUCO30 scenario 2020 2025 2030 2040 2050 1406.4 1381.3 1356.2 1306 1285.9 €’15/kW Onshore wind 171 191 237 308 399 GW 3495 3290.1 3085.1 2888 2762.5 €’15/kW Offshore wind 33 46 63 79 105 GW 845.9 783.6 721.3 668.1 616.2 €’15/kW Solar PV 138 195 232 284 413 GW 2662.2 2310.6 1959 1808.3 1808.3 €’15/kW Biomass 52 52 53 59 62 GW 2461.3 2436.2 2411 2360.8 2310.6 €’15/kW Hydro ROR 39 40 40 43 48 GW 3013.8 3013.8 3013.8 3013.8 3013.8 €’15/kW Hydro reservoir 93 93 94 95 95 GW 5394.7 5143.6 4892.4 4440.3 4028.5 €’15/kW Geothermal - - - - - GW 6128.1 5475.1 4822.1 3214.7 3114.35 €’15/kW Marine - - - - - GW [Source: CEPA (2016). Supporting investments into renewable electricity in context of deep market integration of RES- electricity after 2020: Study on EU-, regional- and national-level options (final report)]

Bottom-up MS level On the MS level we used an inherently different method from the top-down exercise as presented above, as capacity projections are not readily available on the MS level. Therefore we had to estimate future capacity levels, based on the ratio of 20% in 2020 to 27% in 2030. This is a simplified method, as it assumes that installed capacity levels are equivalent to energy use, consumption levels remain more or less the same and the part taken up by renewable electricity within renewable energy consumption remains equal. Moreover, to distribute the capacities over the countries, we assumed that each country takes up a similar share of the required capacity in 2030 as it did in 2020 and the same renewable mix is maintained. Despite these shortcomings this exercise is valuable in giving an estimation of the possible range of investment needs on the country level.

Similar to the top-down exercise, the required investments are calculated as the product of the average CAPEX provided by CEPA (Table 6-10, including marine and geothermal) and the difference with projected installed capacity. By assuming a linear increase of installed capacities we were able to distinguish both 2020-2025 and 2025-2030. Elaborate results are given in Table 6-11.

Comparing the NREAP and projected RES-electricity capacities to the IRENA database207, showed us that for a number of cases the installed capacities were already achieved by 2015. We corrected for this in the exercise. This does therefore assume that the countries stick to the remainder of their NREAP, which may give an outdated projections.

207 IRENA RE electricity statistics – Query tool v1.1

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Table 6-11 Investment needs for EU28 countries for seven RES-electricity technologies, cumulative investments for two intervals in mn EUR’15 Additional capital expenditure 2020-2025 Additional capital expenditure 2025-2030

Geothermal Geothermal

Offshore Offshore

Onshore Onshore

Biomass Biomass

Marine Marine

Hydro Hydro

Total

Solar Solar

Austria 3,856 - 629 - x x 1 4,486 3,817 - 618 - x 406 1 4,841 Belgium 60 - 719 816 x 1,067 3 2,665 59 - 706 767 x 916 3 2,451 Bulgaria 1,116 - 351 - x 69 - 1,536 1,105 - 345 - x 59 - 1,508 Croatia 1,053 - 66 - 7 54 9 1,190 1,042 - 96 - 7 47 9 1,200 Cyprus - - 73 - 38 7 - 119 - - 72 - 35 6 - 113 Czech Republic 470 - 140 - 302 x 4 916 465 - 137 - 279 x 4 885 Denmark 4 - x 795 x 1,209 - 2,008 4 - x 747 x 1,038 - 1,788 Estonia 3 - 98 148 - - - 249 3 - 96 139 - - - 238 Finland 905 10 390 534 1 1,271 - 3,111 1,315 9 383 502 1 1,091 - 3,301 France 9,215 386 4,635 3,563 x 1,309 74 19,182 9,121 342 4,552 3,348 558 1,124 70 19,114 Germany 1,565 - 495 5,938 7,380 3,077 275 18,730 1,828 - 8,565 5,579 6,816 3,297 262 26,346 Greece 1,265 - 1,757 178 222 109 111 3,641 1,252 - 1,725 167 323 93 105 3,665 Hungary 28 - 183 - x 262 53 526 28 - 180 - x 225 50 483 Ireland 93 76 999 330 - 67 - 1,564 99 68 981 310 - 57 - 1,514 Italy 6,515 3 2,928 404 x 1,648 848 12,345 6,448 3 2,875 379 x 1,427 808 11,940 Latvia 566 - 58 107 0 87 - 818 658 - 57 100 0 75 - 889 Lithuania 60 - 122 - x 97 - 280 60 - 120 - x 84 - 263 Luxembourg 19 - 32 - 10 26 - 87 19 - 31 - 15 22 - 87 Malta - - 4 56 x 10 - 70 - - 3 53 x 8 - 64 Netherlands 87 - 1,464 3,075 x 1,259 - 5,884 86 - 1,437 2,889 x 1,081 - 5,493 Poland 494 - 1,500 297 0 1,101 - 3,392 489 - 1,473 279 x 945 - 3,186 Portugal 2,248 254 1,659 45 214 414 69 4,903 2,225 225 1,629 42 198 356 66 4,740 Romania 3,313 - 976 - x 261 4,550 3,279 - 958 - x 224 - 4,461 Slovakia 777 - 85 - x 122 4 988 769 - 84 - x 105 4 1,000 Slovenia 578 - 26 - x 42 - 645 572 - 25 - x 36 - 632 Spain 7,142 102 8,539 1,781 1,917 691 46 20,218 7,068 90 8,385 1,674 x x 44 19,625 Sweden 6,994 - x 3 x x - 6,997 6,922 - 110 102 1 x - 7,132 United Kingdom 911 1,317 3,625 7,698 x 1,287 - 14,839 902 1,169 3,560 7,233 x 1,581 - 14,445 EU28 49,338 2,148 31,552 25,768 10,093 15,544 1,497 135,959 49,633 1,906 39,203 24,310 10,002 14,896 1,425 141,375

