The ongoing hunt for climate cash

Rich nations have made bold statements about channeling climate finance to developing countries, but concrete agreements remain elusive. As we approach the next round of UN negotiations, Jessica Brown sums up the latest developments.

Raising and delivering finance to support the fight against climate change in both developed and developing countries is one of the most critical areas under discussion within the United Nations Framework Convention on Climate Change (UNFCCC) and will likely be a central focus of the UN-led global-warming conference in Cancún.

Finance for developing countries in support of mitigation and adaptation was established as one of the main building blocks of the Bali Action Plan, adopted at the 2007 climate-change summit in Indonesia. The parties recognise that improved access to, and provision of, new and additional financial resources is needed, and that funds should be mobilised from both public and private sectors to meet this objective.

These issues have been considered by the Ad Hoc Working Group on Long-term Cooperative Action – the body set up to facilitate discussion on implementation of the UNFCCC beyond expiry of the Kyoto Protocol – since its first session in March 2008, but no formal agreements have yet been made about how to secure the finance in concrete terms. The United Nation’s climate-change conference in Copenhagen in 2009 marked the original deadline for completion of the negotiations, but this deadline has since been extended as no legal agreement was reached.

Although it was not formally adopted, the Copenhagen Accord does provide an indication of political consensus on the general need for the delivery of finance to developing countries. The accord concretely states that developed countries should provide new and additional resources for developing countries approaching US$30 billion (201 billion yuan) for the period 2010 to 2012, and that longer-term funding should come from both public and private sources to mobilise US$100 billion (669 billion yuan) per year by 2020. The Copenhagen Accord also includes an agreement to establish a Copenhagen Green Climate Fund to support these efforts.

Several countries have since put forward proposals for the Green Climate Fund, which deal with the potential future source of funds (including proposals for new and innovative sources of finance, consideration of a specified level of funding by donor countries, and the role of the private sector). In this context, in February this year, the UN secretary-general Ban Ki-moon established a High Level Advisory Group on Climate Change Financing, with a remit to input into negotiations regarding potential sources of revenue for climate-change financing. However, the report, which came out in early November 2010, failed to reach any consensus on new sources of finance.

There remains a lack of consensus over the architecture and institutional arrangements associated with a new fund. A recent meeting in Geneva of high-ranking officials from 46 countries and the European Union aimed to further the finance discussion and to “raise awareness” of the challenges involved in developing financing measures to deal with climate change. However, it is challenging for non-participants to assess how non-negotiation talks help further the establishment of an international policy on climate finance, and no concrete details on policy proposals have emerged from the meeting.

Alongside the efforts towards an international climate-finance regime, many bilateral and multilateral funding channels are currently supporting mitigation and adaptation efforts in the developing world. The website aims to track several of these ongoing initiatives, and describes the governance and funding arrangements for the various dedicated climate-change funds, the regional breakdown of funding and the types of projects being supported.

Most funding mechanisms currently exist outside of the UNFCCC, and none of them are funding at the necessary scale required, as the funds primarily rely on voluntary contributions financed by donor governments’ budgetary expenditures. Further, the disbursement of funds is slow, and there tends to be a lack of progress towards country ownership – governments receiving finance are not sufficiently taking charge of climate-change policies and activities in their countries.

It is still unclear what kind of agreement we can expect from Cancún. While there appears to be general consensus on the need for a new global green fund, it will undoubtedly take a long time to make this fund operational and to agree on some of its critical elements. Key questions include:

How will the fund be resourced?

To avoid a business as usual approach to climate finance, the fund must move away from voluntary donor country pledges towards an innovative sourcing mechanism that can provide funds automatically at the scale needed.

Positively, many developed countries have come forward with pledges to meet the “fast start finance” commitment of US$30 billion (201 billion yuan) by 2010, yet many of these pledges recycle previous, unfulfilled promises on climate change, and all are voluntary. It may be too much to expect donor governments to cough up significant and additional resources on their own when there is no common framework or agreement within which to offer support. Instead, looking towards a longer-term solution, a shift away from these one off voluntary pledges is needed.

How will the fund be administered?

A central and contentious topic of discussion within negotiations concerns the governance structure of the new fund, and touches upon the composition of the fund board (for example, the share of representation between developed and developing countries), how funds can be accessed, prioritisation criteria for who receives funding and where the fund will be housed.

How will funds be disbursed?

Lessons in aid effectiveness need to be passed on from development cooperation to the climate-change community in order to understand how international climate finance can be most effective in terms of delivering results on the ground.

Further discussions are also needed on how the private sector will play its role, not only towards providing funds to support climate-change mitigation and adaptation, but how to encourage the private sector to reduce its investments in climate-unfriendly activities.

The failure of Copenhagen to reach a legally binding agreement has toned down expectations of an imminent climate treaty. Experts say that, at best, Cancún will deliver “good progress” on finance, yet any progress is likely to be contingent on a deal on emissions controls and the legal status of a future treaty. Such a treaty is likely to be completed at the end of 2011 at the earliest, yet more pessimistic outlooks abound.


Jessica Brown is a research officer at the Overseas Development Institute.

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