Financial transfer mechanisms:

resources for developing countries

International Parliamentary Conference on Climate ChangeJessica Brown

Research Officer, ODI14 July 2010

Financial transfer mechanism

• Parties assigned operation of the financial mechanism to the Global Environment Facility (GEF)

• Financial mechanism is accountable to the COP, which decides on its climate change policies, programme priorities, eligibility criteria for funding.

• In addition to GEF guidance, Parties have established three special funds: Special Climate Change Fund (SCCF), Least Developed Countries Fund (LDCF), under the Convention, and Adaptation Fund (AF), under the Kyoto Protocol.

• Funding for climate change activities also available through bilateral, regional and multilateral channels.

Description and status of funds

GEF Trust Fund:• Earmarked for national communication processes, adaptation assessment,

capacity building for adaptation, etc.• Disbursed: US$ 2.6 billion to Climate Change projects, as of 3 rd November 2009 and

since the start of GE Trust Fund (all 4 replenishment periods – since 1994, averaging ~$175k per annum).

Special Climate Change Fund (SCCF)• Established to finance the special needs of developing countries in adaptation,

tech transfer, and climate sensitive sectors • US$ 120 mn pledged, of which US$100 has been deposited and $91 disbursed to

projectsLeast Developed Countries Fund (LDCF)• Created to support preparation and implementation of NAPAs. These NAPAs

provide a prioritized list of immediate adaptation projects.• Approved projects as of November 2009: US$ 111.86 million

For more detailed information on funds, including bi- and multilateral funds, please visit www.climatefundsupdate.org

Description and status of funds (cont’d)

Adaptation Fund• Established by the Parties to the Kyoto Protocol of the

UNFCCC to finance adaptation projects and programmes in developing countries that are Parties to the Kyoto Protocol.

• Funding is derived from proceeds of the 2% levy on transactions under the CDM (although it may also be complemented with other sources of funding).

• Offers a unique model for CC funding governance• Four projects just approved (Nicaragua, Pakistan, Senegal,

Solomon Islands) for total value of USD 21.8 million• Senegal first country to exercise Direct Access - using an

NGO as National Implementing Entity (NIE)

What is the future of climate change finance under the Convention?

In the Copenhagen Accord:

“The collective commitment by developed countries is to provide new

and additional resources, […] through international institutions,

approaching USD 30 billion for the period 2010 – 2012. […]

[D]eveloped 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.”

 

Climate finance post-Copenhagen

• Unclear how ‘additionality’ is being defined• Unclear how this money will be managed, and by whom• Unclear how funding will be secured, or where will it

come from• Unclear who will pay for what• No distinction between public and private finance

Issues with Copenhagen Accord

The Need for Climate Finance

• There is currently a gap in the scale of climate finance needed for developing countries to mitigate and adapt to climate change

• However, there is currently no means of assessing either the actual demand for funding or the absorption capacity. Can create mistrust between developed and developing nations, which can hamper progress on tackling climate change.

USD 16-35 billion

Need (between 2010-2012)

‘New and additional’ funds difficult to estimate, but

significantly less than pledges made

Source: Project Catalyst draft presentation, April 20101.Past money pledged but not paid in to climate funds until XXX 2009 based on climatefundsupdate.org2.OECD climate change commitments until 2008 multiplied by 3 to compare with 2010-2012 pledges

What is currently available?

Pledges of existing funds total roughly US$19 bn, only US$2 bn has been deposited (most funds made operational in 2008)

• Create new and predictable resource mobilization mechanisms for international public finance– Budgetary contributions– Carbon markets– Various forms of taxation– Others (bonds, CTT, etc)

 • Engage the private sector by creating the right incentives- Concessional lending for mitigation and adaptation investments- Explore other incentives such as advanced market commitments, or

more generally using public sector financial instruments to mitigate private sector investment risks

Moving forward: Possible solutions to securing appropriate scale of finance

New finance coming in – where do we need to

focus?

• Maximise impact on mitigation and adaptation in face of constrained resources and absorptive capacity– Must therefore attract private funding– Must therefore aim for biggest bang for the buck– Must aim to fund longer term abatement projects which

avoid carbon ‘lock in’

• Therefore, in order to maximise impact, funding must be– Coordinated across donors – focus on leveraging to get

an impact (not necessarily within one pot)– Matched effectively to needs– Disbursed rapidly

Thank you

Contact:Jessica Brown

j.brown@odi.org.uk

www.climatefundsupdate.org

How will future funds be managed and delivered in the

long term?

• Options for institutional arrangements:– Institutions: New or Existing (e.g., GEF)?

– Coherence: Consolidated across other donors or fragmented?

– Decision-making: Devolved to country or retained by fund board?

– Approval: Centralised or decentralised?