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6.2 Supporting evidence on actual spending

6.2.1 Actual RES-electricity investment spending exercise For this exercise we made an estimation of past investments into RES-electricity technologies. The investment levels were estimated on the basis of the added capacity over a certain period, multiplied by the capital expenditure costs for thirteen different renewable sources. Installed capacities are reported per state, which makes this exercise a bottom-up exercise.

The added capacity in 2015 is the difference between the installed capacity of 2015 compared to 2014 levels. These figures were taken from the IRENA Query tool 1.1, matching the Eurostat statistics. A correction was made for the cases where a decrease of installed capacity was observed. This does however indicate that the added capacity (and accordingly investments) may be higher in some cases, if depreciated capacity also needs to be installed again.

The 2015 CAPEX costs for each technology were taken from the IEA/OECD World Energy Outlook 2016. Conversion to EUR’15 was done using the WorldBank 2015 exchange rate208 of 0.901659 EUR/USD. To calculate the solar photovoltaic investments we assumed the CAPEX as given by IEA/OECD for ‘large- scale’ PV. For ‘hydro <1 MW’ and for ‘hydro 1-10 MW’ we used small scale hydropower prices. The large scale hydropower CAPEX was used for the categories ‘hydro 10+’ and ‘mixed and pumped storage’. At last for (solid) biomass we used the average CAPEX price of the two categories ‘biomass power plant’ and ‘biomass CHP medium’. All prices are given in table xx.

Table 6-12 Capital expenditure costs as of 2015

EUR’15/kW

Geothermal 2,615 Hydropower - large-scale 2,389 Hydropower - small-scale 3,516 Solar photovoltaics - Large scale 1,190 Marine 6,267 Wind onshore 1,659 Wind offshore 4,148 Biomass 2,773 [Source: WEO 2016 OECD/IEA; converted from USD using the World Bank exchange rate of 0.901659 EUR/USD]

The main results for each MS and the EU28 as a total sum are given in the Table 6-13, showing past RES- electricity investments in million Euros for each MS for seven different technology categories (hydro is grouped in this figure). In total an estimated 46.0 bn EUR’15 was invested in 2015 to add RES-electricity capacity in the EU28.

208 https://data.oecd.org/conversion/exchange-rates.htm

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Table 6-13 RES-electricity investments (mn EUR’15) in the EU28 Member States in 2015 Onshore Offshore Solar Hydro Marine Bioenergy Geothermal Total wind wind photovoltaic AT 141 - 539 - 179 456 - 1,315 BE - - 489 - 113 25 - 628 BG 9 - - - 7 - - 16 HR 7 - 139 - 13 70 - 229 CY - - 17 - 25 - - 42 CZ 12 - - - 19 - - 31 DK - - 292 - 218 - - 510 EE - - - - 7 - - 7 FI 60 - 663 - - 51 - 774 FR 303 6 2,140 - 1,065 401 - 3,916 DE - - 5,759 9,469 1,666 357 36 17,287 GR - - 288 - 12 11 - 312 HU - - - - 22 - - 22 IE - - 457 - - 5 - 462 IT - - 735 - 358 124 146 1,364 LV - - - - 2 - - 2 LT - - 226 - 2 83 - 312 LU - - 0 - 12 - 0 - 12 MT - - - - 6 - - 6 NL - 12 609 825 536 - - 1,982 PL - - 2,097 - 52 55 - 2,205 PT 72 - 370 - 46 2 - 490 RO - - - - 10 70 - 80 SK ------SI - - - - 20 5 - 25 ES 2,406 - 55 - 54 - 70 - 2,519 SE - - 1,541 - 61 930 - 2,532 UK 70 - 974 2,559 4,211 1,125 - 8,939 EU28 3,081 18 17,391 12,854 8,716 3,777 182 46,019

6.2.2 Underlying assumptions for the EU Budget split between mitigation and adaptation spending EU Budget data is currently not disaggregated in this manner. None of the reporting of climate- relevancy across programmes requires data on this split. Therefore, in order to still enable a meaningful discussion and analysis, this study attempted a first version of such a split based on expert judgment.

