Why the Green Climate Fund must be replenished to remain the central multilateral channel for the collective climate finance goal

Why the Green Climate Fund must be replenished to remain the central multilateral channel for the collective climate finance goal

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Have developed countries kept their word regarding international climate finance?

In 2009 at the climate summit in Copenhagen (COP15), developed countries party to the UN Framework Convention on Climate Change (UNFCCC) as part of the “Copenhagen Accord” committed “to a goal of mobilizing jointly USD 100 billion dollar per year by 2020 to address the needs of developing countries.”  This funding was to come from a “wide variety of sources, public and private, bilateral and multilateral, including alternative sources of finance.”  A significant portion of new multilateral funding for adaptation was supposed to be delivered through a new Green Climate Fund (GCF) with a “governance structure providing for equal representation of developed and developing countries.” 

A decade after the Copenhagen pledge, and just one year shy of the 2020 deadline, what progress have developed countries made in fulfilling their promise? And what role does the GCF play in channeling those financial flows?

Progress toward the USD 100 billion per year by 2020 goal

The answer to the first question seems to lie in the eye of the beholder, owing to the fact that even ten years after Copenhagen there is no commonly agreed universal definition of what type of finance can be counted as climate finance in support of the Copenhagen pledge; nor has there ever been an agreement on how much of the USD 100 billion per year should come from public sources vs. private or alternate ones.  This ambiguity continues to cloud the accountability of climate finance flows from developed countries for climate actions in developing countries.  Significant data gaps and data uncertainty remain.

At the last climate summit in December 2018 in Katowice, two complementary, but not truly comparable sets of official climate finance data were reported.  One was from the UNFCCC’s Standing Committee on Finance (SCF), which is tasked to provide a biennial assessment (BA) of public climate finance flows from developed to developing countries and looked at flows in 2015 and 2016. The other was by the Organisation for Economic Cooperation and Development (OECD), to which developed countries routinely report their climate-relevant official development assistance (ODA) flows, and which assessed public flows from 2013-2017. Both draw only a fragmentary and incomplete picture of overall climate finance flows over the past few years, but are useful in showing trends as well as shortcomings of climate finance provision of rich to poor countries. They can be read in multiple ways, giving evidence to some that climate finance flows are increasing and on track to reach the USD 100 billion per year by 2020 goal, while bolstering the argumentation of others that the delivery of climate finance from developed to developing countries still falls woefully short of what was promised, let alone what is needed.

Increase in quantity of public flows…

First the good news: both reports outline that public climate finance flows from developed to developing countries have risen. According to the BA, such flows increased 30 percent over 2014 levels and reached USD 55.7 billion in 2016.  With 60 percent, more than half of this funding flowed through bilateral and regional channels, another 35 percent through multilateral development banks (MDBs).  Dedicated multilateral climate funds made up only 4.3 percent of these flows in 2015-2016, but have increased since in significance, owing largely to the ramped up funding operation of the GCF, which only started financing projects in late 2015.  In 2018 alone, the GCF approved USD 2.1 billion in projects and programs. The OECD report also details a steady rise of public climate finance flows from developed to developing countries from USD 39.5 billion in 2013 to a total of USD 56.7 billion in 2017 – an increase of 44 percent over four years.  Both reports, though, also show that developed countries continue to overwhelmingly prioritize public finance support for emissions reductions over financial support to increase the resilience of developing countries and their people and communities to deal with the impacts of climate change. Just around a quarter of the public flows reported were targeting adaptation actions in developing countries.

…but lack of accountability on quality of finance provided

However, these numbers tell only part of the story. By design, both reports leave out other climate finance relevant issues needed to complete the picture of public climate finance transfers from developed to developing countries.  Both reports include some information on the quality of public climate finance provided, such as how much of it is delivered in grants versus loans (although the overall finance amounts reported are not adjusted for grant equivalent values). Yet, they are largely silent on a whole set of qualitative and normative criteria that should provide the framework for how public climate finance is mobilized, governed and disbursed. These include questions such as the additionality (on top of or as part of official development assistance) or predictability of climate finance.  Or issues of adequacy of climate finance provision: should adaptation finance be delivered to some of the poorest developing countries or Small Island Developing States (SIDS), which have contributed little to global greenhouse gas emissions, in the form of loans?  Or is it legitimate to include flows from expert credit agencies (where the purpose is clearly to generate income in the developed countries providing the finance) as public climate finance delivered, as the OECD report does?  Or how to account for and report on the gender-responsiveness of climate finance?  Interestingly, the BA in 2018 for the first time included some references to the intended gender impact of investments and how this correlates to tracking public climate finance. In contrast, the OECD report did not.

