Luxembourg
Political commitments, strategies and tools
Luxembourg’s political commitments
Luxembourg's objectives of reducing its greenhouse gas (GHG) emissions by 55% by 2030 compared to the 2005 level and achieving net-zero emissions by 2050, as set in its Integrated National Energy and Climate Plan (NECP), were included in the amended Climate Law of 15 December 2020.
In addition, Luxembourg’s government has made a commitment in its general Co-operation Strategy 2018 to mainstream the principle of environmental sustainability across all of its activities. In 2021, an ambitious new Environment and Climate Change Strategy was drawn up, to strengthen this mainstreaming.
Moreover, Luxembourg has doubled its international climate finance (ICF) contribution for 2021-25 compared to the previous period (2014-20) in order to assist developing countries in the fight against climate change. The ICF contribution is in addition to Luxembourg’s official development assistance (ODA).
Luxembourg is also showing its strong commitment to these issues at the European (particularly within the Foreign Affairs and the Environment Councils) and international levels, arguing for strong ambition and commitments in this area.
Targets
As above, Luxembourg is specifically committed to increasing the environmental and/or climate co-benefits of its portfolio of interventions, and to financing a greater number of dedicated projects.
These targets are being quantified and specified with SMART (specific, measurable, achievable, relevant and time-bound) indicators in the action plan that is currently being drawn up for the implementation of the new Environment and Climate Change Strategy for development co-operation. An inclusive and consultative process is underway in order to ensure ownership and at the same time awareness raising and capacity building of agents and partners. This action plan also ensures gender mainstreaming and will be supplemented by several tools allowing its implementation.
Targets related to the attribution of the ICF are further described in Luxembourg’s international climate finance strategy.
Strategies and policies for systematic integration
The Government of Luxembourg adopted two new climate-related strategies in 2021 – one covering the actions of the Luxembourg Co-operation, and the other being specifically dedicated to Luxembourg’s ICF, which is under the attributions of the Ministry of the Environment, Climate and Sustainable Development (MECSD).
In 2021, a new Environment and Climate Change Strategy was drawn up for development co-operation, to strengthen mainstreaming and ensure alignment with Luxembourg's international commitments in this area (Paris Agreement, 2030 Agenda, etc.). This Environment and Climate Change Strategy of the Luxembourg Co-operation was officially presented in May 2021 as the new guiding principles for co-operation. It was presented jointly with the new gender strategy, the two having been developed in parallel to ensure the transversal character of the themes in each of the documents. As these two topics are in fact closely linked and interdependent in several respects, they were also presented together to Parliament, and are systematically integrated into political dialogues, as well as in a reinforced manner in each of the new co-operation programmes and projects. Luxembourg thus wishes to mark its strong commitment to rapidly accelerate the integration of these issues into concrete co-operation actions.
Despite the coronavirus (COVID-19) pandemic, it has also been ensured that the budget dedicated to ODA is maintained at 1% of Gross National Income (GNI). With its new Environment and Climate Change Strategy and in view of the geographical and sectoral concentration of Luxembourg's Development Co-operation mainly in Least Developed Countries (LDCs), especially in particularly fragile contexts and Small Island Developing States (SIDS), which are already affected by environmental degradation and the impacts of climate change, Luxembourg's Development Co-operation intends to strengthen the integration of environmental and climate issues into all of its activities, using a dual approach, namely:
mainly through the systematic mainstreaming into all projects/programmes and their relevant components of Luxembourg's Development Co-operation
It is therefore also ensured that each new strategy or policy paper of Luxembourg Co-operation systematically integrates issues relating to environment and climate change. This was already the case for the new Gender Strategy and the Inclusive and Innovative Finance Strategy developed in 2020-21, and for the Private Sector and Digital for Development (D4D) policy papers that are still in progress. The new Humanitarian Strategy currently being drawn up also provides for greater integration of these issues, and finally, communication work is planned on these issues.
The reinforcement of the systematic mainstreaming of these issues is also ensured at each stage of the indicative co-operation programmes and projects developed and/or supported by Luxembourg Co-operation, or in the new partnership agreements at multinational level. For example, a working group specific to environment and climate change has been set up in Laos including donors, partners and experts, in order to ensure the integration of these issues from the identification phase of the next programme. New wordings are also included in partnership agreements with United Nations (UN) agencies.
