Green
Climate Fund
Bali, Indonesia
(February 2014)
Policy
review, critique and recommendations
By:
Manu Shrivastava, CECOEDECON (India)
The
Green Climate Fund (GCF) was established during COP 16 (Cancun),
decision 1/CP.16, as an operating entity of the financial mechanism of the
UNFCCC and a center piece of its long term financing. The Transitional
Committee that designed the Fund, comprised of 40 members (15 members from
developed country Parties and 25 members from developing country Parties), met
four times through 2011 and, in accordance with its terms of reference (Annex
III of decision 1/CP.16), submitted in COP 17 (Durban) the report for its
consideration and approval. The Fund was eventually launched at COP17 (Durban) along with
governing instrument for the GCF. The Fund is governed by a 24-member Board (with
equal representation from the developing and the developed world) and functions
under the guidance COP and accountable to it as well.
The
mandate of the Fund clearly states that “given the urgency and seriousness of
climate change, the purpose of the Fund is to make a significant and ambitious
contribution to the global efforts towards attaining the goals set by the international
community to combat climate change.” To fulfill its commitment on sustainable
development, the Fund will “promote the paradigm shift towards low-emission and
climate-resilient development pathways by providing support to developing
countries to limit or reduce their greenhouse gas emissions and to adapt to the
impacts of climate change, taking into account the needs of those developing
countries particularly vulnerable to the adverse effects of climate change.”
The
GCF will support projects, programmes, policies and other activities in
developing country Parties. Other salient features mentioned in the mandate include:
- Transparency
and accountability in operations, guided by efficiency and effectiveness
- Key
role in channeling new, additional, adequate and predictable financial
resources to developing countries
- Catalyze
climate finance, both public and private, and at the international and
national levels
- Country-driven
approach and promote and strengthen engagement at the country level
through effective involvement of relevant institutions and stakeholders
- Scalable
and flexible and a continuously learning institution guided by processes
for monitoring and evaluation
- Maximize
the impact of its funding for adaptation and mitigation, and seek a balance
between the two, while promoting environmental, social, economic and
development co-benefits and taking a gender-sensitive approach
- Provide
simplified and improved access to funding, including direct access, basing
its activities on a country-driven approach and will encourage the
involvement of relevant stakeholders, including vulnerable groups and
addressing gender aspects.
The
features and mandates engraved in the foundation of the Fund haven fallen short
in practice and implementation since its inception and continue to do so. There
are many concerns surrounding the existence, operation, commitments, and
transparency of the GCF and seriousness of the developed nations to allocate
resources to it. The proceedings and progress have failed to deliver on
promises ever since. This has become a recurrent phenomenon with the latest
showdown seen during the negotiations at COP 19 that underscored the lack of progress
made by the fund.
The
Green Climate Fund ‘will’ not only help materialize the goals of the UNFCCC but
was also projected to mobilize USD 100 Billion by 2020 to help nations combat
climate change and adopt sustainable technologies, esp. in the developing world,
with donations from rich countries. A seed amount of USD 10 Billion per year
was also pledged in fast-track finance for three years starting in 2011.
However, none of these commitments have seen daylight and uncertainty prevails
over where this money will come from.
The
co-chair of the Fund, Jose Maria Sarte Salceda, had announced earlier the
urgency to act on climate change in the backdrop of the havoc caused by typhoon
in the Philippines
and noted that the resources mobilization was proceeding as desired. But once
again, it seems the steam has fizzed out. With a miniscule amount given so far
(USD 40 Million from South Korea), that as spent on start up and setting up the
HQ in Songdo by the interim trustee, the World Bank, the future is bleak and
more vows are still to be seen when the Fund will start collecting in 2014.
It
will be useful to mention here that a report by the ODI mentioned that “new
climate money in 2013 has dropped by more than two-thirds since 2012.” COP 19
held in Warsaw
last year, which was expected to take things forward showed decelerating
progress as the developed nations refused to commit an interim target of
raising $70bn by 2016. Even more surprisingly and to our dismay, the lack of
commitment did not raise a red alert, in fact, the documents released after the
COP had no clarity on if and when and how this money will come in. The
wealthier countries were non-committal in light of the global recession and
very insistent on private sector contributions.