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Table 6-14 EU Budget split between mitigation and adaptation based on expert judgement 2014-2020 MFF Programing period, in Bn EUR EU BUDGET Total % of total Adaptation Coefficient Mitigation Coefficient Justification H2020 17 8% 9 0.50 9 0.50 No known information to split the amount. Assumed 50/50 split due to lack of more detailed indications. CF + ERDF 55 27% 11 0.20 44 0.80 No known information to split the amount. Assumed 20/80 split based on type of projects covered under CF/ERDF, which are typically more mitigation-relevant infrastructure-related. ESF 1 0% 0 0.00 1 1.00 No known information to split the amount. Based on initial review of ESF, this indicates it should be entirely mitigation-relevant finance. EAGF 47 23% 42 0.90 5 0.10 No known information to split the amount. A similar logic and split assumed as for EAFRD. EAFRD 57 28% 52 0.90 5 0.10 No known information to split the amount. Based on initial review of EAFRD, this suggests a very high relevance for adaptation (land use, greening measures) and only a small amount of mitigation relevant measures. Therefore assumed a 90/10 split for the moment. EMFF 1 0% 0 0.00 1 1.00 No known information to split the amount. Based on initial review of EMFF, this indicates it should be entirely mitigation-relevant finance. LIFE 2 1% 2 1.00 0 0.00 No known information to split the amount. Assumed 100% for adaptation due to type of projects covered under LIFE. Other 21 10% 11 0.50 11 0.50 No known information to split the amount. Assumed 50/50 split due to lack of more detailed indications. TOTAL 201 126 75 % 63% 37% [Source: based current EU climate-relevant budget and expert judgment for the disaggregation]

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This leads to the following EU Budget split for the current 2014-2020 MFF programming period.

Table 6-15 EU Budget 2014-2020 overview of total, climate-relevant, mitigation and adaptation shares (in EUR Bn) Current Planned

EU BUDGET PER MFF YEAR 2014 2015 2016 Avg. annual 2017 2018 2019 2020 Avg. annual EU budget total (EUR bn) 118 159 151 143 154 157 160 164 159 Climate-relevant part of EU Budget (EUR bn) 16 28 32 25 30 31 32 32 31 Mitigation total (EUR bn) 6 10 12 9 11 11 12 12 12 Mitigation as share of total EU Budget 5% 7% 8% 7% 7% 7% 7% Mitigation as share of climate-relevant EU Budget 37% 37% 37% 37% 37% 37% 37% Adaptation total (EUR bn) 10 18 20 16 19 19 20 20 20 Adaptation as share of total EU Budget 9% 11% 13% 12% 12% 13% 12% Adaptation as share of climate-relevant EU Budget 63% 63% 63% 63% 63% 63% 63%

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7 Annex C: Additional information from the adaptation stock-taking exercise

This annex provides supporting evidence for Chapter 3 of the main report.

7.1 Supporting evidence on estimated investment needs

7.1.1 EU level: comparative analysis of available literature For the current state of available investment needs estimates required for adaptation we reviewed seven key documents. Unfortunately, as the literature covering Europe as a whole is not abundant, none of these reports provides a complete picture covering all adaptation areas. This may amongst others be the result of the inherently local character of climate change impacts. The documents were selected on both coverage and date of publication, in order to represent a most complete picture of the investment needs in the different adaptation areas: UNFCCC (2007), Investment and financial flows to address climate change; ClimateCost (2011), The impacts and economic costs of climate change in Europe and the costs and benefits of adaptation; Bruin, de et al. (2009), Economic Aspects of Adaptation to Climate Change: Integrated Assessment Modelling of Adaptation Costs and Benefits, OECD; Markandya, A. & Chiabai, A. (2009), Valuing Climate Change Impacts on Human Health: Empirical Evidence from the Literature; Ciscar et al. (2014), Climate Impacts in Europe. The JRC PESETA II Project; Forzieri et al. (2016), Resilience of large investments and critical infrastructures in Europe to climate change; and BASE (2016), EU-wide economic evaluation of adaptation to Climate change.

None of the studies covers all identified adaptation areas (infrastructure, coastal zones, water supply and flood protection, agriculture, forestry & fisheries, human health, natural ecosystems and extreme weather events), but altogether all areas are represented. Moreover, we recognize that UNFCCC (2007) is a relatively old report (often criticized as well209), but as it is the earliest and mostly cited report with a relatively large coverage of the areas, we included it as a key document. Other reports which were amongst those reviewed, but are not further presented in this report, are: World Bank (2010), The economics of adaptation to climate change: Very comprehensive EACC study, therefore often quoted. However, it considers climate finance for developing countries in the ECA region (Europe & Central Asia), which therefore only partly overlaps our focus on EEA countries. Agrawala et al. (2010), Plan or React? Analysis of adaptation costs and benefits using integrated assessment models: Uses a similar approach as Bruin et al. (2009) with IAMs. Does not report exact estimates, but reports investments only as % of GDP.