Finally, it is planned to provide Luxembourg Co-operation with a "Green Plan", aimed at adapting its work at the organisational and logistical level and thus minimising any possible harmful impact on the environment.
Luxembourg has already marked its strong commitment in 2015 by introducing an ICF budget, which is new and additional to ODA, i.e. the 1% of GNI devoted to international development.
The strategy for the “allocation of funds for international climate change financing” was first published in May 2017 and updated in July 2021. The ICF Strategy responds to and builds on the amended Climate Law of 15 December 2020, the NECP 2021-2030 for Luxembourg, the Luxembourg Climate Adaptation Strategy and Action Plan for 2018-2023 and the Luxembourg Sustainable Finance Roadmap (2018) and Strategy (2021). It shares the goals and complements Luxembourg’s new Aid and Development Strategy (“The Road to 2030”) and the new Environment and Climate Change Strategy (2021). It seeks alignment where feasible, with the European Union’s Action Plan on Financing Sustainable Growth (2018), as well as the EU Taxonomy for Sustainable Activities for climate mitigation and adaptation (delegated act 2021), where feasible.
The new ICF Strategy covers the period 2021-25 for which the budget has been increased to EUR 200 million. It takes into account recent developments in climate change negotiations, in particular the Paris Rulebook. It aims for a balanced distribution between activities of adaptation to and mitigation of climate change and will promote integrated actions for climate and pollution reduction in developing countries. It foresees that projects will be organised around priority themes, such as natural capital and biodiversity, efficient management of resources, sustainable finance and resilience at the community level – it being understood that the sustainable finance theme has an overarching character and may be overlapping with other themes. The revised ICF Strategy also allocates more importance to gender and human rights themes, including climate-change-induced migration, in addressing the climate crisis. Moreover, the strategy puts a particular focus on countries with which Luxembourg has entered a climate action dialogue (“Climate Dialogue Partners”, including all development co-operation partner countries).
Key provisions and pillars
Luxembourg's main objective in terms of development co-operation is to contribute to the reduction and, ultimately, the eradication of extreme poverty through support for sustainable development. The principle of "leaving no one behind" is at the heart of the strategy, which revolves around four interconnected priority themes: improve access to basic quality social services; strengthen the socio-economic integration of women and young people; promote sustainable and inclusive growth; promote inclusive governance. All of the actions are characterised by the systematic integration of three crosscutting priorities: human rights, gender equality and environmental sustainability.
In terms of the overall objective of the new Environment and Climate Change Strategy, Luxembourg's Development Co-operation aims to ensure that all its activities come in support of development pathways that are sustainable, inclusive, low-carbon and resilient to the effects of environmental and climate change, in accordance with international environmental conventions, the 2030 Agenda, and the objectives of the Paris Agreement. By 2030, Luxembourg’s Development Co-operation is specifically committed to:
on the one hand, increasing the environmental and/or climate co-benefits of its portfolio of interventions in its priority sectors
on the other hand, financing a greater number of dedicated projects promoting the resilience of human and natural systems to climate risks and/or environmental degradation.
The following specific and complementary principles will guide Luxembourg's response to the complex interconnections and challenges of mainstreaming environmental protection and climate change into development co-operation: inclusive, do no harm, integrated and holistic, context-specific and tailored, partnership, flexible and iterative.
In light of these different elements, it will be given priority to the following fields of action, while maintaining flexibility in order to adapt to the specific contexts and needs of the countries, populations and communities to which it provides support:
access to basic services that are sustainable and resilient to climate risks
support for the development of environmental and green value chains
support for inclusive sectoral and territorial governance, taking into account the national commitments of partner countries on major environmental and climate issues.
With a commitment of EUR 200 million for 2021-25 dedicated to the ICF (in addition to the ODA), Luxembourg carries out a twofold approach to the allocation of its ICF:
on the one hand, support for activities of multilateral programmes and initiatives, with, in particular, the Green Climate Fund, for which a contribution of EUR 40 million is granted
on the other hand, the financing of bilateral projects, with, in particular, an envelope of EUR 25 million for projects of Luxembourg non-governmental organisations (NGOs).
