On the promise of the Green Climate Fund
by Nathan Thanki
Under the UNFCCC, expectations that the international community has regarding climate finance are clear. Article 4, paragraph 3 states that developed countries “shall provide new and additional financial resources to meet the agreed full costs incurred by developing country Parties in complying with their obligations,” and that there is a need for “adequacy and predictability” in the flow of these funds. Paragraph 4 elaborates that these commitments include helping developing countries “that are particularly vulnerable to the adverse effects of climate change in meeting costs of adaptation needs.” Paragraph 7 says that the extent to which developing countries address climate change “will depend on the effective implementation by developed country Parties of their commitments related to financial resources,” while paragraph 8 declares that the funds should be for meeting “the specific needs and concerns of developing country Parties arising from the adverse effects of climate change and/or the impact of the implementation of response measures.”
That all seems fairly straightforward then: rich countries should give poor countries (in addition to existing aid) money specifically for both adapting to and mitigating climate change. However, as is always the case where money is involved, it is not so simple. Developed countries say, as they wash their hands of the responsibility of destroying the planet, that they are pouring money into climate financing. Developing countries say that they are seeing none of it, that they are funding many response efforts from their own budgets, that no money is given for badly needed adaptation projects, that most money goes to middle income countries like Brazil not the poorest countries like Zambia, and that the way climate financing is done is inappropriate as it gives too much power to the donor and not the recipient. There will be a few discussions around finance at Durban: reports on the Least Developed Country Fund (LDCF) and Adaptation Fund (AF) as well as from the Global Environment Facility (GEF). But perhaps the most highly controversial discussions will be around the new plan for long-term climate finance, the Green Climate Fund (GCF). So it is worth our time to know a little bit of the nitty-gritty.
The GCF was originally floated as an idea in Copenhagen, but was far overshadowed by the fiasco that was COP15. The figures of 30billion USD annually from 2010-2012 and 100billion USD annually by 2020 were conjured up, seemingly with no basis. As part of the Cancun agreements (1/CP.16 Para 4), it was decided that a Transitional Committee (TC) would meet throughout 2011 and come back to the COP in Durban with a design for the GCF. The TC was given some rough guidelines as to what the Fund structure should look like. The GCF should: be accountable to the COP; have a board of 12 developing country and 12 developed country members; have a trustee (The World Bank will serve as interim for 3 years) which holds the assets separately despite comingling, and which answers to the Board; have a separate secretariat; have 2 windows for mitigation and adaptation. Certain criteria were then laid out for how the TC itself should be structured: 15 developed and 25 developing countries, with consideration for gender balance; supported by various UN agencies, multilateral banks, international financial institutions and the UNFCCC secretariat; open for observers from civil society and the private sector.
The Design Process
The TC met this March in Mexico, and immediately formed 4 work-streams: scope, principles, cross cutting issues; governance; operational modalities; monitoring and evaluating. They also established a Technical Support Unit (TSU)—basically a group of finance and UN experts—to help the TC. By the second meeting in Tokyo, there were clear problems. Of the 5 chairs and co-chairs, developed countries had a 3/5 majority. Developing countries also complained of a lack of funding to assist them in attending TC meetings, and a conflict of interest in having the World Bank as trustee and in the TSU. Parties failed to make progress and by the fourth meeting in Cape Town this October, pretty much everything was still up for discussion. In governance, developed countries (led by the US) argued that the relationship of the COP to the GCF was advisory rather than supervisory, which developing countries strongly rejected. In the COP, developing countries are far more numerous, and so they want to make sure that decisions regarding their climate financing can be overseen by the whole world. In terms of structure, many developed countries (and developing countries with forests) want a separate funding window for REDD (reducing emissions from deforestation and degradation) and for the private sector, while G77 nations want windows for technology and capacity building instead. The role of the private sector is itself highly contested. Developed countries talk of a need to leverage private finance (by basically guaranteeing to bail out investors if they make reckless investments), but developing countries (mostly) maintain that funds should be public, and in the form of grants (NOT loans) that use direct access. Regarding the environmental safeguards which would ensure that funds go to projects that do not do more harm than good to people or planet, the US and Brazil oppose setting any, while developing countries like India want standards to apply to the private sector too. Many developing countries oppose calls (most loudly coming from the UK) that funds should be given in exchange for ‘verified results’, pointing out the obvious fact that a successful project cannot be implemented without funds.
At the end of all that bickering, what was the outcome? A non-consensus paper <http://unfccc.int/resource/docs/2011/cop17/eng/06.pdf>. The US and Saudi Arabia blocked consensus, meaning that the TC report to the COP will likely be re-opened for negotiating in Durban. The small gains made by developing countries may be held to ransom as part of a ‘take-it-or-leave-it’ Durban package. Developed countries will probably push hard to ensure that developing countries should also donate to the fund, just as they are pushing hard for developing countries to sign on to a legally binding treaty for reducing emissions. Both amount to a blatant disregard of the Convention principles of polluter pays and common but differentiated responsibilities.
So if that is what to expect, then what should we demand? Throughout the TC meetings, civil society has been loudly and clearly calling for the following: at least 50% of funds should be for closing the adaptation gap; the Board should have non-voting members from civil society and affected communities; the GCF should be cautious when engaging the private sector so as not to risk public finance; funds must be available through direct access, grants should be used over loans, and in cases where loans are used they should not add to unsustainable debt; there should be no ‘gap’ in finance between 2012 and 2020; funds should be used for ambitious projects (for example, a mitigation project that reduces the most emissions); the GCF should have explicit legal personality, so that it does not rely on the World Bank; the amount of 100b USD is at best a conservative ballpark figure—many other studies have suggested that the amounts needed for developing countries to adequately adapt to and mitigate climate change are several times higher. The list of demands is long and includes reiterations of even basic principles such as transparency and strong safeguards, which really is depressing: it shows how much is still at risk.
Ironically, as we go in to Durban the GCF looks the most likely issue to have an agreed outcome. If developed countries are to really do nothing to tackle climate chance, and instead renege on their Kyoto commitments, then they need a diversion. A large pot of money (or rather, the promise of such a pot—so far there is only $12b) would provide a good one. The promise of money, especially when that money is needed for developing countries’ survival, is a great negotiating tool for developed countries. I think of it more as a coercion tool. The US is holding out on the GCF so it can use it as part of a package later. For this reason, expect the issue of climate finance to be everywhere present at Durban.