209 Parry et al. (2009), Assessing the costs of Adaptation to climate change. A review of the UNFCCC and other recent estimates. International Institute for Environment and Development and Grantham Institute for Climate Change, London.

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Ciscar et al. (2011), Physical and economic consequences of climate change in Europe. Considers costs of not adapting, instead of investment needs to guard against the possible consequences of climate change.210 UNEP (2015), Adaptation finance gap report: This report focuses only on developing countries (globally), where the adaptation capacity is often lowest and the needs are the highest. BASE adaptation (2016) FP7 project: Provides only global estimated investment needs. New Climate Economy (2016), The sustainable infrastructure imperative: Financing for Better Growth and Development: Only global coverage.

The key documents selected here on estimated adaptation investment needs for the EU as a whole are especially difficult to compare as they cover different areas of adaptation; total estimates giving an overview on all areas of adaptation needs lack. Besides, the studies make use of different models, different timeframes, cover different geographical areas and explore different future scenarios. As a result of the differences in scope the seven key studies offer a range of required investment needs estimations, presented in Table 3-2Table 3-2 EU-wide adaptation investment needs according to seven key documents. Below the methodological differences are compared in more detail.

210 It should be noted here that this is so to say a different part of the economic impact story, i.e. these types of cost figures are valuable to show what will likely happen in terms of response cost needs if no adaptation action is undertaken. Such figures when compared to adaptation investment needs figures can eventually help in the decision- making process of what activities to prioritise.

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Table 7-1 EU-wide adaptation investment needs according to seven key documents

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Geography Of our seven selected key studies covering European-wide adaptation finance needs, none of the documents fully covers the 39 EEA countries which are the case of subject here. In fact each of the reports studies a different geographical coverage.

The largest geographical overlap is between ClimateCost (2011), Ciscar et al. (2014), Forzieri et al. (2016) and BASE (2017) – notably also the more recent reports. ClimateCost considers EU27. For the estimation of adaptation finance as a result of sea level rise, only the coastal lines of the EU were taken into consideration, including the overseas French regions. This is the only study which gives a rough quantitative indication of the distribution of required finance over the individual countries. Ciscar et al. includes only EU27 (before the inclusion of Croatia). The study by Forzieri et al. best matches our scope, as it covers EU28, including Iceland, Norway and Switzerland. The 2016 BASE project uses a different geographical scope for each adaptation category, which mostly comes down to EU28. Additionally this study distinguishes different regions within Europe.

More deviant geographic areas are covered by the older reports under discussion here. UNFCC (2007) covers only OECD Europe, which is a type of categorisation which only includes 23211 European – predominantly wealthy – countries. De Bruin et al. (2009) only includes Western Europe, which counts 19 countries. At last Markandya & Chiabai (2009) covered the largest geographical area, including Europe in its broadest definition; including the three microstates but no indicated inclusion of Kosovo and Liechtenstein. At this report also Israel and all CISs212 are included under Europe. We recognize this geographical area is much larger (total 53 countries) than our scope, but as this report is the only health estimate available we nevertheless chose to include it here.

The use of these different geographical coverages highly complicates the comparability of the studies. The difference between EU27 and EU28 is straightforward, here an estimation of its effect on the estimates is not too complicated to assess. However, especially the older documents use very unusual geographical scopes and complicates the assessment of inclusion or exclusion of certain countries. For comparison, we shortly discuss the difference in estimated investment needs on a global level.

Table 7-2 set out UNFCCC (2007) results, showing that infrastructure investments are almost eight times as large on a global level, coastal zones six times larger and investments for water and flood protection are 10 up to 29 times as large compared to the European (OECD) level. De Bruin et al. (2009) estimate global adaptation finance required six times larger compared to Europe alone. Costs to adapt to the impacts of diarrheal diseases as a result of climate change are 31 times as high on a global level (Markandya & Chiabai, 2009). This factor is much higher for health impacts, as the developed Western Europe has a strong health care system to be able to offer resilience to such health impacts.

211 Currently OECD Europe counts 25 Member States, including also Estonia and Slovenia. At the more recent OECD/IEA (2014) report discussed in section xx these countries are also included. 212 Commonwealth of Independent States: Alliance of former Soviet Republics, as of 2007 existing of: Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Uzbekistan and Ukraine.

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Table 7-2 Average annual investments in bn USD in 2030, comparing EU estimates to the global level Coastal Water & flood Infrastructure Total zones protection OECD Europe 4.26-17.05 0.74 21.8 26.75-39.54 A1B World 32.51-130.06 4.70 224.5 261.72-359.26 OECD Europe 1.00*-4.00 0.62 6.3 7.92-10.92 B1* World 7.63*-30.51 4.01 180.0 191.64-214.52 * For infrastructure the lower-bound scenario was based on Munich RE data

Timeframe The timeframe of adaptation needs estimates are in general longer than the timeframes used at mitigation needs, as here you need to be prepared for climate change impacts which may occur only after almost another century. As came forward in Table 3-2, the most common used timeframe at adaptation needs estimates runs from 2011 up to 2100. Forzieri et al. (2016) very clearly show that taking into account longer timeframes increases the adaptation costs, as you will make sure to prepare for impacts taking place later. Taking into account adaptation needs up to 2070 requires more than twice as much average annual investments compared to a short-term timeframe up to 2040. The long- term timeframe requires investments which are almost four times as large annually. Those three periods are commonly referred to as running up to the 2020s, 2050s and 2080s.