The ICF Strategy takes into account recent developments in climate change negotiations, including the Paris Rulebook and is aligned with the amended Climate Law of 15 December 2020. Its consistency has been ensured with the Environment and Climate Change Strategy of the Luxembourg Co-operation. It is also complementary to the measures taken to promote the ecological transition at the national level, including the NECP for 2021-30, the 3rd National Sustainable Development Plan (PNDD), as well as the national sustainable finance strategy adopted at the beginning of the year.
All developing countries, which are eligible to receive international climate finance, may receive such funding from Luxembourg. Overall, the ICF seeks a balanced geographical distribution of supported activities.
Nevertheless, for about half of its bilateral support window (which excludes funding provided to international or multilateral funds or organisations), the ICF Strategy grants enhanced consideration for climate finance support to:
Least Developed Countries (LDCs) and low-income Small Island Developing States (SIDS) as well as low-income communities or regions highly exposed to climate risks in other developing countries
Climate Dialogue Partners: Countries with which Luxembourg has entered a climate action dialogue.
The ICF Strategy aims at a balanced distribution between climate change adaptation and mitigation activities and will promote integrated climate action and pollution reduction in developing countries. Projects will be divided around priority themes, such as:
Leveraging and Mainstreaming Climate and Sustainable Finance
Support for Transparency Requirements of the Paris Agreement (5% of ICF)
The focus is on mobilising private capital for climate protection, for which different types of financing will now be possible. Public-private instruments ("blended finance") beyond direct subsidies can be further explored, such as indirect investments by intermediaries, direct investments or guarantees.
Note: “Other environmental markers” include biodiversity, environment and desertification that do not overlap with mitigation and adaptation. Biodiversity-related ODA is integrated in the columns, as well as presented separately for better visibility.
Source: OECD (2021), Creditor Reporting System (database), https://stats.oecd.org/Index.aspx?DataSetCode=crs1
Operational tools for systematic integration
An operational action plan is under development to define the key actions to be carried out by Luxembourg’s Development Co-operation in the medium term in order to ensure the implementation of the Environment and Climate Change Strategy. It will serve as a tool to guide the entities responsible for the implementation of programmes and projects and will propose ways to improve existing implementation processes and tools, or even to integrate new tools, to ensure a coherent and operational implementation of the strategy, its objectives and priority themes. The action plan will include a monitoring and evaluation framework for the implementation of the strategy, in order to measure, on a regular basis, the performance of Luxembourg's Development Co-operation in the area of environmental protection and climate action.
During project formulation, Luxembourg’s Development Co-operation Agency (LuxDev) conducts a systematic environmental and climate risk screening for new interventions using a standard checklist tool. Identified potential risks are mitigated through an enhanced project design whenever necessary. An operational guidance manual for the “integration of crosscutting themes” is systematically applied. With regard to staffing, relevant profiles are required to prove sufficient environmental and climate knowledge (standard job description and terms of reference [TORs]). When appropriate, a “green” tendering process is applied.
Assessment tools and the operational guide of Luxembourg’s Co-operation Agency will be updated, and adapted to serve the NGOs as well. Training sessions will be organised at headquarters as well as in the field to strengthen capacities and skills in terms of environment and climate change mainstreaming and ensure consistency between what they say and what they do.
The ICF Strategy provides guidance regarding eligibility requirements (p. 21) for applicants:
As well as selection criteria (p. 29):
Particular attention is paid to gender and human rights issues. Additional information regarding the submission process is also provided in the strategy document.
Monitoring, evaluation and learning frameworks
Luxembourg’s development co-operation projects aim to strengthen the alignment of crosscutting indicators based on national statistics as well as data systems, and, if adequate, the harmonisation of relevant indicators proposed in the official Country Gender/Environment/Governance profiles, while ensuring that they contribute to the monitoring process of the relevant general indicators of the Sustainable Development Goals (SDGs).
Environment and climate are systematically integrated into each stage of the project cycle, including monitoring, evaluation and capitalisation.
Supporting national transition plans that are commensurate with international objectives
Luxembourg's development co-operation programmes mainly consist of technical assistance and capacity strengthening. Support for the development and implementation of national strategies is part of it, and national strategies are automatically analysed and taken into account when identifying and formulating programmes to align with national strategies, politics and objectives. The support provided depends on the needs and requests of the partner.
