Policy Context

In 2021, Luxembourg launched its revised ICF strategy which includes a commitment of EUR200 million (US$211 million) for the period of 2021-2025, an increase from the EUR152 million (US$160 million) it spent in 2014-2020. This financing is new and additional to ODA, and is managed by the Climate and Energy Fund under the Ministry of Environment, Climate, and Sustainable Development.

Luxembourg’s ICF focuses on the following thematic areas:

• Natural capital, biodiversity, and land-use;
• Clean air and water resources;
• Resource efficiency and waste management;
• Community-based adaptation and resilience;
• Support for the transparency requirements of the Paris Agreement;
• Leveraging and mainstreaming climate and sustainable finance; and
• Climate-change-induced migration.

According to the revised ICF strategy, Luxembourg no longer applies strict quotas on funding to mitigation, adaptation, and REDD+, but rather focuses on complementary activities that address these issues. Luxembourg continues to focus on LICS and SIDS as well as its Climate Dialogue Partners, many of which are also its ODA priority partners.

The strategy states that Luxembourg will continue to provide grant financing, particularly for adaptation projects, while other climate investments, such as those involving the private sector, may be funded by concessional loans, first-loss equity and guarantees, and outcome-based payments.

ODA Spending

How much ODA does Luxembourg allocate to climate projects?

In 2021, Luxembourg reported US$25 million of climate-related ODA, including funding for projects with climate as a principal objective (principal funding) and for projects with significant climate change components . This represented 8% of bilateral allocable ODA in 2021, significantly lower than the DAC average of 24%. In 2021, Luxembourg ranked 22^nd among DAC donors for its total climate funding and 23^rd for its climate funding as a percentage of bilateral ODA.

Luxembourg’s international climate finance (ICF) commitments are not reported as ODA. In addition to climate-related ODA, Luxembourg also committed to EUR24 million (US$28 million) of ICF in 2021.

How is Luxembourg's climate-related ODA changing?

Luxembourg’s climate-related ODA decreased from US$29 million in 2017 to US$25 million in 2021, with a significant drop to US$4 million in 2020. This drop in reported funding is likely due to reporting issues, as a similar drop in screened projects for the gender marker in 2020 was also recorded.

According to UNFCCC, Luxembourg reported increasing contributions to ICF from EUR16 million (US$19 million) in 2017 to EUR37 million (US$44 million) in 2021. Luxembourg’s ICF contributions are expected to increase, reaching EUR56 million (US$66 million) annually in 2025.

In 2021, Luxembourg spent US$23 million of climate-related ODA on climate adaptation, of which US$11 million was cross-cutting projects related to both adaptation and mitigation.