Final Conclusions working group 12: Financing

A. Financing Commitments under the UNFCCC

1. Developed country parties included in Annex 1 of the United Nations Framework Convention on Climate Change (UNFCCC) have committed to financing the costs incurred by developing country parties to cover the costs of mitigation, technology transfer and capacity building, including all adaptation costs. This financing constitutes an obligation in response to developed country parties historical emissions of greenhouse gases; and constitutes a part of reparations for their climate debt.

Working Group 12: Financing

THE PRE CONFERENCE OF BOLIVIAN INDIGINEOUS PEOPLES AND SOCIAL ORGANIZATIONS ON CLIMATE CHANGE AND THE RIGHTS OF MOTHER EARTH (PCPCCDT), emphasizes that there are funding commitments assumed by Annex 1 countries of the UN Framework Convention on Climate Change (UNFCCC) that come from these countries responsibility on their greenhouse gases historical emissions, which have caused climate change and its adverse effects, threatening the survival of Mother Earth and condemning millions of people to a poor and deprived life.

GROUP 12: FINANCING

In the fifteen years since the UN Framework Convention on Climate Change entered into force, developing countries have failed to meet their commitments to setting aside additional, ongoing financial resources to help developing nations confront the impacts and costs of climate change. Additionally, there have been a series of institutional problems affecting the administration of the scant resources that have so far been gathered to address the needs of developing countries.

What should be the amount of financial resources set aside by developed countries to provide support to developing countries? How to ensure that these resources are stable and sustainable over time? What might be the structure of a new and efficient mechanism for the management and transfer of these resources?  How can they be administered in a transparent, efficient, and sustainable way? Why does Copenhagen represent an insufficient proposal in terms of financing?

This working group will consider the size and source of financial resources necessary for confronting the effects of climate change in developing countries, as well as strategies for the efficient and effective management of funds aimed at mitigation, adaptation, development, transfer of technology and capacity-building in developing countries.

Financing

Objectives of the group in terms of debate and product

• Agree on the scale and source of funds necessary for confronting climate change in developing countries.
• Agree on a proposal for the institutional structure and functions of a financing mechanism.
• Analyze the proposal regarding financing in the so-called “Copenhagen Accord.”

Principal questions

• What should be the amount of financial resources set aside by developed countries to provide support to developing countries?
• How to ensure that these resources are stable and sustainable over time?
• What might be the structure of a new and efficient mechanism for the management and transfer of these resources?
• How can they be administered in a transparent, efficient, and sustainable way?
• Why does Copenhagen represent an insufficient proposal in terms of financing?

Precedents

Financing Under the Convention on Climate Change

Article 4 paragraph 3 of the UN Framework Convention on Climate Change (UNFCCC) states: “The developed country Parties and other developed Parties included in Annex II shall provide new and additional financial resources to meet the agreed full costs incurred by developing country. Parties in complying with their obligations under Article 12, paragraph 1. They shall also provide such financial resources, including for the transfer of technology, needed by the developing country Parties to meet the agreed full incremental costs of implementing measures that are covered by paragraph 1 of this Article and that are agreed between a developing country Party and the international entity or entities referred to in Article 11, in accordance with that Article. The implementation of these commitments shall take into account the need for adequacy and predictability in the flow of funds and the importance of appropriate burden sharing among the developed country Parties.”

(Paragraph 1 of Article 12 makes reference to “A general description of steps taken or envisaged by the Party to implement the Convention.”)

Regarding financing for adaptation, Paragraph 4, Article 4 states that developed countries “shall also assist the developing country Parties that are particularly vulnerable to the adverse effects of climate change in meeting costs of adaptation to those adverse effects.”

Also under Article 4, Paragraph 5 emphasizes financing for developing countries through technology transfers: “The developed country Parties and other developed Parties included in Annex II shall take all practicable steps to promote, facilitate and finance, as appropriate, the transfer of, or access to, environmentally sound technologies and know-how to other Parties, particularly developing country Parties, to enable them to implement the provisions of the Convention. In this process, the developed country Parties shall support the development and enhancement of endogenous capacities and technologies of developing country Parties.”

The UNFCCC makes compliance with commitments by developing countries conditional upon the financial assistance and technology transfers they receive from developed countries.

Article 4, Paragraph 7 states: “The extent to which developing country Parties will effectively implement their commitments under the Convention will depend on the effective implementation by developed country Parties of their commitments under the Convention related to financial resources and transfer of technology and will take fully into account that economic and social development and poverty eradication are the first and overriding priorities of the developing country Parties.”

The Global Environment Facility (GEF)

The financial mechanism currently used by the UN regarding climate change is the Global Environment Facility (GEF), an independent body that facilitates the application of international conventions on biodiversity, climate change, international waters, land degradation, the ozone layer, and persistent organic pollutants. It is also a financing mechanism for the UN Convention to Combat Desertification, and collaborates with other environmental treaties and accords (see http://gefweb.org).

