A New Architecture for Climate Finance Must Encourage Private Sector Investment

Give a man a fish, and he eats for a day. Teach a man to fish, and he eats for the rest of his life.” In relation to climate financing, the Green Climate Fund (GCF) and Developed Country Parties, do both, and neither particularly well.  The recent IPCC 1.5 report has taken away all room for delay: the GCF cannot waste its valuable funding on unaccountable, inefficient disbursements. We need a financial architecture that will let us move much faster than we are.

This COP has highlighted Developing Country Parties’ concerns that they won’t have the capital to meet the requirements of the Paris Agreement. More specifically, that they won’t have the fOptimized-Plants and coinsunds to help pay for losses and damage expected from climate change and that they cannot afford to build the necessary infrastructure, such as renewable energy sources and other low-carbon technologies, that the IPCC 1.5 report warns are necessary.

The GCF relies on Developed Country Parties’ pledges to provide that funding. However, these Parties are hesitant to invest and bear the risk for the costs of climate change. Additionally, they are hesitant to grant funding to countries that are technically “developing,” yet have emerged as economic powerhouses.

This hesitation is exacerbated by irresponsible use of funds by the GCF. Experts argue that the use of climate grants, which make up 47% of the GCF’s activities to date, rather than direct investment, are a misallocation of public funds. They can actually harm markets by pushing out small-scale private actors, often going to those who could afford it anyway. Instead, GCF capital should be blended with government money in order to attract private investors and encourage market growth.Flood_Affected_Areas_of_Amreli_District_Gujarat_India_on_24_June_2015_2-768x512

Private investors are hesitant to invest in the face of unfamiliar risk. This includes vulnerabilities to extreme weather, droughts, and rising sea levels for coastal economies, but also inaction by governments that will exacerbate these effects. However, private investors are often moving into these markets anyway, which are slowly becoming more viable as investment options. To encourage this, public funds from the GCF and governments should be used to leverage investment from private actors. Instead of being given freely, by themselves, in the form of grant disbursements, proponents argue that they should only be committed in cases where they can encourage private investment at 10x or higher.

Many Developing Countries, LDCs, and SIDS require foreign aid to kick-start these markets. Private investment must be encouraged as part of that funding. There is simply not enough public funding to tackle the problem alone.


Green Climate Fund Approves $1B in New Projects

GCF logoOn October 21, 2018, the Green Climate Fund (GCF) Board concluded its 21st meeting by approving 19 new projects, totaling $1.038 billion. This board meeting comes right after the IPCC released the Special Report on Global Warming of 1.5°C (SR1.5) (which we posted on here and here) and a little over a month before COP24. As UNFCCC Executive Secretary Patricia Espinosa told GCF Board Members at the start of their meeting, “Never has there been more need for multilateral cooperation. And never has finance played a more central role to the overall climate regime itself.”

GCF was set up by UNFCCC in 2010, as part of the Convention’s financial mechanism. When the GCF began to gather resources in 2014, developed countries, and some developing, pledged $10.3 billion. Initial mobilization lasts until 2018, while the Fund remains open for further contributions during this time from both public and private sources.

The GCF is designed to focus on climate change adaptation and mitigation, in part as a reaction to the broader mandate of the Global Environmental Facility (GEF), the original operating entity of the UNFCCC’s financial mechanism. “The Fund pays particular attention to the needs of societies that are highly vulnerable to the effects of climate change, in particular Least Developed Countries (LDCs), Small Island Developing States (SIDS), and African States.” Another key point GCF makes is that “[o]ur innovation is to use public investment to stimulate private finance, unlocking the power of climate-friendly investment for low emission, climate resilient development. To achieve maximum impact, GCF seeks to catalyse funds, multiplying the effect of its initial financing by opening markets to new investments. The Fund’s investments can be in the form of grants, loans, equity or guarantees.”

Green Climate FundWhen addressing the importance of this most recent GCF Board meeting, Executive Secretary Espinosa underscored that its outcome will impact the outcome of COP24: “Success here means sending a clear and unmistakable message of trust to developing countries that they can have confidence in the process going forward.” Espinosa’s remarks were well taken as the GCF approved the 19 proposed projects. See the full list of approved projects and monetary breakdown here.

Her comments came after the preceding GCF Board meeting failed to deliver its mandate. This contentious July 2018 meeting resulted in the resignation of GCF Executive Director, Howard Bamseyand, and no new project approvals. Tensions ran high at this meeting for several reasons. The first two had a direct impact on the Fund’s bottom line: the United States decided in 2017 to halt $2 billion of its Obama administration $3 billion pledge and inflation rates reduced the present value of commitments made in 2014.  In addition, policy gaps for prioritizing the numerous applications whose requests exceed the GCF’s capitalization hampered Board Members’ ability to make the tough selection decisions. The GCF currently has $10 billion pledged out of the $100 billion promised for 2020.

