TWN Info Service on Climate Change (Jan11/02)
31 January 2011
Third World Network

Process to design climate fund gets underway
Published in SUNS #7077 dated 31 January 2011

Geneva, 28 Jan (Meena Raman) -- Efforts are underway to constitute the Transitional Committee responsible for the design of the Green Climate Fund, which was agreed to be established under the United Nations Framework Convention on Climate Change (UNFCCC) by Parties at the 16th session of the Conference of Parties (COP16) held in Cancun, Mexico last month.

Since 2008, the G77 and China had been calling for the operationalisation of an effective financial mechanism under the COP to ensure the full, effective and sustained implementation of the Convention and among other things, to give effect to the principles of a country-driven approach and enable direct access to funding.

The proposal was mooted following incessant complaints by developing countries about the difficulties in obtaining adequate, sustained and easy access to funding for adaptation and mitigation activities.

A major cause of concern for developing countries is whether the new Climate Fund will be designed in a manner that works for the benefit of developing countries or if it will serve the interests of donor countries.

Therefore, which countries and who will constitute members of the Transitional Committee responsible for the design of the Green Climate Fund is an issue of much importance.

(The decision in Cancun on the outcome of the work of the Ad-hoc Working Group on Long-term Cooperative Action under the Convention -- AWG-LCA - was adopted despite objections from the government of Bolivia for various reasons involving issues of substance and process. See SUNS #7060 dated 14 December 2010).

According to the Cancun decision, Parties agreed to establish a Green Climate Fund, which is "to be designated as an operating entity of the financial mechanism of the Convention under Article 11."

The Fund is to be accountable to and functions under the guidance of the Conference of the Parties, to support projects, programmes, policies and other activities in developing countries, using thematic funding windows.

The Cancun decision also provided that the Green Climate Fund "be designed by a Transitional Committee, in accordance with the terms of reference in annex III to this decision" (which is set out below).

The Transitional Committee is to have 40 members, with 15 members from developed country Parties and 25 members from developing country Parties -- seven members from Africa, seven members from Asia, seven members from the Group of Latin American and Caribbean States, two members from Small Island Developing States and two members from the Least Developed Countries.

In a notice from the Executive Secretary of the UNFCCC issued on 21 January 2011 to governments, Parties were reminded that their confirmed nominations for members should be transmitted to the secretariat by the Chairs and Coordinators of groups and constituencies represented on the Transitional Committee by 31 January 2011.

The Minister of Foreign Affairs of Mexico, Patricia Espinosa, as President of COP16, also issued a communication to Parties on 18 January 2011 stating that "in order to ensure the best possible expertise within the Committee", she encouraged the governments to consider and discuss within their regions and groups "how to ensure the participation of the best qualified persons in it."

"A combined approach, with experts from the fields of finance, development banking, climate change and sustainable development, will undoubtedly benefit and advance our design work and will make the Green Climate Fund a reality in South Africa," said Espinosa in her letter.

Responding to Espinosa's communication to Parties, one very senior developing country negotiator told Third World Network that the COP President appeared to be "encroaching in the sovereign rights of States to name their candidates and that this smacks of undue interference in the internal affairs of States."

Said this negotiator further, someone had informed him that on the nominations to the Transitional Committee, "the developed countries are taking out their big guns and heavy artillery", indicating that a big fight is underway for developed countries to ensure control of the Climate Fund.

It was agreed in Cancun that the first meeting of the Transitional Committee is to take place by March 2011.

According to the Cancun decision, the terms of reference of the Transitional Committee are as follows:

"1. The Transitional Committee shall recommend to the Conference of the Parties for its approval at its seventeenth session and shall develop operational documents that address, inter alia:

"(a) The legal and institutional arrangements for the establishment and operationalization of the Green Climate Fund;

"(b) The rules of procedure of the Board and other governance issues related to the Board;

"( c) Methods to manage large scale of financial resources from a number of sources and deliver through a variety of financial instruments, funding windows and access modalities, including direct access, with the objective of achieving balanced allocation between adaptation and mitigation;

"(d) The financial instruments that the Fund can use to achieve its priorities;

"(e) Methods to enhance complementarity between the Fund's activities and those of other bilateral, regional and multilateral funding mechanisms and institutions;

"(f) The role of the secretariat and the procedure for selecting and/or establishing the secretariat;

"(g) A mechanism to ensure periodic independent evaluation of the Fund's performance;

"(h) Mechanisms to ensure financial accountability and to evaluate the performance of activities supported by the fund, to ensure the application of environmental and social safeguards, as well as internationally accepted fiduciary standards and sound financial management to the fund activities;

"(i) Mechanisms to ensure appropriate expert and technical advice, including from relevant thematic bodies established under the Convention;

"(j) Mechanisms to ensure stakeholder input and participation."

Parties in Cancun also agreed that developed country Parties "commit, in the context of meaningful mitigation actions and transparency on implementation, to a goal of mobilizing jointly USD100 billion per year by 2020 to address the needs of developing countries."

(Several senior negotiators from developing countries have expressed their unhappiness over the language in the paragraph above, as it weakens the commitments of developed countries to only a goal of mobilizing financial resources and which is conditional "in the context of meaningful mitigation actions" of developing countries. They have also expressed that the USD100 billion per year is inadequate, as according to the World Bank, at least USD100 billion is needed for adaptation and USD300-500 billion per year for mitigation. Other studies have shown that up to USD500 billion is needed for adaptation. The G77 and China had earlier been calling for scaled up, new, additional, and predictable funding to be provided without any conditions and which was supposed to be an assessed contribution of at least 1.5% of the GDP of Annex 1 Parties. This was disregarded in the final decision.)

The Cancun decision also agreed that the Fund will be governed by a board of 24 members comprising an equal number of members from developing and developed country Parties.

Representation from developing country Parties are to "include representatives from relevant United Nations regional groupings and representatives from small island developing States and the least developed countries."

(The G77 and China had previously been calling for an "equitable" representation of members which was disregarded by the Cancun decision and replaced with "equal" representation.)

The Cancun decision also decided that the Green Climate Fund will have a trustee which "shall have the administrative competence to manage the financial assets of the Green Climate Fund, maintain appropriate financial records and prepare financial statements and other reports required by the Board of the Green Climate Fund, in accordance with internationally accepted fiduciary standards."

The decision also states that the "trustee shall be accountable to the Green Climate Fund Board for the performance of its fiduciary responsibilities."

Parties in Cancun had agreed that the World Bank "will serve as the interim trustee of the Green Climate Fund, subject to a review three years after operationalisation of the fund."

(The G77 and China had earlier proposed that the trustee of the Fund be determined through an "open-bidding" process.)

The Cancun decision also agreed that "the operation of the fund shall be supported by an independent secretariat."

The decision also requested the UNFCCC secretariat, "in consultation with President of the Conference of the Parties, to make arrangements enabling relevant United Nations agencies, international financial institutions, and multilateral development banks, along with the secretariat and the Global Environment Facility, to second staff to support the work of the Transitional Committee for the design phase of the Green Climate Fund."

Further, the decision also agreed to establish a Standing Committee under the COP to assist the Parties "in exercising its functions with respect to the financial mechanism of the Convention in terms of improving coherence and coordination in the delivery of climate change financing, rationalization of the financial mechanism, mobilization of financial resources and measurement, reporting and verification of support provided to developing country Parties." +