The
top leadership of the GCF and UNFCCC has also shown their increasing reliance
on private capital. Christiana Figueres, quoting the extent and scale of the
problem that “$1trillion is likely to be needed to help poorer nations invest
in low carbon energy systems and develop climate resilient infrastructure”,
managed to put across that private cash and alternative sources could be the
driving agent in the process (in case you missed, aside from the public
sources). With the initial confusion of allowing private sector or not now
evidently clear, questions still lurk around the role and extent of private
sector investments. There are increasing speculations that the financing
institutions will be given the lead among private sector to invest in the Fund
through the Private Sector Facility (PSF), but again the structure and
modalities remain unclear.
Role
of private sector was initiated by establishing PSF after rigorous lobbying of
developed nations in the Board, reason given that this will attract market
forces sub texted under the "use of a diverse range of financial
instruments". It should not come as surprise that once market capital
forces are allowed, the big financial investment fish will be the first to
knock. The bigger problem that this trend forecasts is less money being spent
on adaptation financing.
The
Governing Instrument does mention laying emphasis on encouraging domestic
private sector and many developing nations and the civil society community have
been advocating that PSF should focus on finance for micro-small and medium
sized enterprises in poorer nations rather than big multi-national entities.
Needless
to say, a climate treaty in 2015 will not be possible without clarity on the
climate finance front, to be blunt, no country will move forward on the deal if
they don’t know who will pay to go clean! If it makes the picture any brighter,
the recently released GCF Financial Report confirmed that Germany has pledged USD 23 Million to the Fund,
after Korea
but no other check has been signed yet.
It
has increasingly come to notice that the GCF is moving beyond its mandate and
purpose of being a “fund” to control money from developed countries into
building climate resilience in developing nations, and not expect profits from
these activities. The Fund was conceived for the richer nations to fulfill
their obligations for being causative agents to the warming world, and help the
poorer countries abate and combat the havoc being caused. The Fund must earmark
this underlying principle and proceed using the same manual. There may be
private sector investment, but replenishments must come from the developed world.
Along the same lines, the increasing role and scope of intermediaries is a
growing concern esp. now that more private financial entities are being
included that will drive a more profit-oriented approach.
When
the World Bank announced a few months back that it will not finance dirty
energy projects anymore, the reflex was to see how that translates to
activities of the GCF, especially because the World Bank will be a trustee for
a considerable time and more crucially when the modalities and mechanisms of
the Fund are being laid out. Unfortunately, there is no mention of moving away
from fossil fuel or investing more in renewable energy. A major hurdle seems
that the Board has members unwilling to do so.
The
Governing Instrument of the Fund managed to carve “stakeholder involvement in
the design, development and implementation” into the constitution. But the
readiness and willingness to include a very important stakeholder, the civil
society, has been nothing more than lip service. From only two active observers
to ‘observe’ the proceedings’ to be allowed to speak only once for an agenda
item (that too at the whim of the Chair); to not webcasting the proceedings for
general viewing (which eliminates timely and effective interventions from
smaller groups around the world) and also not releasing videos later as
promised; to very limited opportunities for stakeholders to interact with the
Secretariat; the list is endless.
Not
to mention, roles of ‘externals’ is unclear on involvement in the process of approval.
The same has been seen for other stakeholders such as private sector actors,
women, indigenous people, and vulnerable groups. There is no clarity on how and
if at all the communities where projects will be conceived and implemented be
consulted or included in the decision making process. A major concern cropped
when the cso representative to the Private Sector Advisory Group was appointed
without consulting the civil society observers and after completely
disregarding the nomination process that the observers carried out with due
diligence.
The
fund has been described as “dynamic and innovative driver to combat climate
change”. However, many questions float around the operating framework, for
e.g., many of the rules according to which the GCF will operate remain to be
discussed. It is clear there will be ‘thematic funding windows’ for adaptation
and mitigation but allocation is fuzzy. The reports and documents released so
far have failed to provide guidelines on how the Fund money will be allocated, esp.
between mitigation and adaptation activities, a technical and political
challenge. The ratio is skewed. Despite the suggestive target of 50-50
allocation in the medium term, it translates to a “target range of 30-50 per
cent for both adaptation and mitigation”. A 20 percent share going to PSF also
raises eyebrows because this money will more likely than not be spent on
mitigation, unless strongly lobbied against.