The GCF has been plagued with issues and controversy for the past year. In February 2018, GCF had a green-climate-fund_WEBboard meeting that approved $1 billion in projects. Although the willingness of GCF to approve more projects is hopeful, civil society organizations and parties saw it as problematic, given that the GCF has difficulty dispersing money for projects already approved. As of December 2017, the fund has only released roughly $150 million, or less than 6% of the nearly $3 billion it had committed up to that point. The GCF reported in the February 2018 meeting that this funding is going toward the 18 projects that are under implementation. The Board had approved of 53 projects by the February meeting. So what is taking so long for the Board to disperse funding? Who is receiving this funding? And how is the GCF now reporting that there “39 projects under implementation, worth $1.6 billion in GCF resources that are being deployed as climate finance in support of developing countries’ climate ambitions under the Paris Agreement?” The jump from 18 to 39 projects under implementation in eight months seems either overambitious or over-reported. The biggest question here is how these 39 projects are receiving their funding after the turmoil of the GCF in the past eight months. To take from Espinosa’s remarks again, “The outcome of [the October Board meeting] of the GCF will impact those negotiations in Katowice.”

Looking toward COP24: The GCF submitted a report to the UNFCCC on Sept. 17, 2018, for consideration at the upcoming COP24. Table 14 included in its Annex VII lists all projects approved by the Board to receive funding from the GCF as of July 31, 2018. In this table, the GCF does not report what has been dispersed, only the GCF funding and total project value.


China’s Effort to Limit GHGs

china-five-year-plan-infographicChina produces more carbon dioxide than any other country in the world: 10.357 million metric tons per year. To limit their impact on climate change, China includes environmental protection in their Five Year Plan (FYP). The FYP is the country’s blueprint that outlines the policy framework, priorities, economic, and social development goals for the 2016-2020 period.

In 2016, China released the 13th FYP which includes lofty goals to reduce carbon dioxide emissions and increase green manufacturing. Innovation is the crux of this FYP. Innovation builds on improving manufacturing and emphasizing a cleaner, green economy. A State Council executive meeting in 2015 discussed implementing an Internet Plus Circulation program. The program expands broadband connection to more rural areas so there is more efficiency in transporting items, like new agricultural products and equipment. The program will also allow rural populations to access health care. Air pollution is a key target for the FYP. Chapter 38, Section 4, ensures that the concentration of fine particulate matter is reduced by at least 25%. The current status of smog and air pollution affects public health. China is increasing regulations for coal-fired plants while requiring low-emission technologies and eliminating outdated industrial equipment and processes.

The carbon dioxide emissions reduction targets in the FYP contribute to China’s Nationally Determined Contribution (NDC) 2030 target. The 13th FYP even put a first nation-wide total energy cap on all energy sources: it is set at less than the equivalent of five billion tons of coal over the next five years. These goals are reflected in the INDC filed on June 30, 2015. Article 4 of the Paris Agreement, provides that “[e]ach Party shall prepare…nationally determined contributions…with the aim of achieving the objectives…” of reaching a global peak of GHG emissions as soon as possible. During COP24 in December, China may include details about innovation and policy from the 13th FYP into the NDC because it is on track to meet the 2020.

China is fully embracing their 2020 goals by implementing green community projects. On September 28, 2018, Green Climate Fund announced that the board will consider projects, including China’s Green Cities program,targeting Central Asia and Eastern Europe. This project is among 20 other proposals totaling $1.1 billion to be heard during the next board meeting this month. It will be interesting to see how these project proposals will factor into each countries’ NDC during COP24.


A Numbers “Crunch” – Trump & The UNFCCC

Number-crunchingLike most every other institution around the globe, for a while now, the UNFCCC has been called on to do more with less. This is clearly reflected in the Executive Secretary’s recent budget presentations that report contributions to UNFCCC trust funds have declined significantly for at least the last 5 years. In fact, 2016 contributions are just 43% of the 2012 level. And all the while, the COP has added new tasks, including, most recently, the raft of work associated with the 2015 Paris Agreement.reduce-boost-graph SmallbizTrends

At a COP22 informal session on November 11, Espinosa shared that the Secretariat, with its mandated zero-growth budget, will be unable to fully deliver on its current mandates. So, all countries are being called on to meet their full commitments and to increase their voluntary contributions.