The GEF was created to provide new and additional financial resources to help cover the incremental costs of the means for achieving agreed-upon global environmental benefits. Any project financed by the GEF will thus cover only the incremental costs of the same, which makes necessary co-financing, as well as proper demonstration that the impacts of the project would be global in scope.

The GEF was established in 1991, and it has 178 member countries. In the last sixteen years, it has alotted $8.7 billion for more than 2,400 projects related to the environment (not limited to climate change) in over 165 developing countries and countries with economies in transition. Below are the financial reports of the Fourth Overall Performance Study (FOPS4) of the GEF.

Table 1 GEF Project Funding by Fund (million $) (each phase corresponds to four years)

Fund	Pilot phase	GEF-1	GEF-2	GEF-3	GEF-4	All phases
GEF Trust Fund	726	1,228	1,857	2,784	1,996	8,590
LDCF	0	0	0	6	88	95
SCCF	0	0	0	14	72	87
Total	726	1,228	1,857	2,804	2,156	8,772

Source: GEF Project Management Information System, through June 30, 2009

The GEF receives funds from donor countries every four years, in accordance with a performance study. The fourth and most recent study is referred to as OPS4.

This study signals that the GEF has a problem with under-financing, that is to say, the amounts currently controlled by the GEF are insufficient for confronting the global environmental crisis. It adds that the global community is not doing enough to solve global environmental problems.

OPS4 states that the GEF has not historically been successful in mobilizing resources, and that financing in the most recent periods has fallen despite rising need around the world, such that the GEF has been under-financed since GEF-2.

Regarding the impact of the GEF in the area of climate change specifically, OPS4 states that work was done on the reduction of greenhouse gas emissions, but that actual contributions are minimal when compared to the required levels.

Also important to note is the fact that the UNFCCC states that the financing commitment refers to new and additional funds. However, the OPS4 points out that 77% of GEF contributions have been registered under Official Development Assistance (ODA), having risen to up to 96%, of which only 4% would comprise new and additional funds to the GEF.

Table 2: Percentage of ODA Resources Allotted to GEF

	Pilot phase	GEF1	GEF2	GEF3	GEF4
Total ODA (thousand $)	304,725	302,595	280,529	416,132	238,278
GEF (thousand $)	843	2,023	1,687	2,095	2,169
As % of ODA	0.28	0.67	0.60	0.50	0.38

Source: OECD. GEF Replenishment Data

GEF projects are carried out by the following organizations: UN Development Program (UNDP), UN Environment Program (UNEP), World Bank, UN Food and Agriculture Organization (FAO), UN Industrial Development Organization (UNIDO), African Developoment Bank (ABD), Asian Development Bank (ADB), International Bank for Reconstruction and Development (IBRD), Inter-American Development Bank, and the International Fund for Agricultural Development (IFAD).

Resource allotment is established in accordance with strategic focal areas (biodiversity, climate change, desertification, international waters, ozone layer, persistent organic pollutants, sound chemicals management, and the sustainable management of forests). Hence, the GEF establishes the focus and requirements of each project in these focal areas such that it can be financed, taking into account that it should have a global environmental impact.

Regarding the scale of financing for each country, the existing Resource Allocation Framework consists of a system to assign resources to recipient countries to increase the impact on the global environment. The Resource Allocation Framework assigns resources to countries based on the potential of each to generate global benefits in accordance with GEF criteria.

Table 3: GEF Funding by Focal Area

	CC	Bio	IW	ODS	POPs	LD	MFA	Total
Funding in $m	2,743	2,792	1,065	180	358	339	1,114	8,591
Percentage	31.9%	32.5%	12.4%	2.1%	4.2%	3.9%	13.0%	100.0%

Key: CC: Climate Change, Bio: Biodiversity, IW: International Waters, ODS: Ozone Depleting Substances, POP: Persistent Organic Pollutants, LD: Land Degradation, MFA: Multifocal Areas.

Adaptation Fund

The Adaptation Fund was established to finance programs and concrete projects regarding adaptation in developing countries that are party to the Kyoto Protocol and that are particularly vulnerable to the adverse effects of climate change (see http://www.afboard.org).

The Adaptation Fund is financed by the projects of the Clean Development Mechanism (specifically 2% of the Certified Emission Reduction Units, or CERs) as well as other sources. This causes the amount of financial resources available through the fund to fluctuate widely, for it shifts with the market price of CERs.

The fund is supervised and administered by the Adaptation Fund Board, which is comprised of 16 members and 16 alternate members. This board meets at least twice annually.

The Global Environment Facility (GEF) provides its services to the Adaptation Fund as secretariat and is located at the World Bank headquarters in Washington, DC.

The fund was established in 2001 at COP 7 (the Seventh Conference of the Parties to the UN Framework Convention on Climate Change). The Adaptation Fund is not currently accepting project proposals, as it has not finalized its political and operative guidelines.

