A Stark Choice — Two Opposing Models for the Global Climate Fund « Climate Equity

A Stark Choice — Two Opposing Models for the Global Climate Fund

8. December 2010,

With just a few negotiation days left and the high-level segment of the COP 16 in Cancun now officially started, ministers and their teams face a stark choice in deciding what kind of global climate fund they should throw their support behind – one that will largely continue the traditional donor-recipient relationship between industrialized countries and developing countries and mimic development aid flows (model of the World Bank climate investment funds) or the one which puts that relationship on a new footing and restores developing countries’ faith in the seriousness of the developed countries commitments (a larger scale and improved Adaptation Fund model).  Given this introduction, it is not difficult to figure out which of the two strongly opposing options I personally favor….Draft text leaked out on Tuesday morning from the contact group on finance under the COP working group concerned with the long-term cooperative action of Parties under the UNFCCC (AWG-LCA) – really useful to have that camera function on modern smart phones these days, as the picture above shows —  couldn’t be clearer on the seemingly insurmountable juxtaposition of two different visions for how countries in the climate framework convention plan to structure their long-term fulfillment of obligations and processes of cooperation on financing support for mitigation and adaptation actions.

For fast and long-term finance, the Copenhagen Accord as a political statement, not a COP decisions, set the parameters for the volume of financing (not the needed, but the politically feasible amount), whichs seem certain to be confirmed in a finance decision in Cancun.  A reference to the fast-start finance commitment from Copenhagen (US$30 billion for 2010 -2012) in “new and additional” money – a term that without added baselines or qualifiers has sadly proved to be in itself quite meaningless —  is contained in both options that the Parties have to choose from. Likewise the balanced allocation of funding for mitigation and adaptation and the prioritization of adaptation funding for the least developed and small island developing states and Africa does not seem contested. [NOTE: although “balanced allocation” still seems to mean different things to developing countries and developed countries; I personally would read it as a 50:50 split, the G77+China read]. And only the second, stronger option, would “invite” donor countries to report annually on the fulfillment of this commitment to the UNFCCC.

Likewise, in a section on long-term finance, the reference to “scaled up, new and additional, predictable and adequate” funding is retained (see here for a clearer elaboration of these principles) – all elements that we would like to see fulfilled in a normative framework guiding public climate finance commitments.  It gets less harmonious from here: developed countries want to confirm at most their US$100 billion per year starting in 2020, but from a mix of sources (no indication of how much of it should be provided in terms of public finance) and only if large developing countries like China or India reduce emissions “meaningful” and are willing to provide “transparency on implementation” – something that the G77 and China have consistently rejected.  And the developing countries’ proposed scale of long-term financing of 1.5 percent of industrialized countries gross national product will – even if understandable in light of the huge financing needs – not fly. One has only to look at the still unfulfilled commitment for official development assistance at roughly half of this proposed scale.

Actually, the decision that the COP will not address the sourcing for the financing needed has already been made.  A report of the High Level Advisory Group on Climate Change Finance will be at best “”noted” by the parties, but the real talks about where the money should come from – and decisions about the roles of the carbon markets, innovative financing instruments such as transport levies or financial transaction taxes, as well as of the private sector in long-term climate financing — are most likely shifting to another, less democratic international forum, possibly the G20.

Still most division in the draft text is on what kind of global fund should be established – under the Convention or outside the Convention; as the main financing instrument of the climate convention or as one instrument among other existing ones such as the Global Environment Facility; governed by a board with equal representation of developing countries and industrialized countries (meaning, a 50:50 split) or an equitable one which would give the developing countries the opportunity to hold the majority and thus decide their own financing preferences.

The dark horse in all of this has been the World Bank and the role it would play, and fortunately several development organizations and networks have zeroed in on the huge implications that assigning the World Bank a function in running the Global Climate Fund will have on governing and delivering public climate finance.  With its long involvement in carbon finance, its own climate investment funds and with a history of development approaches that continue to contribute to climate change through the ongoing business-as-usual fossil-fuel energy investments, the World Bank is neither a neutral bystander nor free from a conflict of interest with respect to the proposed Global Climate Fund.

Unfortunately, it seems almost certain now that the World Bank will have the option to be a trustee of the new Global Climate Fund, but it does matter if the Bank is “invited” (Option 1) to the trustee role, at first on an interim basis with the possibility to review and extent or if it has to earn it as part of an “open and competitive bidding” process according to terms of references that a technical advisory committee establishes first (Option 2).  Essentially, the choice boils down to this: do you want to determine first the procedures and rules that should govern a Global Climate Fund and its trustee?   Or do you set up the Global Climate Fund first, with a possible extended role for the World Bank, and worry about the guidelines for its involvement later?  This matters, as a trustee-role can be narrow or broad.  For example, under a broader definition, the trustee could even be disbursing funding, not just acting as a safety deposit for the money of the Global Climate Fund, as a narrow definition would imply.

It will also matters if the way such a Global Climate Fund will operate is decided through a series of meetings convened just by one or several countries and led by finance ministers (the preferred scenario of the United States) or by a transitional committee of technical experts from within and outside the UNFCCC which are to be nominated with balanced and equitable representation by the parties and could include outside observers (preference of the G77 and China, apparently supported by the EU).  Better than allowing finance ministers caught up on political power plays and real global financial turmoil to make the decisions on the new Fund’s design would be to allow such a less politically biased technical expert group the one year they would need to come up with a good and lasting design. With a decision to set up such a group now and the mandate by the COP to get to work right away, such a group could present their comprehensive design at the next COP in Durbin, South Africa.  A look at an suggested Annex to the draft finance decision, laying out the terms of reference for the design of such a new fund, shows why it would be better to have experts instead of finance ministers come up with the design features.  The expert group would:

  • Decide how the Board of such a Fund would look like, what qualifications would be required of Board members and how long they should serve;
  • Suggest the allocation of funds, both between funding areas and via possible new funding windows
  • Recommend the policies and guidelines for the disbursement of funds
  • Propose mechanisms for review of the work of such a fund, its financial accountability and an evaluation of its funding effectiveness

To put it simpler: it is highly relevant if such a new fund has a separate funding window for civil society access; it matters if a new fund will continue to allow for loan funding for adaption; it is relevant whether the consideration of environmental and social safeguards, including with respect to gender equality, is mandated when making climate financing decisions and in every other stage of a project or program funding cycle: and it makes a difference if complaint mechanisms are set up that allow for a challenge to finance decisions in case affected groups feel they are wronged by climate finance investments gone wrong.

So, this is the stark choice before the delegates and ministers these last few remaining days.  The decision – and the responsibility for making the right one – is theirs.

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1 Comment

  1. In the strict sense this is dark choice, but in the wider sense climate financing can also be based upon new money. The World Future Council has a proposal for new money that wants to break the funding deadlock, and the International Institute for Monetary Transformation goes one step further by proposing a carbon-based international monetary system. Information of the latter is available at the above website and the UNFCCC website where IIMT held two press conferences, entitled “There are alternatives to the KP” and “Monetary Governance at RIO+20″. The IIMT also includes a press release and a media advisory that was issued on Dec 8 and 9, respectively.

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