It just so happens that the U.S. is a big piece of this budget picture, contributing (as of October 21) more than 20% of the total $30.3 mill* in 2016 receipts for the 3 non-Kyoto Protocol related funds. These include the Trust Fund for the Core Budget (with country-specific contribution levels based on UN-determined proportions) and two voluntary funds: Trust Fund for Supplementary Activities and Trust Fund for Participation in the UNFCCC Process (the latter to help developing country Parties attend COPs and other meetings).

Screen Shot 2016-11-17 at 11.50.06 PMAnd, of course, there is the ongoing U.S. climate funding via appropriations from Congress, development finance, and export credit, which totaled $2.6 billion in 2015. That was before $500 million was transmitted to the Green Climate Fund earlier this year in partial fulfillment of the $3 billion U.S. promise (that constitutes 30% of that fund’s total pledges). All of it adds up to a very big number in the climate finance world.

Then, on November 8, from stage right: enter President-elect Trump.

While the potential impact on the climate regime is about more than money (check out our Monday story), the finance implications are indeed great. Considering Mr. Trump’s campaign pledges, the Republican Party’s platform position, and the Transition Team’s recent statements, when it comes to climate funding, those calculators only subtract.

Many negotiators and high-level ministers attending COP22 from around the world have been cautioning against hasty speculation on U.S. policy post-January 20, 2017. Behind the scenes, however, and certainly within the Secretariat, the number crunching has doubtless turned to nail biting.

 

* Based on 11/17/16 EUR-USD exchange rate

(Image credits: Calculator = seocopywriting.com; Diverging costs/revenue= smallbiztrends.com; Scissors & currency= neatoday.org)


LDCs – Concern, yet hope, entering Week 2 of COP22

Courtesy www.afd/frAt the end of the first week, many were expressing concern that Marrakech’s purported COP of Action wasn’t measuring up for the world’s most vulnerable countries. Yesterday morning, Least Developed Countries (LDC) Chair, Tosi Mpanu Mpanu, identified troubles on key issues of ambition, adaptation / loss & damage, and climate finance. In particular, he noted that:Screen Shot 2016-11-15 at 3.37.17 PM

  • The Paris Agreement rulebook development is being stymied and strong action on pre2020 commitments is not materializing.
  • Adaptation needs of the most vulnerable, exploding as a result of inadequate mitigation by developed countries for decades, are not being addressed in a balanced manner, with even the adaptation registry being complicated. And, foot dragging on other seemingly simple decisions, such as the review of the Warsaw International Mechanism for Loss and Damage (WIM), is eroding trust and confidence that the global community will concretely respond to the very real and devastating losses and damages increasingly suffered by poor countries on the front lines of climate change impacts.
  • Developed countries have been blocking the Paris-mandated inclusion of the Adaptation Fund in the Paris Agreement rulebook, and the developed country recent “roadmap” to reach the promised $100 billion/year by 2020 lacks credibility – – unfortunate circumstances in the face of developing countries’ low-carbon climate resilient development needs now estimated to collectively exceed $4 trillion.

Work did continue yesterday, while heads of state and ministers arrived for the high-level segment. By the end of the day, among some positive developments were two improved draft decisions on the WIM (here and here). (More on these to come.) Additionally, the Green Climate Fund expedited grants for Liberia’s and Nepal’s National Adaptation Plans. Climate finance remains a hot topic on this week’s COP22 agenda, in particular, the upcoming High-Level Ministerial Dialogue on Climate Finance; so, Screen Shot 2016-11-15 at 3.09.30 PMhope remains for new and encouraging news on that front. (Check back with us on this, too!)

 

Photo credits: Action Time courtesy www.afd/fr; Informal negotiations courtesy iisd enb


The GCF – Can We Count On It?

gcf.logoIn 2009, as we reported earlier, developed country Parties to the UNFCCC committed to jointly mobilize $100 billion/year by 2020 to help developing countries address their climate change needs. The Green Climate Fund (GCF) – the designated heavy lifter for this goal – was created by COP16 in 2010. Its purpose is to fund developing country efforts to mitigate and adapt to climate change through “low-emission and climate-resilient development.” (See our coverage of the private sector role in the GCF here, and co-financing efforts toward the $100 billion goal here.)

The GCF, now with pledges of just $10.3 billion, became fully operational in 2015. However, as of the start of 2016, only $1.6 billion was reported actually in hand, and none of the $168 million the GCF Board approved for the first 8 projects at its November meeting had been distributed. (We Im-startiving-pig-pay-green-climate-fund-nowreported on the U.S.’s $3 billion pledge here, the first $500 million of which has now been deposited into the Fund.)

