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Responsible and equitable climate finance under threat after Bonn
25 June 2010
By Nora Honkaniemi
The official climate change talks, attempting to negotiate a binding deal to replace the expiring Kyoto protocol, took place from the 31st May to the 11th June in Bonn. The message coming out of the current talks was a grave one: unless developed countries step up their game and come up with binding promises urgently, we are headed for climate catastrophe and fast.
The Bonn Climate Change Talks are held under the framework of the United Nations Framework Convention on Climate Change (UNFCCC), the international political response to climate change, aimed at stabilising atmospheric concentrations of greenhouse gases. The negotiating process revolves around the sessions of the Conference of the Parties (COP), which meets every year to review the implementation of the Convention. The last COP took place in Copenhagen in December 2009 (COP15) and will be followed by the COP 16 in December 2010 in Cancun.
Finance for climate change adaptation and mitigation is one of the crucial and most controversial issues at the negotiations. In the Copenhagen Accord, agreed by the world leaders at the Conference of the Parties on its fifteenth session in December 2010, developed countries agreed to provide "new and additional" funding for mitigation and adaptation activities in developing countries, including $30 billion for the period 2010-2012.
How much has Europe pledged – and how much is new money
In Bonn, the EU presented a report on its pledged "fast-start" funding of €2.4 billion annually, which amounts to just under a third of the collective commitment. The report said the EU was on track to meeting its pledge, with confirmed sums from Member States to date adding up to €2.39 billion for 2010 and €7.55 billion for the entire 2010-2012 period, topping the EU's own commitment of €7.2 billion. Of these funds, almost two thirds will be delivered through bilateral channels (€ 943 million) and the rest will be delivered via multilateral channels (€598 million) mostly through funds administered by the World Bank which include: Climate Investment Funds (€208 million), Global Environmental Facility (€108 million), and the Adaptation Fund (€56 million). 35% of funding has not been allocated yet. Twenty Member States have already decided that almost three quarters of the funding will take the form of grants.
However, poor countries are still concerned that the money will be recycled from existing aid budgets. The issue of how to define new and additional, as well as what baseline to measure new and additional from remains unresolved and a key stumbling stone for the advancement of any agreement. Most often new and additional is defined as additional to ODA pledges of 0.7% of GNI, but even this is not straightforward and multiple, all unsatisfactory, proposals for calculating a baseline have been put forward.
To further complicate matters, what is meant by “new” is not clear either, whether new simply refers to money not being diverted from existing ODA budgets, or rather “new” money raised through innovative financing mechanisms. This impasse of new and additional in the negotiations is clearly demonstrated by the large share of EU fast start funds that have been promised to be directed through the World Bank-housed Climate Investment Funds (CIFs). Vast sums were pledged to the CIFs in 2008, but were mostly not paid up in time before the Copenhagen agreement. Is money being channelled in 2010 through the CIFs “new and additional”, or just making up for pledges made before the agreement and not actually novel at all?
Funnelling European climate finance through the World Bank
A good share of European climate finance will be channelled through the World Bank and other Multilateral Development Banks (MDBs), which are making strong headway positioning themselves as the institutions appropriate to manage the pledged fast start finance. Civil society organisations in Bonn seized the opportunity to highlight that the money will only be as effective as the institutions through which it is channelled, and urged negotiators to publicly commit to not using the World Bank and regional development banks for the management of global climate finance.
In response to a leaked document of the US negotiators which explicitly named the World Bank as their preferred institution to channel climate finance, 287 CSOs sent an open letter to President Barack Obama calling to support institutional arrangements that are governed democratically, have environmental integrity, and ensure the participation of local communities and peoples who suffer the impacts of climate change, stressing that the World Bank is not that institution. The G77 – gathering most developing countries – tend to agree, and have put forward their own proposal, supported by CSO, of a Global Climate Fund under the authority of the UNFCCC.
Increasing public funds to leverage the private sector
Discussion of sources of finance was largely shelved in waiting for the interim report of the UN Secretary General's Advisory Group on Climate Finance, now due in July. However, there are increasing sceptical voices that public sector funds alone will not generate the trillions necessary to make a difference. As a result MDBs and Development Finance Institutions (DFIs) are increasingly using scarce public funds to leverage private sector investments in climate change related projects.
Considering the enormous task of mobilizing the necessary resources for climate financing to ensure the emissions cuts that will permit human life to continue on this earth as we know it, the importance of ensuring that the existing resources are spent responsibly and in ways which do not undermine development and climate goals cannot be over emphasized.