The Complex Web of Climate Finance Decisions in Durban

The Complex Web of Climate Finance Decisions in Durban

Nov 28, 2011


The Complex Web of Climate Finance Decisions in Durban

Web of Decisions. Picture by cobalt123 under CC BY-NC-SA 2.0 License.  

...with the Green Climate Fund at its Center

November 28, 2011

Ever since developed countries in Copenhagen at COP15 pledged significant short- and long-term financial support to help developing countries achieve their climate action goals, the discourse about climate finance – on how to fulfill the pledges from what sources, on which institutional channels to use or create, on how to balance and rationalize the global climate finance architecture and on whether and how to align the monitoring, reporting and verification (MRV) of climate finance with that of emissions reductions – has been a dominant driver of the multilateral climate negotiation process. COP17 in Durban starting this Monday will be no different. By some counts no fewer than seven or eight distinct decisions relating to climate finance are on the Durban schedule, all of them interwoven and interlinked in a complex web of conditionalities, reciprocities and political gamesmanship with the larger Durban negotiation package. The most prominent one, , the pivot in the view of many insiders, will be the confirmation of the design for the Green Climate Fund (GCF) and the approval of a transitional process as well as initial funding for its set-up by the parties. Without the GCF and its secured financial sustainability, there will be no Durban package.

While the Durban decision on the GCF undoubtedly holds the key to unlocking a number of other important negotiation issues, it is by no means the only relevant climate finance one. Four bodies under the climate framework convention will be dealing with financing topics in Durban; these are the Subsidiary Body on Implementation (SBI), the Ad-hoc Working Group on Long-Term Cooperative Action (AWG-LCA), the Conference of Parties (COP), and the Kyoto Protocol meeting of parties (CMP). All these bodies will meet in parallel. Some finance issues are more routine than rallying cry. Yet, others go to the heart of Article 4.3 of the UNFCCC, which defines the financial responsibility of Annex II countries. Solving these climate finance issues will be crucial for any real progress in Durban, although the prospects are not very promising.

The least contentious discussions on climate finance should be the ones in the SBI focusing on relevant work under the financial mechanism of the UNFCCC, specifically the annual reporting by the Global Environment Facility (GEF) to the COP on financial support provided to developing countries for the preparation of national communications, as well as the guidance parties wish to give the GEF with respect to further actions. Under close scrutiny will be the GEF’s operation of the Least Developed Countries Fund (LDCF) in support of developing countries most urgent adaptation priorities and the progress made. Interesting in this context is that a guidance model such as the one used by the COP for the GEF is the one envisioned by many developed countries for the relationship between the GCF and the COP. In contrast most developing countries are urging a much closer accountability and oversight framework for the GCF. This is one of the still unresolved issues from the design process of the GCF in the Transitional Committee (TC), which can flare up in Durban, particularly if the South African presidency of the COP decides to open up the draft governing instrument for the Fund.

At first glance, the review of the Kyoto Protocol Adaptation Fund (AF) under the CMP, likewise on the schedule for Durban, should not be very controversial, although some observers fear that these discussions could prove to be a “dark horse” of the climate finance talks. The reason for this is that Durban will focus on the institutional arrangements for the AF – specifically its secretariat and trustee. AF secretariat services are currently provided on an interim basis by the GEF, and the World Bank serves as the AF interim trustee, subject to regular review. The World Bank, of course, is the designated interim trustee for the GCF for its first three years of operations. Many developing countries in the TC were urging to include language in the draft governing instrument for the Fund codifying an open, transparent and competitive selection process with clear criteria to determine the permanent trustee of the GCF. They are concerned that the World Bank could be treated as the “default” trustee for the GCF – certainly in line with the preferences of many industrialized countries. In a way, the discussion in the CMP on the AF institutional arrangements and how transparent a selection for a permanent trustee for the AF will be conducted foreshadows the same decision for the GCF and could set the precedent. In this context, it is also thinkable that the discussion about an inherent institutional “conflict-of-interest” of the World Bank might arise again, which had soured some of the TC discussions. The concern here is that the World Bank would serve as financial trustee of the GCF for which it would also serve as important multilateral implementing entity and financing channel.