The adaptation investments as reported by ClimateCost and Ciscar et al. on the category of coastal zones are most comparable. UNFCCC only reports on figures in 2030, which may be comparable to average annual investments in the 2020s interval (2011-2040). The timeframe used by Markandya & Chiabai is relatively short and has a very early starting date (2000-2030). More odd is the timeframe used by Bruin et al. – which strikingly do not consider any intervals – as it is very lengthy (2025-2185), obstructing comparability.

Additionally we would like to highlight here that as with mitigation, the investment needs estimates usually increase with increasing timeframes covered in the reports. This could for example be a result of more detailed climate models (estimating larger climate change impacts) or the use of different models in general taking into account more adaptation measures. Table 7-2 shows the average annual investments by three different reports, which estimates increase with timing of the report. It must be noted that these three studies also used a slightly different geographical scope (OECD Europe, coastal Europe and EU27). However, as coastal change is considered we assume that the geographical coverage largely overlaps. The recently conducted literature review by ECONADAPT213 also conclude that higher cost estimates are currently concluded compared to previous studies, also as they would include for example multiple risks and additional transaction costs of policy implementation.

Table 7-3 Average annual investments required for coastal adaptation (A1B scenario) in bn EUR’05 UNFCCC (2007)* ClimateCost (2011) Ciscar et al. (2014) 2011-2040 0.59 0.5 1.0 2041-2070 - 1.1 2.0 2071-2100 - 1.2 2.5 * Reports average investments required in 2030 only. Converted to EUR’05 assuming the 2005 exchange rate of 0.80412 EUR/USD as reported by OECD Data: https://data.oecd.org/conversion/exchange-rates.htm

213 http://econadapt.eu/sites/default/files/docs/Deliverable%2011-3%20Policy%20Brief.pdf

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Macroeconomic model inputs and outputs Unlike at mitigation, EU scenarios are not necessarily based on projections of a changing economy, but rather a changing climate. De Bruin et al. (2009) do explain how their model uses macroeconomic inputs like GDP projections, as it integrates adaptation costs with Integrated Assessment models. As discussed in Section 2.2.1, these IA models are commonly used to model mitigation costs, as they project aspects like resulting energy demand resulting in different emission levels. Required adaptation measures are indirectly linked to the achieved level of mitigation (and therefore macroeconomic inputs), but only de Bruin et al. (2009) clearly present this link between the two costs. This report emphasises that mitigation and adaptation investments should not be considered separately, as investments in mitigation levels would reduce the required investments in adaptation levels. The report on the 2016 BASE project also included an analysis on how GDP effects influence the cost effectiveness of adaptation versus mitigation. Most adaptation studies however only explore the different resulting climate scenarios, which are indeed a result of mitigation efforts and associated investments.

Interestingly, the outputs (required investments) at adaptation are more commonly expressed in macroeconomic terms. For example JRC presents investment levels as percentage of the GDP, as well as Agrawala et al. (2009), which is not further discussed in this report as it solely reports the adaptation needs as percentage of GDP.

The use of IA models, in this case combined with AD-RICE, as done by de Bruin et al. is exceptional. In general the studies used different models to calculate investment needs on the basis of models which are specific for each adaptation area. Both ClimateCost and Ciscar used the DIVA model to model required protection measures taking into account the population size in an area: the greater the population, the greater the demand for safety. Similarly LISFLOOD simulated spatial patterns of water flows in European rivers at ClimateCost. For the air-conditioning demand and accordingly investments the POLES model was used here. The BASE project model is AD-WITCH, supplemented by the ClimateCrop model to estimate agriculture needs.

Not all reports used complex models to describe the required adaptation investments. Infrastructure investments in UNFCCC are calculated using the rule of thumb that additional costs for adaptation are 5 to 20 percent higher than current investments. Some studies, as recognized by the UNFCCC, indicate however that some infrastructure investment needs might be 30 percent higher. Forzieri et al. use a completely different approach, taking into account the benefit-to-cost ratio. This is assumed to be 2.5 on average (literature review), which means that the adaptation costs are derived from the benefits. At last Markandya & Chiabai estimated adaptation costs for diarrheal looking only at population projections, estimated incidence ratios and average health intervention costs.

