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Making the Green Climate Fund a Reality

A Durban Push Could Launch Tool to Help Developing Countries Respond to Global Warming

SOURCE: AP/Schalk van Zuydam

South African President Jacob Zuma, left back, speaks at the climate change conference in Durban, South Africa, on December 6, 2011. A fund to help developing countries adapt to climate change could become a reality with support from parties to the conference.

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See also: A Preview of the Durban Climate Change Conference by Andrew Light; Climate Finance Is Key to U.S. Climate Credibility by Andrew Light, Rebecca Lefton and Adam James;  Solving Climate Change Will Help Temper Rising Health Care Costs by Lauren Simenauer; Reading China’s Climate Change Tea Leaves by Melanie Hart; and There’s More than One Way to Reduce Global Emissions by Rebecca Lefton, Andrew Light, Melanie Hart, Adam James

As this year’s U.N. climate summit in Durban, South Africa, approaches the home stretch, we continue to hear good things about development of the final implementing document for the Green Climate Fund. This is good news for those interested in an outcome in Durban that could help climate change mitigation and adaptation efforts through this decade.

The Green Climate Fund is part of the pledge made in the Cancun, Mexico, U.N. climate summit agreements to mobilize $100 billion annually by 2020 for climate change mitigation and adaptation efforts in developing countries, which are the most vulnerable to climate impacts in the years to come. While the fund itself is not tasked with mobilizing all of this financing, it will be a key component of those efforts.

Signs the fund will come together are also good news for those observing the evolution of the United States’ negotiating position at the summit in the past two weeks. The United States approved the agreement at the Cancun summit last year to create the fund, but its confidence in the fund was in question recently.

In Cancun an official “Transition Committee” of 40 countries was created to meet over the course of the past year to create an implementing document to make the fund a reality. The “TC,” as it came to be called, met four times, with the last meeting in Cape Town, South Africa, in mid-October. At that meeting the United States dissented in the final hours with the other members of the TC and, along with Saudi Arabia, withheld its consent to the implementing document.

Because this U.N. process operates under a de facto consensus process, many parties were concerned that the failure of the TC to come to consensus in Cape Town would mean disaster in Durban. The co-chairs of the TC believed that if the TC came to consensus in Cape Town, then the 194 parties in the full U.N. meeting of the Conference of the Parties of the U.N. Framework Convention on Climate Change would simply adopt the document and establish the Green Climate Fund.

But without consensus among the TC, many experts thought that this could lead to an outcome where the TC’s work would be put in jeopardy as other parties picked over the draft until it was changed so dramatically that agreement was no longer possible. Still, hoping for the best, the co-chairs of the TC sent their draft implementing document on to the UNFCCC. With the work of the TC done, it is now up to parties to the UNFCCC to approve the GCF in Durban in the final hours of this meeting.

While a few questions remain, it now looks like the United States is getting closer to approving the Green Climate Fund. In his press conference on December 8 in Durban, U.S. Special Envoy for Climate Change Todd Stern said he was “confident” that despite lingering questions, the fund would get done.

The United States said in Cape Town that they were concerned both about the UNFCCC’s authority over the governing board of the fund, and the ability of the fund to engage and mobilize private finance. The United States has been clear that it does not want to create a fund that is controlled by climate negotiators rather than finance experts, and it wants to ensure that these finance experts have free reign to attract as much private capital as possible with limited public resources. But we argue that the current draft document is sufficient to overcome these concerns.

Over the last two years, CAP has talked with clean energy companies, global investors, international development advocates, and environmental leaders about the new fund. Our research finds that a successful Green Climate Fund will have several characteristics, including the following:

  • The fund’s management will have independence from the UNFCCC bureaucracy to make the most cost-effective funding decisions.
  • The fund will be specifically designed to attract large amounts of private capital.
  • The fund will have a variety of financial tools to provide targeted supports that meet the specific needs of each funding recipient.
  • The fund will have a trustee capable of managing billions of dollars in accordance with the strongest possible accounting standards.
  • The fund will make both adaptation and mitigation funding available.
  • The fund will consider gender balance, including in the composition of the board and designing projects.
  • The fund will be performance-based and data-driven.

