During the 2009 Copenhagen Climate Change Conference (COP), developed countries committed to a goal of jointly mobilizing $100 billion per year by 2020 to address the mitigation and adaptation needs of developing countries. Although the $100 billion commitment has not adequately materialized, multilateral climate finance remains an essential – and in many cases, sole – source of finance for climate actions in developing countries.

A region in transition

Western Balkan, Eastern European and Caucasus countries are transition economies undergoing various structural transformations to develop market-based institutions. The post-communist socio-economic transition process in the Western Balkans, Eastern Europe and the Caucasus has not been smooth. Countries in these regions depend on multilateral climate finance to support mitigation and adaptation climate actions since they cannot mobilize enough climate finance from national budgets. Climate finance is crucial for countries in the Western Balkans, Eastern Europe and the Caucasus because it will provide the necessary funding to invest in new low-carbon infrastructure. The Green Climate Fund (GCF) was a fund established within the United Nations Framework Convention on Climate Change as an operating entity of the financial mechanism to assist developing countries by funding mitigation and adaptation actions to counter climate change. With the exception of Ukraine and Belarus in Eastern Europe and Kosovo in the Western Balkans, all other regional countries are eligible for GCF funding.

Regions heavily reliant on fossil fuels

In 2020, 15 Western Balkans coal power plants emitted two and a half times more sulphur dioxide than all 221 coal plants in the EU combined. The Moldovan energy system is 100% dependent on imported natural gas from Russia. At the same time, around a fifth of all electricity production in Georgia consists of imported natural gas from Azerbaijan and Russia.

Azerbaijan is a fossil fuel producer and fossil fuels are a critical factor in the country’s overall economic well-being.

All Western Balkan, Eastern European and Caucasus countries are signatories of the Paris Agreement. In addition, several countries in the Western Balkans are official EU candidate or potential candidate countries. Eastern European and Caucasus countries have developed different socio-economic ties with the EU than their Western Balkan counterparts through the Eastern Partnership initiative. The Paris Agreement and close engagement with the EU provide aspirational opportunities for the regional countries to work more vigorously on strengthening domestic low-carbon development pathways

Coal is becoming economically unviable and the Western Balkans’ antiquated power plants are reaching the decommission point. The war in Ukraine has made Moldova rethink its energy strategy and escape its dependence on Russian natural gas by substituting it with more renewable alternatives. In addition, new EU climate policies such as the Carbon Border Adjustment Mechanism will likely make fossil fuel-derived energy more expensive and ultimately obsolete, affecting coal-based electricity imported from the Western Balkans.

Climate finance well below needs for Western Balkans, Eastern Europe and Caucasus

According to SEI’s Aid Atlas platform (available data period 2010–2019), all funders worldwide disbursed only around $1.3 billion in climate finance (mitigation and adaptation funding combined) to GCF member states in the Western Balkans, Eastern Europe and the Caucasus. Since the beginning of its operations, the GCF has committed around in total of $400 million to Western Balkan (Albania, Bosnia and Herzegovina, Montenegro, North Macedonia and Serbia), Eastern European (Moldova), and Caucasus (Armenia, Azerbaijan and Georgia) countries and approximately $10 billion globally. Most projects included in a $400 million funding commitment are multi-country initiatives focusing on mitigation, with a significant loan component. Additionally, the GCF committed more than $24 million in grants to the region through its Readiness and Preparatory Support Programme.

However, more can be done to support the low-carbon development trajectories in the Western Balkans, Eastern Europe and the Caucasus. It will be crucial for multilateral, bilateral and private sector partners to mobilize more climate to support countries in mitigation and adaptation climate actions. The EU has already expressed its determination to support Western Balkan countries by stating that it will provide $9.5 billion in grants, potentially attracting an additional $21 billion in investments until 2030. Nonetheless, this EU pledge will not be enough. It will need involvement from other notable players such as the World Bank, the European Bank for Reconstruction and Development and especially the global climate finance leader GCF, mandated to support developing countries towards low-emission and climate-resilient development.

How can SEI help?

SEI will work on a project exploring climate finance flows in GCF member states in the Western Balkans, Eastern Europe and the Caucasus. More precisely, the project will examine the size of climate finance flows and identify major bilateral and multilateral finance providers. The project will analyze climate finance flows in nine countries from the Copenhagen to Glasgow COPs. SEI will also investigate how climate finance is present in the target countries’ national plans. Gaining better insights about climate finance flows and the level of strategic thinking about climate finance in the nine countries’ climate-related national strategies will provide recommendations to support the countries in determining which projects the GCF can potentially finance in the future.