Current State of Compliance with Financing Commitment

Despite the fact that this commitment has existed for more than fifteen years, it still has not been implemented effectively. This is because it has erroneously been tied to carbon markets through the Clean Development Mechanism as a source of financing for mitigation and adaptation under the Adaptation Fund.

It is important to clarify that through the Clean Development Mechanism, a developed country buys the emissions reductions of a developing country to then include these reductions in its accounting toward its own emissions reductions commitments. This means that the developed country benefits by buying these reductions and is not in fact financing the costs of mitigation incurred by developing countries.

Regarding financing for development and transfer of technology, this is also supposedly covered by the Clean Development Mechanism, given that it is a mechanism that gives developing countries access to environmentally-friendly technologies to the extent that they  can access better technologies in order to reduce their greenhouse gas emissions through the implementation of projects that would not have been developed without the Clean Development Mechanism.

Proposals

G77 and China: Establish an effective mechanism functioning under the governance of the Conference of Parties (COP) in order to guarantee complete and sustained implementation of the UNFCCC with regard to financing commitments. This mechanism should have equal and geographically balanced representation for all Parties.

This mechanism would permit direct access to funds and would ensure the involvement of countries in the identification, definition and implementation of the funds.

Mexico: Establish a World Fund for Climate Change (Green Fund) to be agreed upon multilaterally in order guarantee full, effective, and sustained implementation of the UNFCCC, with the following objectives: Establish funds for mitigation, support adaptation efforts and efforts to tackle response mechanisms, provide technical assistance and promote the transfer and diffusion of clean technologies, contribute to the financial  strengthening of the new climate accord based on the UNFCCC.

Under this plan, the Fund would receive financial support from all countries, according to a series of indicators. Developing countries that decide not to join the Fund would be excluded from its benefits. All member countries would be able to benefit from the Fund. The mitigation activities to be financed would be defined for each country, based on its needs and in accordance with its particular circumstances, and should be real, measurable, and verifiable.

European Union: The financial architecture should involve various sources (both public and private) and mechanisms (i.e. carbon markets and innovative tools) at national and international levels.

The EU believes that the central role of governments will be to implement regulations and incentives based on the market to attract, expand, re-direct and optimize private financing. Public financing will be essential and should, wherever possible, stimulate and catalyze the involvement of the private sector.

India: Proposes that the institutional structure should depend on the COP, and have a balanced representation and transparent governance processes. Furthermore, any financial grant from outside of the Convention structure should not affect compliance with established commitments.

Scale

Regarding the scale of funding, the Group of Africa proposed that developing countries should contribute 5% of GDP (approximately 1.9 billion dollars). Of this amount, 50% should be put toward adaptation, with an addition 400 billion generated by public funds to create a rapid financing option for developing countries. It also claims 150 billion should be released immediately by the IMF with special access for developing countries.

Financing and the Copenhagen Accord

The Copenhagen Accord states in point 8: “The collective commitment by developed countries is to provide new and additional resources, including forestry and investments through international institutions, approaching USD 30 billion for the period 2010 – 2012 with balanced allocation between adaptation and mitigation. Funding for adaptation will be prioritized for the most vulnerable developing countries, such as the least developed countries, small island developing States and Africa. In the context of meaningful mitigation actions and transparency on implementation, developed countries commit to a goal of mobilizing jointly USD 100 billion dollars a year by 2020 to address the needs of developing countries. This funding will come from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources of finance. New multilateral funding for adaptation will be delivered through effective and efficient fund arrangements, with a governance structure providing for equal representation of developed and developing countries. A significant portion of such funding should flow through the Copenhagen Green Climate Fund.”

References:

–       Adaptation Fund. 2009. Accessing resources from the adaptation fund the handbook.

–       Global Environmental Facility. 2009. Fourth Overall Performance Study of the GEF: Progress toward impact (OPS4). http://gefeo.org/uploadedFiles/Evaluation_Office/OPS4/OPS4-Full%20Report-110909.pdf

–       UNFCCC. 1992. UN Framework Convention on Climate Change. http://unfccc.int/resource/docs/convkp/conveng.pdf

–        UNFCCC. 1998. Kyoto Protocol. http://unfccc.int/resource/docs/convkp/kpeng.pdf

–       UNFCCC. 2008. Bali Action Plan. http://unfccc.int/files/meetings/cop_13/application/pdf/cp_bali_act_p.pdf

–       UNFCCC. 2009. Submissions by Parties contained in documents: FCCC/AWGLCA/2008/MISC.1 al FCCC/AWGLCA/2009/MISC.9.

–       UNFCCC. 2009. Non-paper No. 54 6/11/09. CONTACT GROUP ON THE PROVISION OF FINANCIAL RESOURCES AND INVESTMENT.

–       UNFCCC. 2010. Outcome of the work of the Ad Hoc Working Group on Long-term Cooperative Action under the Convention. Enhanced action on the provision of financial resources and investment.

–       UNFCCC. 2010. Copenhagen Accord. http://unfccc.int/resource/docs/2009/cop15/eng/l07.pdf