Adaptation to different climate change projections – comparison of scenarios At mitigation future finance needs are often presented as dependent on different pathways, which could differ on the pathway towards the low-carbon economy or more ambitious levels of decarbonisation. At adaptation the possible range of investment needs is rather dependent on the future projections of climate change – whether or not related to the socio-economic pathway - as the forecasted impacts determine what level of adaptation is required. Notice also how this is very much related to mitigation, as decarbonisation will abate climate change itself. It is important to present the

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adaptation needs for different climate scenarios, as future climate models and impacts have a considerable level of uncertainty. Policy makers need to take into account this level of uncertainty, as it signifies the need to plan robust strategies.

A noticeable difference to mitigation is that it is not common to investigate reference scenarios as was the case for mitigation (i.e. adaptation investments which are already spent). This is because adaptation is inherently different from mitigation, in the sense that we are always interested in the investment levels required to cope. If reference scenarios are mentioned, these imply adaptation needs in a scenario with the current business-as-usual climate impacts, without additional mitigation efforts. The remainder of this section shortly explains the different scenarios which were explored in the seven key studies, to give an image on how different scenarios influence the results.

UNFCCC (2007), Investment and financial flows to address climate change The UNFCCC explored two different ‘SRES’ scenarios, also referred to as storylines describing different future world (and the associated emissions). Also within these scenarios a range is presented, as for infrastructure investments the needs were estimated to be between 5 to 20% higher than current levels. 1) A1B scenario (27-40 bn USD): a world characterized by rapid economic growth, but with a balanced emphasis across the energy sources 2) B1 scenario (8-11 bn USD): a more integrated world, characterised by reductions in material intensity and with an emphasis on global solutions to economic, social and environmental stability.

ClimateCost (2011), The impacts and economic costs of climate change in Europe and the costs and benefits of adaptation The first scenario explored is referred to as the reference scenario, similar to the first scenario explored by UNFCCC (2007). This scenario is compared to a scenario where EU targets of climate change mitigation are met. 1) A1B mid scenario (~18 bn EUR): a ‘no mitigation’ business-as-usual scenario, showing global average temperature rises between 1.6-2.3˚C by 2041-2070 and 2.4-3.4 ˚C by 2071-2010 (relative to the modelled baseline period (1961-1990). The scenario is called a ‘mid’ scenario as it showed the average of an ensemble of twelve A1b simulations. 2) E1 scenario (~12 bn EUR): a mitigation scenario, equivalent to the EU target to keep warming below 2˚C above pre-industrial levels.

De Bruin et al. (2009), Economic aspects of adaptation to climate change This report explores in essence one storyline, but includes a scenario of higher damage levels than expected in the original model. This report only 1) Base model (155 bn USD): The base model assumes an optimal control scenario, applying both mitigation and adaptation policies, set on a level with a maximum value of net economic consumption discounted over income per capita. 2) Higher damages (509 bn USD): A higher bound is explored additional to the base model, which scales up the damage function by 2.5 times (suggested after criticism on the model)

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Markandya & Chiabai (2009), Valuing climate change impacts on human health: empirical evidence from the literature Adaptation investment needs for diarrheal diseases were presented as a result of three different climate scenarios, varying from unmitigated emission (UE) trends to two stabilization scenarios. 1) UE (12-260 mn USD’00): This scenario approximately follows the IPCC IS92a scenario, which is considered the ‘business-as-usual’ scenario, where mitigation emission trends take place. 2) S750 (12-217 mn USD’00): The second scenario is a stabilization scenario, where mitigation does

take place, up to a level of 750 ppm CO2 achieved by 2210.

3) S550 (12-205 mn USD’00): This stabilization scenario is more ambitious, reaching 500 ppm of CO2 levels already in 2170.

Ciscar et al. (2014), Climate Impacts in Europe. The JRC PESETA II Project At the PESETA II project only one scenario of investment needs was considered, which considered public adaptation measures to respond to the climate change impacts. This scenario was also compared to a reference scenario (no adaptation), analysing the damages in both scenarios in order to investigate whether adaptation investments outweigh the benefits (avoided damages), see also box 3-1 on an explanation of the different types cost analyses. Ciscar et al. (2014) found a welfare loss of 42.3 billion Euros under a scenario with no adaptation, which was reduced to only 1.6 billion Euros with adaptation.

Forzieri et al. (2016), Resilience of large investments and critical infrastructures in Europe to climate change Forzieri et al. did not consider a range of the common climate scenarios, but they explored how taking into account – or preparing for - climate change impacts on the longer term influenced the finance needs. These were considered in a SRES A1B business-as-usual scenario. 1) Short (2020s) term (0.4 bn EUR): The shortest future time window adapts to impacts up to the 2020s, which is a timeframe from 2011 to 2040. 2) Medium (2050s) term (0.9 bn EUR): Investments needs for the medium-term run up to the 2050s, which is the period between 2041 and 2070. 3) Long (2080s) term (1.5 bn EUR): Adapting on the long-term takes into account impacts up to the 2080s: 2071-2100.