No comprehensive climate finance package at COP24

At the last climate summit in Katowice (COP24), developing countries had hoped that as part of the rulebook for the implementation of the 2015 Paris Agreement a comprehensive climate finance accountability package could be delivered that would have tied indicative advanced (ex ante) reporting on expected climate finance provision (to increase predictability) with a clear reporting procedure of how much climate finance developed countries have actually provided over the past two years (ex post).  This largely failed.  Developed countries rejected any attempts to narrowly define climate finance or even use common reporting time frames. The reporting guidelines approved at COP 24 for climate finance provided by developed countries over the previous two years (ex post) allow them to include an almost limitless set of financial flows, and even non-financial efforts such as capacity building or technology transfers, as climate finance provided.  This undermines overall accountability and tracking efforts, as it limits the comparability of the climate finance each developed country provides, and thus the ability to tally up correctly the overall financial flows from developed to developing countries.

Ambition in climate finance tied to ambition in climate action

The signal from Katowice and its timing couldn’t be worse, as it comes just one year before the long-term finance goal of USD 100 billion per year by 2020 is to be delivered in a transparent and accountable way. 2020 is also the year by which parties to the Paris Agreement are asked to review and increase the ambition of their nationally determined contributions (NDCs), a country’s five-year commitment to advance climate action toward the collective goal of keeping the global temperature rise ideally to 1.5 degree Celsius.  Many developing countries have made clear that scaling up their efforts to reduce emissions and other climate actions will be conditional on increased climate finance provided by developed countries.  In 2020, at COP26, the process will also start to replace the goal set in Copenhagen with a new higher collective climate finance goal, which has to be agreed to by 2025. This symbolizes a small win for developing countries, who wanted to avoid that a future collective climate finance goal would be a random number politically set by developed countries (as was the case in Copenhagen) rather than one informed by joint deliberation and the assessment of developing country needs.

Safeguarding the GCF as the main multilateral climate finance channel

How to best channel public climate finance flows from developed to developing countries in line with the Copenhagen commitments remains a central question.  This is where the GCF is supposed to play a central role as it is the main fund under the financial mechanism of the UNFCCC and of the Paris Agreement. Developing countries overwhelmingly regard the GCF as the primary multilateral finance channel in support of the implementation of the Paris Agreement and for the climate actions that they commit to under their NDCs and other country-owned climate plans, such as National Adaptation Plans (NAPs). They expect therefore to be able to access a significant share of the public commitment of developed countries under the USD 100 billion goal and the future collective new goal to be set by 2025 through the GCF.

Formally established at COP 16 in Cancun, the GCF – in contrast to many other bilateral or multilateral climate financing instruments such as the German International Climate Initiative (IKI) or the World Bank’s Climate Investment Funds (CIFs) — is accountable to the COP and operates under its guidance. With USD 10.3 billion in pledges received largely from developed countries during its initial resource mobilization efforts since 2014, it is the largest multilateral climate fund (although USD 2 billion of the United States’ initial pledge to the GCF of USD 3 billion is outstanding and will not be fulfilled under the Trump Administration).  While its financial clout is relatively modest compared with the trillions of public and private investments that are needed to keep global warming to below two degrees Celsius, it has a significant signaling effect to the wider global climate finance architecture, not the least through its ever growing network of implementing partners, 84 in total as of March 2019. These count multilateral development banks, UN agencies, bilateral development agencies, globally operating commercial banks receiving GCF funding through traditional international access as well as regional and national accredited entities from developing countries, which have direct access to the fund.  However, more support is needed to ensure that the 49 direct access entities, which constitute the majority of the fund’s implementation partners, get more of their proposals approved. So far, the vast majority of GCF funding as of March 2019 (some 84 percent of the USD 5 billion approved in total) is disbursed through international access entities (mainly the MDBs).

