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Making the Green Climate Fund a Reality in Durban

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"Making the Green Climate Fund a Reality in Durban"

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The United States should continue its progress toward approval of a new fund for global mitigation and adaptation.

Top U.S climate negotiators Todd Stern and Jonathan Pershing

by Richard Caperton and Andrew Light

As this year’s U.N. climate summit in Durban comes into the home stretch we continue to hear good things about the development of the final implementing document for the Green Climate Fund (GCF).

This is good news for those interested in an outcome in Durban that could impact mitigation and adaptation efforts through this decade.  The GCF is part of the pledge made in the Cancun agreements to mobilize $100 billion annually by 2020 for mitigation and adaptation efforts world wide.  While the Fund itself is not tasked with mobilizing all of this financing it will nonetheless be a key component of those efforts.

Confidence that the GCF will also come together is also good new for those observing the evolution of the U.S.’s negotiating position the past two weeks.  While the U.S. had approved the agreement at the Cancun summit last year to create the fund, recently its confidence in the fund had been in question.

In Cancun an official “Transition Committee” of 40 countries had been created  to meet over the course of the last year to create an implementing document to make the GCF a reality.  The “TC,” as it came to be called, met four times, with the last meeting to the west of here in Cape Town in mid-October.  At that meeting the U.S. 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 defacto consensus process many parties were concerned that the failure of the TC to come to consensus in Cape Town would mean disaster in Durban.  If the TC had come to consensus then one interpretation of the marching orders for the group was that the 194 parties in the full U.N. meeting of the Conference of the Parties of the UNFCCC (COP) would simply adopt it and move the decision forward.  But without consensus among the TC, many experts thought that this could lead to an outcome where the work of the TC would be put in jeopardy as other parties picked over the draft until it was changed so dramatically that agreement was no longer possible.  Hoping for the best the co-chairs of the TC sent their draft document on to the COP.

While a few questions remain, it now looks like the U.S. is getting closer to approving the Green Climate Fund.  In his press conference today in Durban, U.S. Special Envoy for Climate Change said he was “confident” that the despite lingering questions the fund would get done.  While the U.S. had objected in Cape Town that they were concerned both about the relationship established by the implementing document between the COP and the governing board of the GCF, and the license of the GCF to engage and mobilize private finance, we argue that the current draft document is sufficient to overcoming 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 has found that a successful Green Climate Fund will have several characteristics, including:

  • The Fund’s management will have independence from the UNFCCC bureaucracy to make the most cost-effective funding decisions.
  • It will be specifically designed to attract large amounts of private capital.
  • There will be a variety of financial tools that allow the Fund 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.
  • Both adaptation and mitigation funding will be available.
  • 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 role in mobilizing $100 billion per year.  If the Fund has to seek approval from the revolving set of climate negotiators that make up the COP meetings from year to year to use a limited set of tools (for example, just grants for adaptation projects) 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 an 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 United Nations bureaucracy.  It does this by creating a Board, and then putting the Board in charge of a secretariat, who are tasked with the day-to-day operations of the Fund.  While the COP 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.  For example, the proposal does not have a procedure for removing someone from the Board, nor does it list specific decisions that have to come before the COP.

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, the proposal clearly states that, “The Fund will seek to catalyze additional public and private finance through its activities.”  CAP has previously proposed financial instruments like 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 that 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 has selected a trustee who will be able to manage that money competently.  The World Bank – who 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.

There is a legitimate concern 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 worked well.  For instance, the language that creates the financial mechanism of the Montreal Protocol (which eliminated ozone-depleting CFC’s 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 on the GCF.  We believe that the U.S. 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.

The Green Climate Fund is off to a good start and with a push out of Durban 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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15 Responses to Making the Green Climate Fund a Reality in Durban

  1. Pathetic fluff. Too little, too late. Don’t you think it is time to stop using phrases like “good news .. for a proposed fund”

    Token coins promised for an adaptation and mitigation fund do not really do much for the compressing timeline of climate events.

    Although you mention “mitigation” a half-dozen times – you never say what you mean by mitigation.

    I am not sure just how one can “invest” in mitigation.