BASE (2016), EU-wide economic evaluation of adaptation to Climate change Costs and benefits were explored for both three different socio-economic pathways and two Remote Concentration Pathway (RCP) climate scenarios were explored, resulting in a matrix of different investment needs. These are not all provided, as they differed for each area of adaptation. Socio-economic pathways: 1) SSP2 ‘Middle of the road’: A sustainable world with modest economic growth, slow growth of food and feed demand, strong regulation on land use change, protected tropical forest areas, a liberalized CAP and modest bioenergy demand. 2) SSP3 ‘Fragmented world’: A fragmented world with modest economic growth, high population growth, high growth of food and feed demand, weak regulation on land use change, declining tropical forest areas, no change in the CAP and phased-out bioenergy mandates. 3) SSP5 ‘Market-driven development’: globalized world with strong economic growth, high growth of food and feed demand, weak regulation on land use change, declining tropical forest areas, a fully liberalized CAP and phased-out bioenergy mandates.

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Remote Concentration Pathways: 1) RCP 4.5 ‘Average climate change’: 1.1-2.6 global mean surface temperature change (°C) and 0.32- 0.63 global mean sea level rise (m) by 2081-2100 2) RCP 8.5 ‘High climate change’: 2.6-4.8 global mean surface temperature change (°C) and 0.45-0.82 global mean sea level rise (m) by 2081-2100

Technological and sectoral coverage The seven key documents as selected here differ substantially in coverage in terms of risk sectors and what types of adaptation measures are included within the different adaptation areas. The documents were selected in such a way to provide an overview of the total possible coverage of adaptation, but none of the documents have a clear overlap. Moreover, it is often not clear what is included exactly in terms of technological and sectoral coverage. Best comparable were the coastal adaptation needs estimates as provided in Table 7-3. Also the infrastructure investments of UNFCCC (2007) and Forzieri et al. (2016) are comparable in magnitude: 0.4-1.9 bn EUR compared to 0.08-13.7 bn EUR214. It is striking that UNFCC – the older document – reports higher figures. This could be explained by the fact that Forzieri et al. only cover ‘critical’ infrastructures. However, as a more detailed explanation on coverage lags, the difference between both estimates cannot be explained in more depth.

What can easily be concluded comparing the different estimates, is that the coverage levels are the most important determinant for the range in estimates. Where Markandya & Chiabai (2009) cover only human health (diarrheal diseases), these also showed very small investment needs (from 12 to 260 mn USD’00). The use of a very large coverage – by de Bruin et al. – requires reporting in trillions: 0.155- 0.509 tn USD. The availability of such patchy information clearly shows the need for more comprehensive figures, including a split for the needs in the different sectors.

214 Converted to Euros assuming the 2005 exchange rate of 0.80412 EUR/USD as reported by OECD Data: https://data.oecd.org/conversion/exchange-rates.htm

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8 Annex D: Additional information on existing terminologies, scope and methodologies

8.1 Additional literature on relevant mitigation and adaptation sectors

Mitigation Table 8-1 provides an overview of the sectors which can be included as mitigation-relevant sectors in a climate finance tracking exercise, largely following the MDB methodology. For each sector a distinction is made between activities which can be categorized under renewable energy, energy efficiency or other measures.

Table 8-1 Overview of MDB’s mitigation sectors and sub-categories classification Sectorsa Renewable energyb Energy efficiency Other measures Renewable electricity Power plant efficiency Transmission and distribution generation (wind, Cogeneration systems geothermal, solar, biomass, Lower-carbon power generation ocean, hydro or plant retrofits Reduction of fugitive emissions Renewable heat production or Carbon capture and storage

other renewable energy application Facilitating grid measures Industrial energy efficiency Improved air conditioning and Cogeneration plants refrigeration Facility replacement Reduction in GHG emissions from industrial processes Industrial process improvements and cleaner production Efficiency improvement in Improved air conditioning and lighting, appliances and refrigeration equipment Cogeneration plants Retrofit of existing buildings

Energy efficiency improvements in the utility sector and public services Hydrogen technology Vehicle energy efficiency Use of lower-carbon fuels fleet retrofit Electric vehicles Transport demand measures

Modal shift Biofuel production Reduction in energy use in Reduction of non-CO2 GHG traction, irrigation and other emissions from agriculture agricultural processes Improve carbon pools Livestock projects that reduce methane or other GHG emissions Afforestation Reforestation Sustainable forest management

Biosphere conservation Treatment to reduce methane emissions Capture or combust methane Waste to energy Waste collection, recycling and management projects

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a Overall the classification of mitigation can be made into these seven main sectors. MDB also includes cross-cutting activities which can be eligible as mitigation: R&D of low-carbon technologies, products or equipment dedicated for low- carbon technologies, support to policy, financing instruments and other (miscellaneous) activities with net greenhouse gas reduction. b Renewable electricity or heat production may also take place decentralized at the other sectors, e.g. for near-zero energy buildings, these include a renewables component.

