The Green Climate Fund (GCF) should aim for an equal balance of adaptation and mitigation, according to decisions taken at its sixth Board meeting in Bali from 19-21 February. It will also seek to provide at least 50 per cent of this adaptation financing to “particularly vulnerable countries,” a group that includes Least Developed Countries (LDCs), Small Island Developing States (SIDS) and African countries.
These headline figures are welcome news, and may serve to position the GCF as the main channel for international adaptation financing. The targets came about, in part, as a result of civil society pressure for the Fund to focus on adaptation in countries that are already facing huge climate change impacts.
It’s the first time within the United Nations Framework Convention on Climate Change (UNFCCC) process that the balance of adaptation and mitigation has been explicitly specified as 50 per cent, and exceeds expectations compared to an initial draft that had put the adaptation target as low as 30 per cent. But plenty of devils lie in the details of what the Board decided.
The GCF decision does not set a strict floor on financing for adaptation, but only “decides to aim for” 50 per cent. That leaves plenty of room for manouevre, as does the fact that that such a balance would be achieved “over time.” No time frame is identified, and the decision is not binding on the Fund. We know from the experience of the “fast-start” climate finance pledged in Copenhagen in 2009 that a non-binding commitment to “balance” resulted in just 18 per cent of funding directed towards adaptation.
Likewise, the focus on vulnerable countries remains open-ended. The GCF only “aims for” a 50 per cent floor, without committing to achieve it, and the definition of “particularly vulnerable” incorporates 116 of the 154 developing countries defined as “non-Annex I” in UNFCCC terminology. That’s not enough to ensure that funding goes where it is most needed, and there is no guarantee that this finance will come as grants rather than loans.
Maximizing the private sector
The Bali meeting also agreed to “maximize engagement” with the private sector through a “significant allocation” to the Fund’s Private Sector Facility (PSF), which could undermine the pledges on adaptation and vulnerable countries.
Little progress was made on the shape of the PSF in Bali, with interpretations still differing on whether it should focus on helping small-to-medium sized enterprises from developing countries, or appeal to big international corporations and investors. The preference of donor countries is clearly for the latter, with the fund acting like a bank to ensure that an ever increasing share of its activities would be financed by the profit from lending in developing countries. Private investors are unlikely to prioritize adaptation activities, where there is often no clear return on investment.
Country caps controversy
It was also disappointing to see developing countries fighting over a proposed cap on financing for any one country, with China, India and Brazil opposing a 5 per cent cap that was supported by most other developing countries. The cap proposal reflected a clear need to avoid concentrating finance on a handful of countries. In the case of the Clean Development Mechanism, for example, projects in China, India and Brazil have received over three-quarters of the credits.
At the same time, the 5 per cent cap proposal always looked divisive (India alone is home to 17 per cent of of the world’s population). Many Board members expressed the difficulty of debating how to distribute slices of a pie that no one yet knows the size of.
This wasn’t simply a split between big and small countries, but also relates to different visions for the GCF. For example, the South African Board member made an impassioned speech in favour of balancing mitigation and adaptation, supporting at least half of financing going to “vulnerable countries” (under a broad definition that includes South Africa) and for a 5 per cent country cap. At the same time, he favoured exceptions to the cap for big (“transformational”) infrastructure projects, and defended a proposal (dropped from the final decision) for at least 20 per cent of funding should go to the private sector – which would likely undermine in practice any cap that was agreed in principle.
In the end, the Board decided simply to seek a vague “geographical balance” across countries, and to revisit the issue “no later than 2 years” after the Fund’s first resources are allocated. Various proposals might help to avoid further division, such as developing caps for different countries according to equity criteria (wealth indicators, needs assessment). It is also important to relate this discussion to the type of finance the Fund provides: concentration mainly happens when decisions on allocation are left to private investors, whose focus is simply on where the most profitable and least risky investments can be made, rather than on what finance is needed to address climate change.
Slow progress, lack of money
Setting targets for how GCF resources will be distributed was just one of eight key decisions that the Board was supposed to make in Bali and at its subsequent meeting in Songdo from 18-21 May. By then, there should be agreement on “eight essential requirements” that donor countries insisted upon at the last Board meeting of 2013 as a pre-condition for making pledges into the GCF. Up until now the Fund has survived on a handful of pledges to cover its basic administration and running costs – with new pledges of €500,000 from Italy, and $250,000 from Indonesia made in Bali.
The Indonesian pledge, in particular, provoked discussion of a worrying precedent for an insistence that developing as well as developed countries should pay into the GCF. That goes against the clear insistence in the UNFCCC that developed countries must take a lead in providing finance (as well as reducing their emissions), in accordance with their share of historical and current responsibility for climate change and their current capabilities. At the same time, the Indonesian move should pile further shame on developed countries, which have consistently delayed pledging funds as a means of pressuring developing countries to agree to their vision for the GCF.
The key parts of that vision were debated, and left unresolved, in Bali. These included determining how countries will access the fund, the extent of civil society consultation (including by affected communities) in funding decisions, social and environmental safeguards, means of engaging with the private sector, how results will be measured. The fund must also decide upon the extent to which loans will be used, and how “concessional” the interest rates and repayment terms on these should be. The Bali meeting revealed the extent of disagreements between developed and developing countries on these issues, which go to the heart of what the Fund should be. It is hard to see how these will be resolved by the deadline of the next Board meeting, leaving a real risk that the start of the Fund could be delayed further.