Our conclusion is that there is no way a fund without these characteristics will play a significant and effective role in mobilizing $100 billion per year by 2020 for climate adaptation and mitigation, the goal agreed to by parties at the 2009 UNFCCC meeting in Copenhagen. If the fund has to seek approval from the revolving set of climate negotiators that make up the UNFCCC meetings from year to year to use a limited set of tools—just grants for adaptation projects, for example—to disburse money that only comes in from public sources—primarily donations from developed countries like the United States—it simply will not work. A fund that worked like this would be a wasted opportunity.

Fortunately, though, the draft text of the fund describes an institution that does not have to work like this. The proposal creates a fund where independent management can use a wide variety of tools to attract both public and private capital, and can use that capital to finance both adaptation and mitigation projects.

In fact, the proposed fund meets all of the criteria for it to be a success. The proposal is an exciting opportunity to build a fund that will mobilize large amounts of capital to help the world avoid the most catastrophic effects of climate change. For reasons discussed below, we are optimistic that the fund will be successful if the negotiators in Durban allow it to move forward.

First, the proposed fund creates a management system that insulates decision-making from the cumbersome U.N. bureaucracy. It does this by creating a board, and then putting the board in charge of appointing a secretariat, who is tasked with the day-to-day operations of the fund. While the UNFCCC is technically in charge of the board, they have not built in tools that you would expect to see from an organization that expected to exercise significant control over the board or the fund’s operations. The proposal, for example, does not have a procedure for removing someone from the board, nor does it list specific decisions that have to come before the UNFCCC.

Second, the proposed fund can help draw private capital into international climate finance. Not only is the board specifically authorized to create “instruments or facilities” beyond just grants and low-interest loans, but the proposal also clearly states that “The Fund will seek to catalyze additional public and private finance through its activities.” CAP has previously proposed financial instruments such as policy insurance, loan guarantees, and equity investments that will attract private investors to this market, and we are glad to see that the proposed fund would allow those tools.

Third, the new tools the board creates are not just useful for bringing in private capital but are also good ways for the fund to use public money efficiently. Consider a renewable energy project: If the project will bring in money by selling power, it may be able to pay money back to its funders. In this case, the fund could be better off by providing a loan to the project instead of a grant. This is a simplified example that shows how having a variety of tools at its disposal can help the fund get the most bang for its buck.

Fourth, the fund will be working with billions of dollars every year, and it has selected a trustee that will be able to manage that money competently. The World Bank—whom the proposal names as the trustee for the first three years of the fund—has the relevant expertise to fill this role. Then the fund will be able to select a new trustee, which will allow commercial banks to bid on providing this service.

Finally, every aspect of the proposed fund is designed to meet the needs of both adaptation and mitigation investments. The board will ultimately decide how much money is directed toward each type of project, but the proposal instructs them to make these decisions using a “results-based approach.” That is, the fund must be used cost effectively.

A legitimate concern is that the proposed fund is not sufficiently proscriptive to ensure that it actually does all of these things. While it is true that the board will ultimately be responsible for making the fund a success, there are examples where a board has been given significant freedom and succeeded. For instance, the language that creates the financial mechanism of the Montreal Protocol—which eliminated ozone-depleting chlorofluorocarbons and hydrochlorofluorocarbons from our economy—leaves virtually all decisions up to an executive committee, and this mechanism has worked well.

Negotiators are now working around the clock to resolve the final problems concerning the fund. We believe that the United States should resolve its final differences, move forward, and turn to the next task of selecting a governing board for the fund. Already Germany has announced that it will donate 40 million euro for the initial capitalization of the fund and has offered to host it. Switzerland is moving in the same direction.

In sum, the Green Climate Fund is off to a good start, and with a push out of Durban, it could move quickly to becoming a key component in the realignment of global institutions to tackle climate change.

Richard Caperton is Director of Renewable Energy Finance and Andrew Light is a Senior Fellow and Director of International Climate Policy at the Center for American Progress.

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