There
has been no formal decision on the social and environmental safeguards proposed
for projects and how that will be monitored and the decision seems unlikely
till the summer meeting. More vagueness prevails around level of country
ownership, commitments issues, disproportionate stakeholder representation and
involvement, transparency of the Board itself, caveats of having another international
climate institution because the Fund will divert and fragment tax payers money already
being spent on building climate resilience and mitigation.
It
must be noted that Cancun Agreement underlined that GCF allocation should be
"new" and "additional" to the existing funds in
implementation or in pipeline. Clarity on "additionality of funds" is
a pre-requisite to prevent paperwork mess and hampering additional emission
reduction evaluation through CDM projects, creating confusion, counter productivity,
tampering, etc.
Climate
change and its impacts have the capacity to roll back development efforts and
success stories achieved so far. The implications are far worse in terms of
economic development seen so far. World Bank President remarked that the world
cannot end poverty without tackling climate in the most serious manner. There
is a need to build smarter and cleaner cities and make agriculture more
resilient and productive to feed the 9 billion people by 2050, he added. What
is important to remember and remind ourselves every time a dollar is spent is
that we don’t repeat the same mistakes that were committed in the past.
When
the GCF was inaugurated by the likes of heads of IMF, WB, UNFCCC, no one anticipated
that it will see a call out for charity. A lot can still be done to amend
shortcomings and make the Fund a promising and alleviating mechanism.
- Current
state of affairs demands massive investments in developing nations, not
only in developing adaptation capabilities but also on reducing emissions
by low emission technologies, clean energy, sustainable transport, etc.
But the Fund must have innovative mechanisms to change at the very basic
level on how energy is being produced, how mitigation measures are being
implemented, what adaptation strategies are being promoted. There is a
need to bring that “paradigm shift” in the private sector.
- To
deliver its promise on a clear and transparent strategy for potential
donors to pledge up substantial amount of money, more needs to be done to get
even close to the committed amount of USD 100B by 2020 where countries
have failed to cough out one-tenth of it per year.
- It has
probably been realized that public finance will not be sufficient to
bridge the gap and reach the pledged amount. Thus a regulated private
sector intervention is required.
- It is
strongly recommended that the Fund focuses on grants and concessional
loans as means of disbursement rather than other financial mechanisms.
- More
incentives and policy environment must be given to private sector to make more
climate-friendly investments by creating regulatory and institutional
structures.
- The
initial results management framework must include more parameters (besides
tonnes of greenhouse gas emissions reduced) to measure in order to drive
investment away from fossil fuels and more importantly from the next best
alternatives like natural gas, geothermal, etc. (which have lesser
emissions than traditional sources but are still harmful).
- Another
way to address this could be to set more stringent standards in the
initial phase of project approval that would decide viability of a project
based on the harm it causes. Ofcourse, this will also call for adopting
stricter social and environmental safeguards.
- Standards
and Safeguards policies incorporated in the project approval and
implementation must be made mandatory. Role of intermediaries must be
clearly defined in how finance is treated.
- The
role of civil society and other relevant stakeholders must be clearly
marked with significant space in the decision making and implementing
stages. The process of appointing representatives and others related to
stakeholder participation must be more transparent, accountable, consultative
and democratic. GCF proceedings must be opened to public for information
and participation and equal representation from countries must be ensured
to prevent biased decisions.
- The
GCF financing process must have clearly defined stakeholder inputs and
involvement, especially the communities where the project will be located,
making it more people centric and participatory.
- The role
of stakeholders has been tampered with as mentioned in the GI which also
mentioned there will be “participatory monitoring” with space for inputs into
discussions on framework, guiding principles, etc. But the current state
of affairs suggests this may just be confined to cost-benefit analyses,
GHG calculations, ticking boxes on “no objection procedure” and so on.
- The
fragmentation of the Fund to the PSF must have a ceiling to control
excessive inflow from this sector. Also, allocation to adaptation projects
must be increased.
- The
country ownership of GCF activities must be encouraged keeping in mind
priorities of vulnerable groups, women, youth, indigenous people and other
stakeholders. The Fund must have a core objective of integrating
guidelines and criteria for funding of these groups and increase
sensitivity.