    The US Marines have a saying “Lead, follow or get out of the way.” The US would serve best by stopping the obstruction at Durban.

    Making good news promises is just whistling as you move toward the exit – and it is not at all inspiring.

    • Gosh Richard Caperton and Andrew Light – I realize that I inadvertently lumped you in with the US delegation… your piece was so effusively laudatory, and sounded so much like a press release that I overlooked your supposed independence. Sorry.

    • Mulga Mumblebrain says:

      What’s more, the almost invariable experience is that monies promised by the rich countries, when the PR scene grows a little tropical and the rabble grows restless, are hollow promises that do not materialise. Later, when the real, much diminished, amounts are handed over, accompanied by numerous onerous ‘conditionalities’ that rob the lucky recipients of self-determination, the MSM suppresses the story, and the NGOs impotently complain, ignored now that their propaganda usefulness is over.

      • John McCormick says:

        It will be the US Congressional rethuglican House Appropriations Committee that kills the “good news” by denying any funds for the global mitigation and adaptation fund. They are on automatic pilot.

  2. James Newberry says:

    The fund could be completely funded at $100 billion next year by moving one quarter of the $400 billion of global, annual, fossil subsidies identified in World Energy Outlook, International Energy Agency, 2011. Then we might begin to change an effectively negative global carbon tax into a positive one.

    Let’s be positive.

  3. Chris Lang says:

    Who funds Climate Progress? I’m just wondering because this reads so much like a press release. It wouldn’t have taken much research to find that some environmental NGOs are concerned about the direction that the Green Climate Fund is taking in Durban – or that just before Durban progress was stalled, by the US and Saudi Arabia.

    • Joe Romm says:

      You don’t really read Climate Progress much. It shows.

      • Chris Lang says:

        Thanks Joe for your reply. Are you saying that I’d find out who funds Climate Progress if I read it more often? If so, any chance of a link to the relevant page? Or are you saying that I’d understand your position on the Green Climate Fund better if I read Climate Progress more often? If so, I’m happy to keep reading.

        Either way, I’d probably read Climate Progress more if I knew how it was funded. I like Climate Progress, by the way. I just wondered where the money comes from.

        And yes, I know, the article mentions the US and Saudi Arabia stalling before Durban – sorry about that…

        • Joe Romm says:

          I get my salary from the Center for American Progress, who gives me full editorial control (like every other climate blogger I know). Never heard from a CAP funder (which are mostly foundations) about what to say on any post. I post other folks who also say what they think. One has to read CP to see its overall view of things. To suggest we are spinning things to make the WH look good is to admit you don’t read CP.

  4. Michael T says:

    Here is a video of the recent presentation that Dr. Hansen gave this past Tuesday at the AGU 2011 Meeting:

    http://www.youtube.com/watch?v=KTTlAAiwgwM&feature=channel_video_title

  5. Raul M. says:

    Mitigation may have an overextended definition as applied to climate change. Changing to clean energy sources should be adaptation because it adapts to the real life cycle of the actions.
    Mitigation should refer more only to those actions that would reverse negative impacts to the climate?
    Adapting to the realities of the forcing of others and for ourselves could take a two pronged approach, for adapting to the realities of the climate system would mean to change from a warming forcing to a cooling forcing. But, to only go green is to change to a more neutral position on forcing. Going green does not counteract the warming forcing of others though the neutral actions may help others to be more neutral in forcing by supplanting their otherwise warming forcing with a neutral stance.
    A constrained use of mitigation would include actions that actually have a cooling forcing while leaving natural ecosystems to regain some of their own abilities. To keep with the natural laws one could adapt to the laws rather than adapting the laws to our desires.

    • Raul M. says:

      Now that the reality of the messy kitchen has set in for some and some have stopped messing up, shouldn’t we learn to clean up?
      We know that mankind knows how to have a warming forcing on the Eaarth; but, how do we learn to have a cooling forcing? What beyond biocharing windfall branches and twigs would have a cooling forcing?
      What beyond biocharing organic waste from our societies would help to have a more neutral effect?
      It is humanity that knows how to warm shouldn’t we learn how to cool before we claim to know the secrets of nature.