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FEATURE: Design challenges for the Green Climate Fund

By Neil Bird and Jessica Brown (Overseas Development Institute) and Liane Schalatek (Heinrich Böll Foundation)

One of the achievements of the UNFCCC negotiations in Cancun was the decision to establish a Green Climate Fund (GCF). Many herald the establishment of this fund as the solution to addressing climate finance, with statements like ‘Green Fund to dominate global climate finance’. Others caution that ambitious steps are needed to avoid the ‘Green Fund’ turning out to be an ‘Empty Fund’, whose function is limited to attaining the buy-in of developing countries into a binding international climate policy regime.

The Green Climate Fund was first mentioned in the Copenhagen Accord of December 2009; now, the intent is to secure the design of the fund between March and November 2011. Time is short, with approval to start up the fund expected at the seventeenth session of the UNFCCC in Durban, South Africa in December 2011.

The design of the GCF has to address a large number of concerns. The following questions have not been resolved in negotiations to date, and must be clarified:

–          What role will the GCF play in providing sustainable finance at scale?

–          How will the GCF fit into the existing development assistance and climate financing architecture?

–          How will the GCF allocate finance to developing countries?

–          How will finance be delivered effectively?

Resolving these thorny issues represents an ambitious agenda. Much progress is required quickly if a working proposal is to be put to the delegates at the next COP meeting.

Our analysis (a full text of which can be found here) offers an early contribution to the debate by highlighting some of the more pressing issues that will need to be addressed in the near term.

–          While many of the details regarding the Fund’s governance have already been outlined in the Cancun agreement, the ‘transitional committee of experts’ tasked with the design of the Fund will need to address the question of what sort of ‘balance’ will be set between funding for mitigation and adaptation, as called for in the terms of reference for the design of the GCF. With present funding by existing dedicated climate funds overwhelmingly tilted towards supporting mitigation actions, there is likely to be a strong expectation that adaptation should receive a significant portion of support from the GCF, with special provisions for least developed and small island developing countries.  Some allocation formula is called for to give confidence that the subsequent funding decisions on this important issue are rule-based and equitable.

–          The issue of how this new Fund will interact with or relate to established climate funds, such as the Adaptation Fund and the Climate Investment Funds, needs to be addressed. The formation of the GCF is being viewed by many as a way to simplify the intricate network of multilateral and bilateral funding mechanisms and agreements that currently provide support for developing countries to address climate change. However, expectations should be tempered, as it is unlikely that the establishment of this Fund will significantly change ‘business as usual’ in terms of the complex international climate finance support structure, at least in the short term.

–          The Long-term Cooperative Action (LCA) text on the GCF hardly mentions any details on its plans for resource mobilisation, or how finance will flow into the fund.  The context in which the fund has been proposed is one that acknowledges the joint developed country Parties commitment, first recorded in the 2009 Copenhagen Accord, to mobilise USD 100 billion per year by 2020 to address the needs of developing countries, and USD 30 billion between 2010-2012 for ‘fast start finance’. The work of the High-Level Advisory Group on Climate Change Financing (AGF)  was tasked with identifying the potential sources of finance to achieve the USD 100 billion goal, and released a report just before Cancun to guide the thinking. This remains a contentious and highly political issue that Cancun left unresolved, with Parties taking only ‘note’ of the AGF report. It is conceivable that political fora outside of the UNFCCC such as the G20 or the Major Emitters Forum will discuss the issue of sourcing.

–          Regarding financial delivery, it is unclear what types of financial support the GCF will provide (grants, concessional loans, equity investments or guarantees).  It will be important for the GCF to secure a good match between the type of finance and the objects of financing. Potentially separate grant and loan windows could be created for different types of themes, sectors and countries. A better understanding of the role that private sector finance can play in the most vulnerable countries is also needed, as well as a more explicit acknowledgement of the central role of public funding for the required climate investments that might not attract private capital, particularly in dealing with marginalized groups.

The next twelve months will be a testing time as the transitional committee grapples with the task of designing the Green Climate Fund. Much can be learned from previous relevant initiatives, such as the Kyoto Protocol Adaptation Fund and the Climate Investment Funds. However, the scale of the task should not be under-estimated.

Image: Afghan woman in kitchen garden – diversifying livelihoods – adaptation to climate change. Credit Oxfam International.

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