The Fund’s goal for 2016 is to distribute $2.5 billion. Its press release also reports a package of current proposals worth $1.5 billion, with 22 projects totaling $5+ billion in the proposal pipeline. (A conflicting update from the Asian People’s Movement on Debt and Development (APMDD) reports $6.2 billion in 124 proposals and concepts in the 2016 pipeline, including 22 that are approval ready.) In either case, that 2016 goal is a high bar.

The GCF Board made some foundational progress at its 12th meeting in early March in Songdo, Korea, including adopting its first Strategic Plan (SP) and a 2016-2018 action plan. (The final SP had not been released as of this posting, but the draft can be found here.) It also accredited 13 new entities (some with pending status), which will bring the total accredited to 33. Additionally, the Board authorized its first Project Preparation Facility grant ($1.5 million to Rwanda). This new and evolving facility is designed to support developing country accredited entities in creating highly fundable projects.green-climate-fund-photo9

The Green Climate Fund has its critics. Hallway talk at COP20 in Lima buzzed about the potentially reckless pace UNFCCC Executive Secretary Christiana Figueres had set for the Fund’s scaling up. Governance questions arose soon after. Now, Small Island Developing States and others are facing onerous and highly bureaucratic accreditation hurdles for accessing it. Leading up to the March meeting, civil society voiced strong objections to the limited meeting access, and to the potential accreditation of international banking giants HSBC and Crédit Agricole.

Unfortunately, the Board’s emerging accreditation strategy, intended to address concerns, wasn’t ready for prime time by the March meeting. In related action, the Board awarded pending accreditation to HSBC and Crédit Agricole – both with substantive conditions to be met before final approval. One of these for HSBC, according to APMDD, is getting a positive report from the U.S. federal monitor’s review of the corporation’s money laundering reforms. HSBC_London_800(That report’s release is currently delayed until a federal appeals court ruling). Interested readers can find the accreditation assessments in appendices of the report of the Board’s decisions.

On a definite positive note, after considerable discussion, the Board ultimately agreed to live webcasting of its meetings in an 18-month experiment, beginning in June

As the GCF story unfolds, let’s hope for lots of transparency and lots of pledges turning to lots of cash. The developing world is counting on it.gcf


Will some be left behind? The significance of climate finance

amanjumpsove For countries on the front lines of climate change, access, availability, and urgency of funding needs are significant. As an example, rising sea levels in Senegal and Gambia have already impacted agricultural production. Saltwater intrusion into agriculturally productive lands has reduced food production. Further, warming temperatures and resulting increased length of seasons have heightened health risks associated with vector borne diseases. The impoverished state of these countries does not position them to to enter world markets to offset domestic deficiencies through imports. The conditions they face cannot be attributed to a random occurrence, though. Instead the plight of Senegal and Gambia and many other least developed countries (LDCs), as well as small island developing states (SIDS), and landlocked developing countries (LLDCs) is one of significant challenges.

In spite of not being large emitters, the effects of climate change are disproportionately high for these countries; unlike developed countries, these countries have made negligible contributions to the increased speed of climate change, as presently observed. They are the poor, vulnerable, low-emitter nations that are negotiating for the right for climate finance from the developed world. However, funding for mitigation and adaptation projects has been limited. Recent commitments for funding, though on the surface robust to the casual observer, have not inspired confidence across all LDCs, SIDS, or LLDCs.

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On Monday, the starting day of COP21, eleven developed countries made commitments to the Least Developed Country Fund (LDCF). Total pledges to the LDCF totaled $248 million. The sum was an auspicious signal, a numeric gesture in parallel with the phrase “no one left behind.” However, at a side event on the same day of the announcement, LDCs commented on the difficulty of accessing funding, the rigorous nature of the application process, and the limited appearance of urgency from funding bodies. Two days later, on Wednesday, at another side venue, other LDCs commented on the difficulty of access to funding and the need to develop national climate finance strategies. Cambodia noted that the prospects of international financing are good but the modes of financing remain uncertain and the process is slow. The Gambia noted that demand for LDCF resources exceed the funds available for approved projects.

Some observers have voiced that funding is perceived by the developed world as financial aid when it should be viewed as the promotion of the common good. A communal perception could foster access and availability of funding provided from developed countries to developing countries in a more expeditious manner.

