Guest Post: Ready for Primetime? The $100 Billion Climate Fund

Below, my colleague Farah Thaler, associate director of CFR’s International Institutions and Global Governance program assesses the progress of and prospects for the Green Climate Fund.

After delays and political bickering, a late August date was announced last week to hold the first meeting of the Green Climate Fund (GCF)—the ambitious multilateral funding instrument to help developing countries tackle climate change. We should expect more snags in the coming years as the GCF is pieced together before it is fully operational.

The GCF, proposed at the 2009 UN Framework Convention on Climate Change (UNFCCC) meeting in Copenhagen, is envisioned to amass up to $100 billion a year after 2020 of additional and sustainable funds.  Through grants and concessional loans for climate projects, the fund is expected to finance mitigation and adaptation efforts in poor countries at an unprecedented scale. To put it in perspective, the largest climate fund today—the Climate Investment Funds under the umbrella of the World Bank—has $6.5 billion pledged for the period 2009-2012. The World Bank in total funds some $43 billion in development projects per year.  The GCF could double that.

Financing climate change remains a hot button issue on the international stage. In Copenhagen, developing countries called for $400 billion of climate aid per year, with potentially more down the road. Negotiators settled for $100 billion. But soon, other tensions surfaced regarding governance structure, capitalization, and funding modalities.

The GCF is launching amid this ongoing logjam between the developed and developing countries on climate financing. The first meeting has been delayed three times after countries failed to pick representatives to make up the board: Europeans wrangled over their number of allotted seats on the board, and regional blocks from the global south squabbled over representation. After finally receiving member nominations last week, the fund’s secretariat hurriedly organized a late August meeting, barely meeting the summer deadline called by the UN climate head Christiana Figures earlier in the year.

But this opening meeting promises to do little in terms of substantive work. A provisional agenda (PDF) outlines a list administrative items, of which the main tasks are to select a host country for the fund (Poland (PDF), Germany, Namibia, Mexico, Switzerland, and the Republic of Korea are in the running), and electing co-chairs.  These issues will be finalized at or before Doha, which will host the major UNFCCC annual climate conference in November 2012.

Given the organizational disarray and the recurring setbacks, it is too early to talk about details. But if the GCF is going to be the “main global fund for climate change finance” (PDF), this summer’s meeting should put some issues on the table to be settled at Doha.

First, there needs to be more clarity on the amount of funds that will flow through the GCF. The Copenhagen Accord notes that of the $100 billion “[a] significant portion of … funding should flow through the Copenhagen Green Climate Fund.” At the moment this seems a tall order for any one financing vehicle, particularly in light of the bureaucratic and logistical frenzy surrounding the GCF thus far.

At the same time, there has not been meaningful dialogue on how to mobilize the huge sums of cash. The UN secretary-general commissioned a panel of experts to come up with ideas on sources of financing for up to $100 billion. The report of the High-Level Advisory Group on Climate Change Financing concluded that raising $100 billion would be a challenge, albeit feasible through a cocktail of sources from carbon markets, new public funds, and fees imposed on fuel for international maritime and aviation transportation. However, beyond a controversial airline emissions tax proposed by the European Union, the policy response to the report has been weak or null. Moreover, countries had pledged to start shoring up new capital to the tune of $30 billion between 2010 and2012 as a first step to scaling up to the $100 billion in 2020. And even though the pledges are seemingly close to target, a study by the World Resource Institute indicates that the commitments have not been “additional” or are simply undelivered.

The modalities for delivering the aid are also vague. The GCF is committed to delivering both adaptation and mitigation financing, while aiming for geographical balance. At the same time, the aid for recipient countries will be tied to national climate strategies—which are likely to be heavily skewed towards climate-proofing over mitigation.

In addition, the fund is supposed to target all developing countries, including the emerging powers of Brazil, China, and India. But ambiguity rests on how their needs will be balanced against Sub-Saharan Africa or the pacific islands. For its part, the United States has formally objected (PDF) to supporting middle-tier countries through the GCF, possibly causing another hiccup down the road.

Lastly, the GCF hopes to "promote the participation of private sector actors in developing countries" through an innovative Private Sector Facility that will fund mitigation and adaptation projects. However, developing countries are widely skeptical on whether this will reduce the level of public funding to the GCF. As noted in a paper (PDF) by the Hienrich Boell Foundation and the Overseas Development Institute, there needs to be a more nuanced scrutiny of the role of private sector finance when dealing with vulnerable regions and marginalized groups.

In sum, the GCF still needs to resolve fundamental issues before its ready for primetime. But we should watch this space closely as countries design the most ambitious climate financing vehicle to date.