Board meeting in Indonesia seeks to clarify how Fund will operate, ready for cash injection later in year
By Ed King
The fate of a UN-backed climate fund that could generate billions of dollars of low carbon investments in the developing world hinges on negotiations that start in Bali on Wednesday.
The Green Climate Fund (GCF) is scheduled to be operational in late 2014, and is seen as a vital part of UN plans to curb rising levels of greenhouse gas emissions in developing countries.
The aim of this week’s three-day meeting [agenda] of the 24-strong GCF board is to agree the key principles that will allow the fund to start work, and reassure donors their money will be carefully allocated.
This will allow a funding strategy to be released after a final meeting in May, with the aim of securing financial contributions from world leaders at UN Secretary General Ban Ki-moon’s planned climate summit in September.
RTCC understands differences still exist between some board members over the role and functions of the GCF, specifically over how the private sector will engage with the fund.
Some developing countries are concerned references to private finance are a smokescreen by their richer peers to escape having to find more money, a fear reflected in a statement released last night by 80 civil society groups, claiming the fund has been “captured” by corporations.
Deciding on how contributions are allocated is another politically sensitive issue. There are currently tight restrictions on the share of money each country can claim for, but this has caused problems.
Some larger developing countries want unlimited access to funding, while small states are keen to see the financial limit to individual states maintained, ensuring their stake is protected.
— Christiana Figueres (@CFigueres) February 18, 2014
Athena Ballesteros, Director of the Sustainable Finance Program at the World Resources Institute told RTCC the meeting is vital for the GCF to “get its house in order”, stressing that a “robust design” is essential to ensure donors come forward.
She suggests a successful launch will add needed momentum to UN talks in Lima this year and Paris in 2015, where a global emissions reduction deal is scheduled to be signed off.
“For COP [the year’s main UN summit] in Peru and the lead up to the 2015 summit climate finance is a huge component of that, and the GCF represents the initial structure that embodies the scaling up of finance,” she says in an interview from Bali.
“The ambition of the GCF is what sets it apart – its ambition, credibility and legitimacy will grow over time”
So far the fund has received US$ 33.83 million of funding from Germany and South Korea, where its headquarters are based. Staffing costs alone are estimated at $24 million between 2015-2016.
Leading EU countries, together with Japan and the USA are expected to provide the bulk of the initial capitalization, with a $30 million ‘readiness fund’ scheduled to be agreed this week, which will help poorer countries plan for how they can best work with the organisation.
Insiders are unwilling to specify the total figure needed by the GCF in its first year. Norwegian diplomat and board member Henrik Harboe told RTCC “substantial amounts” are required. A common consensus is that $20 billion will be deemed a success, with $10 billion seen as ‘satisfactory’.
A spokesperson at the UK’s Department for International Development (DFID) said the government would wait until the latest round of talks conclude before deciding how much to offer.
“We will make an assessment of the value for money of the GCF relative to alternatives and its potential to achieve its objectives once the main design elements have been agreed,” they said.
Pressure on the board to get the GCF off to a strong start is rising. With time running short, and a packed three-day agenda, there are fears talks could mirror other UN forums related to climate change and get bogged down in unnecessary detail.
One observer has warned the board to concentrate on what’s important, and “not try and negotiate a convention”.
Amal-Lee Amin, head of London-based think-tank E3G’s International Climate Finance team, argues the focus of this week’s talks needs to be on ensuring the money starts to flow as soon as possible.
“For me it’s important the fund can support countries in their own priorities, and the allocation will be important given there won’t be unlimited funding available,” she says. “There’s a need for strengthening understanding of issues between government board members.”
How and what form GCF investments and support will take is still up for debate. Financial analysts say it’s likely to issue Green Bonds or underwrite debts from larger projects.
It will need to prove it can function effectively before the 2015 summit in Paris, given the central role the UN says it should play in channelling and leveraging low carbon finance.
Leading climate change economist Lord Stern recently told RTCC “trillions of dollars” are needed to build a low carbon global economy resilient to future climate impacts. That’s unlikely to come from public sources of finance.
Instead Amin says the GCF can play a role in catalysing existing funds, especially in emerging economies: “The critical thing for all countries – and especially bigger ones – is how can the GCF cataylze a greater allocation of domestic public resources away from high-carbon un-resilient investment infrastructure? It’s important to focus on the GCF’s catalytic role. It’s too much to expect it will fund all infrastructure.”