Green Climate Fund: A bad time to talk finance

The world’s climate change negotiators are no closer to identifying where the sources of the $100 billion Green Climate Fund will come from, even after two weeks of talks held in Bonn this week by the United Nations.

The Green Climate Fund (GCF), which the UN adopted at the end of last year in Mexico as part of the Cancun Agreements, is meant to distribute US$100 billion annually by 2020 for climate finance. The money is meant to help developing countries adapt to the effects of climate change and also reduce their own greenhouse gas emissions. The fund is being designed by a forty-member Transitional Committee, which is composed of 15 developed country and 25 developing country representatives.

The Cancun deal also formalized the 2009 decision made by countries in Copenhagen to make US$30 billion in finance for adaptation and mitigation available to developing countries by 2012. This sum is referred to as ‘fast-start finance’.

Fast-start finance contributions questioned

Fast-start finance allocations have been criticized as inadequate and skewed towards greenhouse gas emissions mitigation at the expense of adaptation to a changing climate.

Fast-start finance contributors had until the end of May to submit reports to the UN Framework Convention on Climate Change (UNFCCC) secretariat. At the opening of the Bonn session, UNFCCC head Christiana Figueres told reporters that parties had indeed reported before the end of May deadline, “but it was probably one minute before midnight, before the month ended. So it was very, very last-minute information.”

The reports lodged by contributing countries show countries vary greatly in how they apportion funds between adaptation and mitigation projects. Canada has allocated C$44.5 million (about US$45.5 million) for adaptation and C$291.5 million (about US$298 million) for clean energy, which is overwhelmingly in the form of concessional financing (a form of finance at better-than-market terms often offered by development banks). In contrast, Australia (which is contributing a total of A$599 million or around US$632 million) reported that it has allocated 52 per cent of its contribution to adaptation and 48 per cent to mitigation.

International charity Oxfam’s Tim Gore has slammed fast-start finance contributors for disproportionately allocating funds to mitigation projects, at the expense of adaptation. He noted that the Copenhagen Accord – which first set the target of US$30 billion by 2012 – called for a “balanced allocation between adaptation and mitigation.”

At Friday’s closing session, a representative from the Democratic Republic of the Congo complained that fast-start finance had been “slow to arrive and is unlikely to be new and additional.” Speaking on behalf of the African group of nations, the Congo delegate noted that some developing countries “have been told that the cheque is in the mail,” while others had found their arriving ‘cheque’ to be an old one – meaning funds already pledged for other purposes, such as foreign aid.

Concerns about the accessibility of finance have also been raised. At a forum on the EU’s funding effort, Samoan ambassador Aliioaiga Feturi Elisaia reminded delegates that small island states “with less than five or ten people working in environmental ministries” need to deal with multiple international agencies across a broad range of issues. Such countries should not be excluded because they lack capacity to absorb large amounts of climate finance, he said.

Green Climate Fund: progress, concerns over lack of private sector involvement

Henning Wuester, the UNFCCC’s secretary to the Transitional Committee charged with developing the GCF, said last week that the committee began work in April which was “largely organisational” and resulted in a relatively clear work plan. Three co-chairs were elected and four work-streams established, covering the different aspects of the committee’s mandate.

Acknowledging a “demand to go for a balance between mitigation and adaptation,” Wuester emphasized that the GCF would back both mitigation and adaptation projects.

The Transitional Committee will next meet in July in Tokyo, followed by a workshop and two additional meetings before the end-of-year UNFCCC summit in Durban, South Africa. Wuester stressed that this is “a very ambitious timeline.”

Some think it may be too ambitious.

Martin Khor, from the Geneva-based South Centre think-tank which promotes cooperation among developing countries, has warned that the committee is running out of time. Mr Khor called for more days to be set aside for the Transitional Committee’s work prior to Durban. Similarly, Meena Raman from the environmental non-profit Friends of the Earth Malaysia said that the Transitional Committee faces a ‘Herculean task’ in meeting the Durban deadline.

The talks to develop the GCF have also been criticized by former UN climate chief Yvo de Boer for shutting out the private sector. Mr de Boer, the previous executive secretary of the UNFCCC, said that the private sector was not being adequately consulted in the development of the fund. Speaking at a seminar organized by the World Business Council for Sustainable Development, Mr de Boer claimed that “in your process, ‘stakeholder engagement’ has come to mean that governments behind closed doors decide something, and then when they finish deciding, they pretend to consult business and civil society.”

Contrasting the Transitional Committee process with the work done to establish the earlier Prototype Carbon Fund, Mr de Boer concluded: “Please don’t sell me governments deciding something in a black box and then afterwards asking the people with the real money whether they have an opinion. Please don’t call that stakeholder engagement, because it’s not.”

Sources of long-term funding still unclear

The United States and other parties have been criticized in Bonn for blocking talks on sources of funding to meet the commitment of US$100 billion annually by 2020. Mark Lutes from WWF International said countries needed to start talking about funding sources because government budgets would not be sufficient to meet the target. He highlighted a tax on financial transactions as a particularly ‘promising’ option.

Mr De Boer also weighed in on sources of finance, noting that “a challenge of [this] magnitude could never be met through a single financial instrument.” He flagged the potential to tap bond markets and “create new financial instruments” to mobilize funding.

Speaking on Friday, chief US delegate Jonathan Pershing defended his country’s stance, reaffirming that “we’ve made an agreement to help mobilize $100 billion.”

Mr Pershing characterized this agreement as “quite broad, and [it is] very much up to the individual parties to make a determination as to what resources and what sources they will find to make those funds available. We don’t think that’s a matter for the parties to collectively decide. We think that’s a matter for each party individually to choose.”

The other side of the financing equation is building capacity for mitigation and adaptation projects in developing countries. Various parties and observers flagged this as a major challenge.

Toru Kubo from the Asian Development Bank said there was “a lot of money out there” looking for opportunities, but cautioned: “It’s a beauty contest, but the current negotiations aren’t that beautiful. It’s not very attractive. So capital’s flowing elsewhere.” Mr Kubo emphasized the need for governments seeking funds to pursue ‘long-term policy’ and introduce ‘practical’ regulations.

But with Europe facing a sovereign debt crisis and no agreement in the United States on the federal government’s debt ceiling, this is plainly an uncomfortable time for wealthy nations to be talking about climate finance.

Attending the Bonn session to urge governments to impose a climate tax on financial transactions, Bob Baugh of the AFL-CIO federation of American trade unions cautioned: “Having a discussion about financing anything in our country today is very difficult. They don’t want to talk about raising revenues period.”

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