Luxembourg also provides specific support to countries for the definition and adaptation of their NDCs or National Adaptation Plans (NAPs) through the ICF. In fact, the new ICF Strategy puts a focus on capacity-strengthening activities to meet the transparency requirements of the Paris Agreement (p. 10). Depending on the needs of the partner countries/region involved, support measures may include assistance with the preparation of institutional, legal and financial frameworks to enable the preparation and implementation of NDCs; reporting formats; greenhouse gas (GHG) inventories; and/or development of technical capacities for tracking progress in the implementation of NDCs.
Moreover, the “Alignment with Host Country Climate Strategies and NDCs” is one of the ICF eligibility requirements, as mentioned above (p. 24).
Luxembourg’s ICF Strategy is guided by the principles and approaches defined in the Paris Agreement. It recognises, in particular, the principle of country-driven assistance. That means, as countries make their own choices concerning the NDCs and identify their climate change priorities, targets and implementation pathways, Luxembourg seeks to give support to those interventions that are anchored in and aligned with the national choices of the target countries. A country’s NDC, as well as NAP, strategies and other national policies with a direct climate change impact, are of specific relevance.
While the alignment with host country priorities is essential, this requirement is not restrictive in the sense that only those elements explicitly referred to in an NDC would be supported and only to the level of ambition reflected therein. On the contrary, interventions seeking to realise extra premium in or to mitigation and/or adaptation benefits and generally reflecting higher ambition are encouraged under Luxembourg’s ICF Strategy, as long as they fit into the larger strategic framework of a country and do not counter specific policies and country choices.
In practice, applicants for ICF support will need to provide evidence for the positive strategic (country-driven) framework, including – where appropriate – by submitting relevant support letters from government agencies.
Examples of projects to support national transition plans
Luxembourg supported Cabo Verde for the development of its renewable energy strategy to improve access to clean, reliable, modern and affordable energy, with a consequent increase in energy independence. Subsequently, bilateral co-operation programmes with this partner country were adapted to support it in the implementation of the renewable energy strategy.
To date, a whole-of-government (approche pays) approach has been put in place in order to include Luxembourg’s MECSD and Ministry of Energy and Spatial Planning in the new indicative co-operation programme 2021-25 with the title “Development-Climate-Energy”.
In this context, Cabo Verde has already benefited from the support of Luxembourg for the review of their NDC and the definition of its NAP. In the years to come, Luxembourg will support Cabo Verde in the implementation of several measures defined within those two documents.
In terms of sustainable infrastructure, Luxembourg, through its Fast Start Finance budget, has also enabled the establishment of the Center for Renewable Energies and Industrial Maintenance (CERMI). This emblematic building brings together in one place several workshops equipped with state-of-the-art equipment, allowing for the training of young people in renewable-energies-related professions (photovoltaic, wind energy, cold chain). Luxembourg and Cabo Verde subsequently agreed to set up a Renewable Energy Competencies Centre in Cabo Verde to diversify the country's training offer and available renewable energy services.
Luxembourg is also providing support for the installation of the first 100% solar seawater desalination unit and related pumping and water storage installations.
Thus, Luxembourg is helping Cabo Verde to progress in its energy transition as it has abundant renewable energy resources and the ambition to transition to 50% renewables by 2030. In that respect, Luxembourg also facilitates a feasibility study related to the technical and economic feasibility for renewable hydrogen production at the industrial level in Cabo Verde.
Implementing the transition to environmentally sustainable, low-emissions and climate-resilient development pathways
Luxembourg provides its support and sets out these elements through the four priority themes provided for in the new environment and climate change strategy of Luxembourg co-operation.
Thus, Luxembourg will strengthen its contribution to the establishment of sustainable energy, food and water supply systems that are resilient to climate risks, in order to ensure the provision of sustainable, reliable, accessible and affordable basic services to all groups of the population, including the most vulnerable.
Luxembourg will strengthen its contribution to the development and/or strengthening of green value chains in promising sectors according to the potential and needs of beneficiary countries. In the education and professional training sector, Luxembourg will thus promote the integration of technical curricula encouraging the environmental transition in key sectors such as waste management and the circular economy, renewable energies, construction and building, but also tourism.