Mary Robinson, the former President of Ireland, noted in her remarks in Monday, following the LDCF funding announcement, that climate change is a global problem, stating, “Climate change is a problem for all.” She went on to advocate, “The agreement itself needs to be people-centered. The needs of LDCs need to be heard.” At the close of the third negotiating day, it was not clear whether the needs of LDCs were being considered under no one left behind.

In the remaining twenty-four hours of the first phase of COP21, discussion will continue with respect to language that would expedite funding. Additionally, the amount of aggregate funding available to developing countries from 2020 onward remains outstanding. In a few more days the group work of COP21 will set the trajectory for climate finance as the world sets its course to recalibrate its relationship with the planet. The decision will be significant and will send a strong signal with respect to the balance of developing country needs and developed country committment.


Nations Commit $9.3 Billion Towards Climate Action: Is it enough?

Yesterday international leaders pledged $9.3 billion towards the United Nations (UN) Green Climate Fund (Fund) at the first Pledging Conference in Berlin, Germany. Formally established in Cancun in 2010, the Fund aims to help developing countries mitigate and adapt to climate change. In this way, the capital would help those countries least to blame for, but most at risk from, climate change. The Fund would provide grants, loans and private capital for renewable energy and green technologies. big mills It is a step toward the far more ambitious goal announced in Copenhagen in 2009 for industrialized nations to mobilize $100 billion a year by 2020 for broader climate finance.

The initial capitalization of the Green Climate Fund is critical to the intergovernmental negotiations. The pledges act as an economic and political catalyst, spurring international climate action. “The [Fund] is the epicenter that determines the direction of both public and private investment over the next decades,” said Christiana Figueres, Executive Secretary of the UN Framework Convention on Climate Change (UNFCCC). Resources allocated to the Fund unlock financial flows from the private sector. Private investments are viewed as essential to the transition to a low-emission, climate resilient economy. These investments are stimulated through application of concessional public financing from the Fund.

Politically, the pledges build trust between developed and developing countries. “The result of today’s capitalization of the [Fund] is foremost an unmistaken sign of trust building,” said Hela Cheikhrouhou, Executive Director of the Fund. “This creates a positive atmosphere for the start of successful negotiations in Lima in less than two weeks,” stated H.E. Mr. Manuel Pulgar-Vidal, Minister of the Environment of Peru.

Twenty-one nations made pledges, including contributions from four developing countries. Their combined contributions are the “largest amount the international community has ever mobilized for a dedicated climate finance mechanism,” said the Fund executive members.  Earlier this week at the G20 Summit in Australia, the 20 biggest economies in the world emphasized their commitment to “strong and effective action to address climate change.” The United States pledged $3 billion and Japan $1.5 billion to the Fund.Canada’s Prime Minister, Stephen Harper, broke from his usual ally on climate issues, Australian Prime Minister Tony Abbott, when announcing Canada’s commitment the Fund.

At the Pledging Conference, Germany and France each promised $1 billion, Britain pledged more than $1.1 billion and Sweden contributed over $500 million. Other countries that made pledges include the Czech Republic, Denmark, Finland, Italy, Luxemburg, Mexico, the Netherlands, New Zealand, Norway, South Korea and Switzerland. big graphUN Secretariat Ban Ki-moon said the pledges “demonstrate that governments increasingly understand both the benefits derived from climate action and the growing risks of delay.

Nevertheless, some wonder if momentum is building towards meaningful climate action. Critics point out that the international community failed to meet the UN goal of $10 billion. Oxfam called the $9.3 billion “a bare minimum” compared to the $10-15 billion it and developing countries call for. Oxfam further pointed out that Australia, Austria, Belgium, Canada and Ireland have not yet made any pledges. “Financial support from developed countries should be a building block for a global climate agreement, not a stumbling block,” said the group’s Alison Woodhead. Marlene Moses of Nauru, chair of the Alliance of Small Island States (AOSIS), called the pledges “still well short” of the target. “If it’s a struggle to get $10 billion once-off, how difficult is it going to be to get to $100 billion every year?” said Yvo De Boer, who oversaw the UN global warming talks from 2006 to 2010. “Much more has to be done if the promise made to developing countries to provide financial support of $100 billion per year in 2020 to tackle climate change,big fireStephen Krug, a policy analyst at Greenpeace in Germany said. “While climate change is developing faster than expected, the financial support for those who are the most affected still evolves at a snail’s pace.

Climate experts have warned that time is running out in the battle against climate change. Are world leaders committed to meaningful climate action? Does $9.3 billion reflect the pressing need to combat what is proclaimed the “most defining issue of our time?” Only time will tell.