Approved GCF funding by accredited entity (Top 10) in USD million, with number of approved projects in parentheses as of March 2019. Source: Author’s own calculations, based on https://www.greenclimate.fund/how-we-work/tools/entity-directory — Image Credits

Balanced allocation for adaptation and mitigation and prioritizing vulnerable countries

Nevertheless, from a developing country perspective, the GCF has a number of advantages over other climate finance channels, in particular bilateral climate finance providers. It is committing to sustainable development, recognizing that funding for climate actions must yield multiple economic, social or gender equality benefits and cannot just focus on reducing emissions at the lowest cost. It is governed by a 24 member Board with equal representation of developed and developing countries, and with dedicated seats for Least Developed Countries (LDCs) and SIDS. Contributors to the fund cannot earmark funding, which is one reason why the GCF can implement an allocation framework that commits 50 percent of its funding in grant equivalent terms for adaptation, thus bucking global trends, and reserves half of its adaptation funding for SIDS, African states and LDCs. As of March 2019, the GCF’s portfolio of 102 project and programs worth USD 5 billion in GCF funding has delivered on this promise: in grant equivalent terms, 54 percent of all funding went to adaptation measures, of which 69 percent supported the most vulnerable states.

The GCF’s core principle of country ownership also means the GCF puts significant efforts and resources into strengthening developing countries’ institutional capacity to program and implement nationally determined climate finance measures. Its readiness and preparatory support program, to which it has committed USD 310 million by March 2019, is already supporting more than 230 measures in 122 developing countries, with many more in the pipeline. It is probably the most significant single funding source for strengthening climate action-relevant institutions and processes in developing countries.  National designated authorities (NDAs) and focal points, acting as liaisons to the GCF, need to approve all project proposals to be implemented in their countries, can put forward own project concepts and are tasked to take the coordinating lead in elaborating national stakeholder-driven country programs detailing their country’s climate priority actions to be financed by the GCF.

That country ownership is to be understand in the broadest, and most inclusive sense, and is further highlighted by key GCF policies and commitments focused on setting good practice expectations for the application of human rights-centered climate actions, including with strong policies on gender, indigenous peoples and on environmental and social issues.

GCF first replenishment a challenge – and challenged

Despite the hopes of so many developing countries resting on the GCF as the main multilateral climate finance provider for the implementation of their commitments under the Paris Agreement, its long-term future is not assured. This year, the GCF, with less than USD 1 billion left to commit to projects before running out of money, is seeking its first formal replenishment. It is far from certain that it will be a generous one, as the United States will not contribute and other developed countries might not be willing or able to make up the shortfall.  Many have professed unhappiness with some of the GCF’s unresolved governance issues, such as a lack of a voting procedure for the Board. To show the GCF’s potential for growth and secure its status as the main multilateral climate fund in the global climate finance architecture, the GCF’s first replenishment must yield significantly more than the USD 10.3 billion collected since 2014, and ideally more than double this initial mobilization effort. This will be a hard to accomplish, even if all other developed countries follow the lead of Norway and Germany, which already announced that they would double their contribution to the GCF from 2014.  The task is further complicated by the fact that the World Bank CIFs, which were to sunset and cease operations with the climate finance architecture settled (always interpreted to mean once the GCF is fully operational), are instead postponing their mandated sunset indefinitely and might instead seek re-capitalization at the same time as the GCF asks for replenishment.  If developed countries choose the CIFs over the GCF, assuming that developed countries are not prepared to increase their commitments to multilateral climate finance in 2019 to satisfy both institutions’ re-financing efforts, the financial mechanism of the Paris Agreement will be significantly weakened.  The outcome will become clearer by early November, when the GCF will hold its pledging conference.  This is just weeks before COP 25 in Santiago de Chile will try to convince parties to scale up their national emissions reduction pledges for 2020. Without a successful GCF replenishment it is doubtful that developing countries will heed this call.

Resources:

Green Climate Fund: https://www.greenclimate.fund

GCF Replenishment Information:  https://www.greenclimate.fund/how-we-work/resource-mobilization/replenishment

GCF-Dossier of the Heinrich Böll Foundation North America: https://us.boell.org/green-climate-fund-dossier-0

OECD (2018). Climate finance from developed to developing countries. Public flows in 2013-2017. http://www.oecd.org/environment/cc/Climate-finance-from-developed-to-developing-countries-Public-flows-in-2013-17.pdf

UNFCCC Standing Committee on Finance (2018). 2018 Biennial Assessment and Overview of Climate Finance Flows Technical Report. https://unfccc.int/sites/default/files/resource/2018%20BA%20Technical%20Report%20Final%20Feb%202019.pdf

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