This article is written by Côme Girschig.
Climate is a tricky issue on many aspects because philosophers, biologists, journalists, chemists, CEOs, physicians, lawyers, doctors, or writers, all have a different definitions of the matter. Even finance experts joined the game, and their work didn’t make the whole thing simpler.
The first conference I went to, in Bonn, was a workshop on long-term climate finance. Let’s be clear: my economic and finance background has been useless and I rapidly got lost among the acronyms. Proud to master each letter of “UNFCCC”, I got punched in the face by NAPAs, GCF, NAPs, CIFs, MDBs, LDCF, LULUCF, REDD+…
Except for the list of ingredients of some American drinks, I’ve never been so frightened by such a flood of incomprehensible words. At the end of this reading, I want you to have a clearer understanding of the principal climate funds and the difficulties they currently face.
First of all, you must understand how the funds work and what is their core objective. They are usually governed by a body gathering 16 to 32 countries, half of them developed and the other half developing or transitioning. Some of the funds have a precise mandate and therefore operate under a precise text (Kyoto Protocol, Paris Agreement, Rio Conventions, etc.), others don’t. They also differ on the kind of financial service they provide. When the oldest ones only provide grants, the funds created after 2001 also provide concessional loans, equities and risk mitigation services. However, when a country contributes to a fund, it is always a pure donation. That is, even if the new funds provide a low interest loan, the capital and the benefits go back to the fund itself, not to the contributing state. According to the World Resource Institute, the amount of money needed to reach the goal of 2°C lies in the trillions of dollars. Then, given the current levels of capitalisation of funds which is highly insufficient, their objective will mainly be to catalyse private investment, reduce risk and foster innovation, rather than directly finance infrastructures and programs.
Nowadays, seven multilateral international funds currently stand out from the rest. Five of them operate under the UNFCCC (United Nations Framework Convention on Climate Change). The oldest one is the GEF (Green Environment Facility)1. Its aims are to develop renewable energies and energy efficiency programs, reduce emissions from deforestation and forest degradation (REDD+), address issues of land use and land-use change and forestry (LULUCF), etc. Since the GEF-52, the fund left its adaptation programs to other funds. It’s capitalisation amounts for $3.03 bn and a part of its resources rely on developing countries (13 on 39 contributors) which is rare for multilateral funds.
2001 was the year of the funds. First was created the AF (Adaptation Fund), established under the Kyoto Protocol3. Its core particularity is that its funds come from an innovative mechanism: each time a developed country resort to a CDM (clean development mechanisms) in a developing one, and gets a CER (certified emission reductions), a 2% tax is levied and directly replenishes the fund4. However, because of the loss of value of these CER, it has become a very small fund of $540 m and focuses on small-scale adaptation projects. Two other funds were created that same year, the LDCF (Least Developed Countries Fund) and the SCCF (Special Climate Change Fund). The LDCF focuses on the LDCs and mainly provides grants to finance NAPAs (National Adaptation Programmes of Action) and NAPs (National Adaptation Plans). The SCCF was meant to complement its activities of the GEF and therefore focuses on adaptation and technology transfer, but its level of capitalisation doesn’t exceed $350bn. The most recent fund under the UNFCCC is the GCF (Green Climate Fund), created in 2010, and now considered as the second operating entity of the financial mechanisms of the UNFCCC with the GEF. It aims at financing mitigation and adaptation (in other words, everything) and is the biggest one (10bn$).
Finally, the CTF (Clean Technology Fund) and the SCF (Strategic Climate Fund), both created in 2008, don’t depend on the UNFCCC. They deliver concessional funding through multilateral development banks (MDBs). While the CTF develops low-carbon technologies and selects projects for the private sector (Dedicated Private Sector Programs, DPSP), the SCF backs three different programs: the Forest Investment Program5, the Pilot Program for Climate Resilience and the Scaling-up Renewable Energy Program.
Now let’s come to the difficulties currently addressed by the funds. The Parties present at the last UNFCCC intersession in Bonn recognised three stumbling blocks. First, a general problem of governance. Even if the funds overlapping is important since it permits choice, it hinders the prioritising process of both contributors and recipients. That is why during the SBSTA (Subsidiary Body for Scientific and Technological Advice) sessions in Bonn, parties agreed on the idea that the GEF and GCF must continue and could absorb the others. The second general problem is about the targeting of these funds: only 25% of their financial services are dedicated to adaptation. Lastly, the developing countries deplore the difficulty to access funds. Language barriers, time and cost of processing often lead them not to resort to these funds.
Source: The Future of The Funds (Word Resource Institute) Workshop on Long-term Finance (Bonn, May 2017, UNFCCC intersession) SBSTA first and second meetings (Bonn, May 2017, UNFCCC intersession)
Created in 1991, a year before the Earth Summit in Rio which launched the COP (Conference of Parties) process.
The fund gets replenished every four years so we are currently in the GEF-6
This protocol, signed in 1997 and ratified in 2005, aimed at reducing the emissions of Green House Gas (GHG) in a binding way and was based on a clear distinction between developed countries and developing ones.
Developed countries buy CERs, a mechanism working under the Kyoto Protocol, because the marginal abatement cost of carbon is often lower in developing countries, therefore it is more profitable for them to make investments there.
The FIP provides grants and low interest loans to countries addressing deforestation and forest degradation, to reach the REDD+ objectives. It also has a part dedicated to pure grants for indigenous peoples and local communities