Beyond Copenhagen Position Paper for the Green Climate Fund 6th Board Meeting in Bali (February 2014)

Green Climate Fund

Bali, Indonesia (February 2014)

Policy review, critique and recommendations

By: Manu Shrivastava, CECOEDECON (India)

Email: shrimanu19@gmail.com

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.