The most relevant climate finance decisions of the Durban agenda under the AWG-LCA – although climate finance of course is fundamental for a number of work areas still to be concluded such as enhanced actions on mitigation and adaption – are related to the role and function of the Standing Committee created by the Cancun Agreements and the discourse on the sources of long-term finance, which had been left vague in the Cancun Agreements, but was revived as a negotiation topic in the UNFCCC post-Cancun. The discourse on the Standing Committee, which is to assist the COP in exercising its function with respect to the Convention’s Financial Mechanism, is seen by some observers to be mostly one of technical issues that can be resolved – how many members, how they are selected etc. This, of course, increases in complexity when taking into account that one of the functions that the Cancun Agreements ascribed to the Standing Committee is in assisting the COP with the “mobilization of financial resources and measurement, reporting and verification of support provided to developing country Parties”. Here the negotiations about shape and focus of the Standing Committee becomes clearly dependent on progress in securing the sustainability of climate financing long-term, not the least for the GCF. The submission of the African group on the Standing Committee thus proposes that the Committee conduct an assessment of long-term financing options, including assessed contributions by developed countries – clearly a no-go for the Annex II countries. The broader package on climate finance is also inextricably linked to – some would say held hostage by – mitigation issues. However, without any clarity on the sources and the pathway for long-term finance and on how to ramp up from the $10 billion per year until 2012 to the US$100 billion per year by 2020, developing countries fear that in Durban they might be tied to emissions reductions actions which are not able to be funded under the Convention.

On long-term finance itself, most developed countries, including from the EU and the United States feel that the issue is best handled outside the UNFCCC, for example in the G20 context. Point of proof is the recent World Bank/IMF report on sources of climate financing that the G20 finance ministers had commissioned for their November meeting. To the extent that they are willing to have the discussion within the convention context, they prefer it to be treated as an academic discussion more than as a negotiation and eventual decision about options. The latter would constitute, in the words of one insider, “the reddest of red lines.” For the United States in particular, the issue is very dicey domestically; giving the poisonous atmosphere between the two political parties, the Obama administration (which still has to put forward its budget for fiscal year 2013) is avoiding any new international finance commitment before November 7, 2012, the day of the next US presidential election. Developed countries, led by the US, might avoid any specific commitments in Durban, but could conceivably go along with an AOSIS proposal for a year-long work program of technical workshops on long-term finance. Or they could stall by waiting for yet another report on the issue to come out only next year, this time by the G20 Mexican presidency, which supposedly is interested in picking climate finance as its environmental focus. Proponents of resolving the long-term finance debate as part of the Durban negotiations, including the AOSIS and the Africa group are basically pleading for some assurance that climate finance will be delivered from 2013, when fast start finance officially has ended, to 2020.

Enter the Green Climate Fund, the pivot of the complex web of interdependent climate finance discussions at COP17 and center-piece of any possible Durban package. Final negotiations on the GCF will take place in the COP, which has to consider and approve the final report of the Transitional Committee. The document, consisting of a write up of the TC’s activities and process over a seven months period, includes a set of recommendations on how to begin setting up the Fund in a transitional period, as well as in an annex the so-called draft governing instrument for the GCF. The draft governing instrument, by any accounts a less than perfect text, had attempted to balance the often competing and opposing visions the TC representatives from 25 developing and 15 developed countries expressed about the scope, mission, governance structure and financing instruments of the future GCF. While most countries in the TC at is final meeting mid-November had begrudgingly agreed to go along with the document and sent it to the Durban summit for approval, the United States and Saudi Arabia indicated they would not be able to support the text in its current form and demanded further negotiations with significant text revisions.

In Durban, the South African presidency of the COP is now left with several less than perfect options on how to secure consensus and a decision on the design of the GCF and its initial funding. These include recommending to parties to live with a document that nobody really likes (in a weird sense the hallmark of a compromise package…); attempting to carefully tweak the parts in the document that caused the most controversy in a contact group or through informal consultations, or to open it up entirely for a full fledged negotiation among all 194 COP parties. The stakes are high for each of these choices. If South Africa allows a renegotiation of the entire text in the full COP, it is practically assured that many other countries besides the United States and Saudi Arabia demand fixes for the parts of the document they dislike. These include for example a reference to a private sector facility in the new Fund that would allow private investor to be funded directly and which most developing countries oppose or some text provisions that ensure that the Board of the GCF will have a closer relationship with the COP than the one currently existing between GEF and COP. South Africa could attempt to have a small group of hand-picked negotiators work together to incrementally improve on some text language in a contact group, out of sight of the rest of the negotiation hustle and bustle. Or South African leaders managing the summit can delay discussion of the transitional arrangements to start-up the Funds and its draft governing instrument to the second half of the second week of the Durban negotiations, when the ministers are replacing the technocrats at the negotiation table and the real political bargains will be struck.

In any case, it will be inconceivable to have a negotiation package in Durban without a decision on the GCF and its financial sustainability. Giving a clear signal early in the negotiation process that the GCF will be endorsed and funded will help with the controversial debate about the MRV of emissions reductions efforts by developing countries. Or as one expert observer of the process put it: if the Africa group gets disheartened and the discussions about the GCF sour in the first week of negotiations, it will be almost impossible to politically recover in Durban. Failing to reach agreement on the GCF in Durban will not only delay its start – in times of severely constrained national budgets in industrialized countries perhaps indefinitely. It might also shatter any prospects of real progress in multilateral climate talks for the foreseeable future.

Liane Schalatek is Associate Director of the Heinrich Boell Foundation North America. 

This article was first published on ClimatEquity




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