Luxembourg will ensure the integration of girls in fields of study that are often more accessible to boys. In order to guarantee the employability of young people in these areas, Luxembourg will also support entrepreneurship, especially among women, and the local production sector (especially micro, small and medium-sized enterprises, MSMEs) to invest in innovative and sustainable solutions, through technical support and adapted financing tools.
Luxembourg will significantly strengthen its action in the area of sustainable management of natural resources, in particular through its support for the establishment of sustainable and agro-ecological production systems for the benefit of smallholder farmers, thereby contributing to the food security of the local population. It will also encourage the valorisation of natural resources through the development of environmentally friendly and income-generating value chains, which could particularly target women and contribute to their empowerment. Luxembourg could also play an active role in setting up governance and inclusive natural resources management mechanisms, which are a key issue in its countries of intervention (agricultural and pastoral land, land tenure, water in particular), in order to guarantee access and support the livelihoods of local communities, in particular vulnerable groups and indigenous populations.
Finally, through policy dialogue and institutional capacity-building activities, Luxembourg's Development Co-operation will support national and local partner authorities in the elaboration of sustainable sectoral and local development strategies and/or plans, which consider the environmental and climatic vulnerabilities of sectors and territories with a forward-looking view.
For the sake of consistency with the General Co-operation Strategy and the additional ICF, Luxembourg Co-operation has included these themes in a single strategic document, namely the recent Environment and Climate Change Strategy.
Support for sustainable, quality infrastructure
Sustainability (economic, environmental and social) and resilience to risks are taken into account at all stages of all projects, including infrastructure projects.
The largest share of Luxembourg Development Co-operation’s work is technical assistance, capacity strengthening with investments into supporting required infrastructure whenever needed. There is (almost) no standalone “infrastructure” project, so the various quality criteria, including environmental and social co-benefits, are being considered at all stages of project development, including the infrastructure sub-components of projects.
The ICF Strategy foresees that funds provided should seek to augment the climate response while at the same time yielding sustainability benefits in accordance with the SDGs, including resilient infrastructure.
Under the funding theme “Natural Capital, Biodiversity, Forestry and Land Use”, the strategy targets policy, technology and project initiatives that create climate change mitigation and/or adaptation benefits by building resilience with nature-based solutions in infrastructure planning, design and implementation. Under the funding theme “Clean Air and Water Resources”, bicycle infrastructures are eligible.
The funding theme “Sustainable Finance” puts a special focus on collective investment vehicles and financial risk mitigation structures for low-carbon and resilient infrastructure for sustainable cities, clean energy production and efficient use, as well as wider measures aimed at realising NDC commitments.
Examples of projects in support of environmentally sustainable, low-emissions and climate-resilient transitions
Burkina Faso: The 3rd Indicative Co-operation Programme (ICP) (2017-21), focuses on four sectors:
Central America: Launched in 2017 in Luxembourg by a public-private partnership, the Forestry and Climate Change Fund (FCCF) is a pioneering impact fund aimed at demonstrating that sustainable forestry in secondary and degraded tropical forests (SDF), which represent about 70% of forests worldwide, can generate ecological, social and economic benefits, and contributes to healthy landscapes, local economic development and the fight against climate change. The FCCF seeks to pioneer a viable business model for timber production within secondary and degraded forests. Novel ventures, such as the FCCF, have potential for high impact but are naturally risky. Therefore, the FCCF developed a financing scheme to reduce the risk for private impact investors. Public entity investors (MECSD and Ministry of Finance) provide a first loss tranche (up to 50% of the Fund’s target size), providing a strong risk mitigation instrument for private investors. This means that impact investors benefit from a risk buffer that kicks in in case investments fail. This allows us to push the limits of conventional models.
European Microfinance Award 2019: The European Microfinance Prize, created in 2005 by the Luxembourg Co-operation, is awarded each year by a jury of experts to an institution in developing countries which has demonstrated, through its action, an innovative and paradigm-shifting character in its approach to the inclusive finance sector. In 2019, the award recognised extraordinary efforts in “Building Climate Resilience”.
