Can you spare some change for the climate?

Originally posted in International Magazine ‘Tertulia’ 

The ‘Cancun Agreements’ refer to a series of decisions that came out of the UN Climate Conference in Mexico, Cancun late last year. Questions around financing adaptation and mitigation featured strongly in the discussions and were a make or break point for many of the small island nation states and less developed countries who have a massive stake in solving climate change. Often the future of their island, homes, livelihoods and their survival depends upon developed countries, who have contributed most to climate change, giving them financial assistance to deal with the effects of climate change they are experiencing today and help them prepare and mitigate the consequences that will be felt tomorrow.

Green Climate Fund

The most tangible finance outcome delivered by the Cancun Agreements was the decision to establish a Green Climate Fund that will provide monetary support for developing countries for mitigation and adaptation to climate change. The Fund will be designed this year, 2012, by a transitional committee of representatives from 25 developing countries and 15 developed countries (an important balance to ensure those who are affected most by climate change will be duly represented).

The Green Fund is in early days of planning and there are critical decisions about its governance and the delivery of funds that still need to be decided upon. If the Green Climate Fund is to be operational by the next UN Climate Conference in Durban this year, huge ambiguities around governing, sourcing funding and distributing funding will need to be clarified in the coming months. Concerns have been expressed that the Green Fund could quite easily turn into the ‘Empty Fund’ if the design of the Green Climate Fund isn’t hashed out and agreed upon in precise detail.

World Bank and Governance

The most visible point of contention during the Conference around the Green Fund, was the issue of who would govern the fund. Many late nights of discussion and cautious negotiation took place in Moon Palace, Cancun over this part of the financing decisions. There was an enormous amount of resistance from AOSIS, G77 and least developed countries over the suggestion that the World Bank would govern the delivery of the Fund.

Understandably.

The World Bank doesn’t have the best track record for the equitable delivery of funding and historically has imposed conditions around meeting standards on governance, education or human rights on recipients. Developing countries thus resisted the suggestion that IMF or the World Bank might be in control of the fund, fearing that their stringent (and un-climate related) conditions may slow the delivery of the much needed funds and restrict their autonomy to allocate the funding to mitigation and adaptation programs of their choice.

Fortunately, a decision was passed for the Green Fund to remain firmly under the auspices of the UNFCCC framework. However, the Cancun Agreements did confirm the World Bank as a temporary trustee as the Green Fund itself was being designed and developed. This is concerning for two reasons. Firstly, the World Bank essentially fulfils the role of trustee for three years and then is subject to a review by the countries involved. There is the inherent risk with any “opt out” situation that parties will then be reluctant to “opt out” of the World Bank as a trustee even if it is not governing the Fund in a way that satisfies stakeholders, simply for fear that there is not an experienced enough or established enough alternative lined up.

The second concern is that the World Bank has competing interests – namely the Climate Investment Funds which it also managed. This raises the question of whether the Green Fund and CIFs would compete for the same sources of funding, thus undermining the efficiency of both programs. Despite these concerns, theoretically the World Bank will play no role in the design or management of the Fund itself – and will be merely responsible for administering the finances. It is also accountable to the Fund Board and thus is bound to respect the decisions and the directions of the Board regarding the sources and distribution of finances.

Where is the Money Coming From? 

Possibly the biggest question facing the Green Fund – from where will the much talked of USD 100 billion be sourced?

The USD 100 billion figure came from the UN Climate Conference in Copenhagen in 2009 and rather than being refined and clarified in Cancun last year, the (incredibly vague) promises was merely reiterated in the working group on long-term cooperative action (AWG-LCA) text. There are no concrete plans in place to govern how to ramp up the USD 10 billion Fast Start Finance program that already exists to the USD 100 billion figure. Furthermore, there is no indication of whether the funding will come from private or public sectors, through bilateral agreements or multilateral agreements, through carbon markets etc.

A big issue needing resolution is how to encourage countries to participate in the new fund. Many funding programs already exist internationally and the Green Fund is merely one additional mechanism in a complex web of pre-existing initiatives. There is the obvious historic issue of how to surmount the reluctance shared by many developed countries, to contribute climate finances through the UNFCCC framework. It is critical to overcome these hurdles if the USD 100 billion target has any hope of being met.

Distribution of the Funding

The Cancun Accords are also strangely quiet when it comes to how the money will be allocated and distributed amongst the developing countries who need assistance adapting and mitigating the effects of climate change. The only reference to distribution is that the funding will be delivered through “direct access” i.e. the recipient country can have access to the funding directly, rather than the funding necessarily having to go through a third party.

This is incredibly positive because it gives recipient countries greater ownership over their funding and thus increases the chances that the funding can be used effectively on a national level. It has taken a long time for most aid agencies to learn the lesson that an external party rarely has the authority or the knowledge to effectively dictate where money should go in a recipient country, and it is reassuring to know that this age old mistake will not be repeated with the Climate Fund.

However, asides from the assertion that there will be no third party, there are no mechanisms in place governing how the money should be distributed. Is the money allocated as a grant? Or a loan? Or a loan with conditions? How does the Board ensure that such transactions are equitable and fair considering the different capacities and needs of individual countries? Very complex questions, and as of yet, no apparent answers.

Hopefully, the Green Fund would have a strong focus on providing condition-free grants to allow developing countries to have autonomy over how to best use funding in their own national context. It would also be possible to have a separate loan scheme for less vulnerable countries or investment schemes – but the nitty gritty of these mechanisms has yet to be finalised and need to be cemented before the next Climate Conference in Durban in December this year.

Conclusions

The development of the Green Fund is a positive step for developing nations to have a fighting chance at dealing with the effects of climate change. As those who will suffer the most but have contributed the least to climate change, it is a matter of justice as well as a necessary practical step, to provide developing countries with the resources to transition towards more sustainable energy production. However, much work needs to be done if the Green Fund is to deliver all it promises. Decisions must be reached around where to source funding, how it is to distributed and who will govern the process.

The establishment of the Green Fund is a step in the right direction. But many more steps need to be taken (and quickly) if the funding is to be distributed in time for many of the small island nation states and vulnerable countries to escape the harsh consequences of run away climate change.

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