MIT ESD.S30 Blog Post #1: Climate Finance and the role of the Green Climate Fund
The key issue leading up to the Paris Climate negotiations was the principal of common but differentiated responsibilities dealing with the challenges of climate change.
The Rio Declaration states: “In view of the different contributions to global environmental degradation, States have common but differentiated responsibilities. The developed countries acknowledge the responsibility that they bear in the international pursuit of sustainable development in view of the pressures their societies place on the global environment and of the technologies and financial resources they command.”
While all agree each country had to share a piece of the burden, regardless of pledges in the INDCs on own CO2 reductions and domestic policies, much of the negotiations boiled down to economics: who pays for what. A key piece in carrying out this common but differentiated responsibility principal is climate finance.
An overview of Climate Finance
The UNFCC states: “The contribution of countries to climate change, and their capacity to prevent and cope with its consequences, varies enormously. The Convention and the Protocol therefore foresee financial assistance from Parties with more resources to those less endowed and more vulnerable.”
“Developed country Parties (Annex II Parties) shall provide financial resources to assist developing country Parties in implementing the Convention. To facilitate this, the Convention established a Financial Mechanism to provide funds to developing country Parties.”
Four funds were thus set up, the Special Climate Change Fund (SCCF), the Least Developed Countries Fund (LDCF), both managed by the Global Environment Facility, and the Green Climate Fund (GFC) under the Convention; and the Adaptation Fund (AF) under the Kyoto Protocol.
The focus is this post will be the newest of these, the Green Climate Fund, founded in 2010 with the mandate to “assist developing countries in adaptation and mitigation practices to counter climate change.”
What had been pledged pre-COP21
Entering the Paris COP21 negotiations, the Green Climate Fund had raised USD 10.2 billion equivalent in pledges from 38 state governments.
Source: Green Climate Fund Pledge Tracker http://www.greenclimate.fund/contributions/pledge-tracker
Actions taken by the fund:
In November, one month before the COP21 negotiations in Paris, the Green Climate Fund approved its first set of eight projects, to which it allocated $168 million.
These projects included improving early warning systems to help Malawi respond to extreme climate events, a program to manage climate change-induced water shortages in the Maldives, and a green bond to spur renewable energy investment in Latin America.
So if the fund was both obtaining pledges and carrying out projects, what have been the challenges?
- Lack of Direction
Although the fund was proposed in 2009 and set up in 2010, it only started raising money in 2014. It was (and is, although this is for my follow-up post) still trying to come up with a mission statement about what value it hopes to add.
Leading into the conference, observers were worried about the direction of the fund. Niranjali Amerasinghe of the World Resources Institute said the Green Climate Fund needed “to make sure it sticks to its mission to finance programs that will create a ‘paradigm shift’ in order to become the primary vehicle for global climate finance.” She added that the “The GCF needs to identify its niche relative to other funds.”
Civil society groups and some developing countries raised concerns that the fund was heading in the wrong direction by emphasizing the role of the private sector and steering towards loans rather than government grants.
2. Questionable guidance and transparency
Also under fire, is the lack of transparency in the accreditation process for the institutions allowed to channel GCF resources to projects and programmes in developing countries. The process consists of an accreditation panel composed of a limited number of experts who review of applicants based upon official documents with little critical assessment of the entities’ track records.
According to the GCF secretariat’s interpretation of its interim information disclosure policy, the identity of all accreditation applicants must remain confidential until the Board approves them, which precludes NGOs and communities from sharing their on-the-ground experience and expertise.
In November, Nearly 100 NGOs published an open letter expressing dismay at GCF proposals to partner with HSBC and Crédit Agricole, accusing them of money laundering, financial mismanagement and close links with the coal industry.
“The accreditation of HSBC and Crédit Agricole would run counter to the GCF’s intent to be a game-changing institution with country ownership at its core. In turn, the GCF Board’s rejection of their applications would be a strong mark in favor of maintaining the integrity of the Fund.”
Moving forward:
The follow-up blog post will focus on impacts the COP-21 negotiations on addressing above issues, notably with regards to transparency, guidance, and the Green Climate Fund’s place amongst various climate finance mechanisms.