Bangladesh - Mangrove plantation for Environmental Sustainability (Friendship): Friendship advocates for poor and marginalised people in Bangladesh who are particularly vulnerable and exposed to floods, storms and other extreme events caused by climate change. Together with these people, with a particular focus on women and the poorest, the mangrove forests in the coastal region are being reforested in order to protect the dykes and thus the habitats. In addition, local communities are trained so that they can maintain and preserve the forests on the one hand and improve their incomes through adapted or alternative agricultural production on the other.
Responding to the particular needs of SIDS
Luxembourg’s General Co-operation Strategy specifies in its country identification criteria that priority is given on the one hand to the LDCs, for which Luxembourg will continue to go beyond/exceed its commitment under the Istanbul Programme of Action by allocating more than 0.2% of its GNI to LDCs. On the other hand, Luxembourg targets its aid on SIDS and countries in fragile situations.
Luxembourg’s Environment and Climate Change Strategy foresees that priority is given to populations living in poverty, who do not have access to essential basic services such as water, energy, health, education, that are the most exposed and vulnerable to climate change, especially the populations of the LDCs and SIDS, to align with the General Co-operation Strategy. These people largely depend on natural, agricultural and coastal resources for their livelihoods, resulting in the phenomena of desertification, deforestation, loss of biodiversity, pollution and increased climatic risks having direct and consequent effects on food security and income generation. Insecure land rights and lack of access to information on the environment and climate variability are other aggravating factors they consider.
Within the ICF Strategy, specific attention will be given to LDCs, SIDS and other vulnerable countries. The ICF seeks a balanced geographical distribution of supported activities. For about half of its bilateral support window (which excludes funding provided to international or multilateral funds or organisations), the ICF Strategy grants enhanced consideration for climate finance support to:
LDCs and low-income SIDS as well as low-income communities or regions highly exposed to climate risks in other developing countries
Climate Dialogue Partners: Countries with which Luxembourg has entered a climate action dialogue.
Examples of projects in support of SIDS’ sustainable development
Luxembourg has supported several SIDS through projects in various areas. Some examples include:
Vanuatu - Enhancing resilience to climate change through solar-power-driven access to water in rural areas of Outer Islands (Global Green Growth Institute, GGGI): The project aims to increase resilience in Vanuatu's rural communities to deal with the consequences of climate change, such as periods of drought and the occurrence of tropical cyclones, through the implementation of solar-powered water pumping systems. Another aspect consists in the strengthening of the institutional environment for the management and maintenance of the solar-powered water systems (SPWS). Phase II (2021-24) will consolidate the enabling environment to support the uptake of SPWS in Vanuatu. Moreover, the operationalisation of the financial mechanism (defined during Phase I) will support investments in SPWS, ensuring the sustainability of the project, and as a result increasing the number of people benefiting from adequate access to safe and clean water. In terms of SPWS installed during Phase I, 22 SPWS and 4 Reverse Osmose units were installed in 21 communities. In addition, three manual pumps were repaired and five were overhauled and fixed (9 478 beneficiaries). Phase II targets 30 SPWS in 26 communities, reaching 10 000 direct beneficiaries.
Fiji - Drua Incubator (United Nations Development Programme [UNDP]): The key objective of the Drua Incubator is to promote and facilitate constructive interaction between various sectors in a way that increases the enabling environment for private sector participants to design, develop and implement climate finance and climate insurance initiatives specifically aimed at climate mitigation, adaptation and resilience. Drua Incubator resources will assist relevant stakeholders and initiatives and help increase the political and practical support required to take worthy initiatives and products to scale. The Luxembourg funding will support the implementation of the Drua Incubator and focus, in particular, on insurance products and resilient infrastructure.
Supporting SIDS’ access to finance
In Cabo Verde, Luxembourg’s Co-operation specifically provides trainings to financial sector actors through the House of Training-ATTF, a centre of excellence operating from Luxembourg. Its objective in Cabo Verde is to provide training assistance to the financial sector, cause impact and bring its professionals up to speed on high-priority international best practices. Luxembourg will aim to empower the professionals of the banking sector to be actors of the development of their economy.
In terms of financial inclusion, Luxembourg supports the microfinance sector in Cabo Verde, in particular by enabling youth and women to access quality financial services, including to finance small and medium-sized enterprises and access renewable energy.
Last but not least, Luxembourg supports ANAS (a national water and sanitation agency) in the preparation of their readiness support programme to the Green Climate Finance (GCF) fund.