Adaptation Key sectors related to adaptation are, on the other hand, context- and location-specific, and therefore more difficult to predefine. In the broadest sense, any activity in response to or to prevent climate change impacts can be considered climate adaptation activities. Table 8-2 gives an overview of the sectors which typically involve adaptation-relevant activities. The overview has been developed based on the key observed and projected climate change impacts in Europe215, combined with the sectoral selection from a previous Trinomics study216 and the 2015 Joint report on MDB climate finance.217

Table 8-2 Overview of adaptation-relevant sectors, impacts and potential activities in response Sectors Climate change impact Potential activity in response Sea level rise Physical/natural reinforcement of coastline and/or additional Increase in risk of coastal flooding coastal structures/vegetation Decrease in glaciers, permafrost, Development of early warning systems ice sheet, (sea) ice coverage

Increase in water temperature Adoption of sustainable aquaculture techniques Increase in sea surface Enhance floodplain management temperature Increased river dredging programs, reinforcement of levees, Increase in ocean acidity reestablishment of natural flood plains and vegetation in Increase in winter precipitation upstream areas/river banks

Increase in river flow Rainwater harvesting, flood meadow, buffer strips Increase in risk of river flooding Sustainable urban drainage systems, protection of wastewater infrastructure from increased flooding Decrease in summer or annual Improved catchment management planning and regulation of precipitation water abstraction - Decrease in annual river flow Development, distribution and cultivation of drought- - Increased risk of desertification resistant seeds or climate change resilient crops - Increase in water demand for Manufacture, installation, and operation of irrigation and agriculture water supply systems Increase in crop yields Cultivation of new crops enabled by climate change Decrease in crop yields Crop and soil management that mitigate soil erosion Increase in risk of soil erosion Temperature rise larger than Reinforcing buildings and infrastructures mainly against heat global average Green infrastructure such as green roofs to reduce heat and Temperature rise larger than storm water run-off, and parks European average Energy-efficient adaptation of buildings against heat & Increase in warm temperature Smart meters, which are part of smart grids – can also serve extremes as adaptation as in heat-wave conditions they contribute to climate resilience Make asphalt of roads and airports heat resilient

Increase in risk of forest fires Rehabilitation forest fires Decrease in economic value of Improved forest fire management and early warning systems forests Dissemination of improved forest management practices

215 European Environment Agency (2017). Climate change impacts and vulnerability in Europe 2016. http://www.eea.europa.eu/publications/climate-change-impacts-and-vulnerability-2016/at_download/file 216 Trinomics (formerly Triple E Consulting) (2014) ‘Assessing the Implications of Climate Change Adaptation on Employment in the EU,’ Final report for DG CLIMA. 217 2015 Joint Report on Multilateral Development Banks’ Climate Finance http://pubdocs.worldbank.org/en/740431470757468260/MDB-joint-report-climate-finance-2015.pdf

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Sectors Climate change impact Potential activity in response Increase in mortality from heat Energy efficient cooling of hospitals waves Monitoring of disease outbreaks and development of a Expansion of habitats for southern national response plan

disease vectors Increase in summer Construction of new services (accommodation, water etc.) Decrease in summer, potential to account for increased capacity needed increase in other seasons Infrastructure planning following new trends in tourism Decrease in ski tourism Water conservation education for employees & guests

Diversification of tourist attractions to encompass inland or low-risk areas Increase in risk of biodiversity loss Establishment of core protected areas and buffer zones for (incl. fish stocks) sustainable use of biodiversity and water to meet livelihood Species movement/migration needs in more extreme droughts Species extinction

Species expansion Decrease in energy demand for Investment in embedded renewable generation to reduce heating distribution requirements Increase in energy demand for Energy-efficient ventilation systems cooling Solar cooling (PV powered) to cope with demand peaks Increase in hydropower potential Hydropower reservoir stations: increase in dam height Decrease in hydropower potential Investment in thermal power generators with minimal cooling Increase in shipping and water requirements exploitation of oil and gas Optimization of hydro-infrastructure design subject to due diligence based on climate & hydrological models [Source: own elaboration based on: EEA (2012) ‘Protecting, conserving and enhancing natural capital’, Trinomics (2014) ‘Assessing the Implications of Climate Change Adaptation on Employment in the EU’, MDBs (2016) ‘2015 Joint Report on Multilateral Development Banks’ Climate Finance’]

It should be noted that typically also for adaptation a simplified taxonomy is more commonly used, with a maximum of around seven sub-sectors. The UNFCCC, for example, uses ‘human health’, ‘natural ecosystem’, ‘agriculture, forestry and fisheries’, ‘water supply’, ‘infrastructure’ and ‘coastal zones’ as the reported adaptation sector types. The World Bank added ‘extreme events’ to this list as an adaptation category (but excluded ‘natural ecosystem’ from their analysis).

Comparing Table 8-1 and Table 8-2 shows that all sectors covered under mitigation also come back as relevant sectors covered under adaptation (i.e. energy, industry, built environment, transport, agriculture, forestry and waste management). However, different features of the (sub) sectors are concerned. It is also visible that the mitigation subsectors are more clearly and narrowly defined than the adaptation subsectors, which rely on the context-specific conditions of climate change (e.g. whether it is a drought- or flood-sensitive area for example).

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