Info Service on Climate Change (Mar13/03)
Green Climate Fund: Disagreement over mobilising resources
Berlin, 21 March (Meena Raman) – The issue of how to mobilise resources for the Green Climate Fund was a source of much disagreement at the recently concluded meeting of its Board.
The third meeting of the Green Climate Fund (GCF) Board took place in Berlin, Germany, from 13th to 15th March, 2013. Among the several decisions adopted by the Board during the three day meeting included a decision on resource mobilisation which was agreed to on the final day of the meeting. However, there were major disagreements among Board members from developing countries and some developed countries, especially the United States.
The Board is co-chaired by Ewen McDonald (Australia) and Zaheer Fakir (South Africa).
The Board members were asked to consider a draft decision that approved the scope of work set out in an annex to a document prepared by the interim secretariat on resource mobilisation for the GCF. According to the annex, from March to September 2013, “the interim secretariat will prepare a resource mobilisation strategy document for consideration by the Board at its meeting in September 2013. In doing so, the interim secretariat will operate under the guidance of the co-chairs, and take into consideration the guidance on the Fund’s resource mobilisation provided by the Board during its meeting in March 2013, as well as the guidance provided by the Board on the Fund’s business model framework. The strategy document will lay out key elements and a timeline for organising the initial resource mobilisation for the Fund.”
Further, according to the annex, the “board meeting in September 2013 will consider the resource mobilisation strategy and take decisions on the Fund’s approach to resource mobilisation and key factors determining how the approach will be implemented”.
The US, supported by Japan, was strongly against any timeline for resource mobilisation. The US finally accepted the draft decision proposed after giving its own interpretation on the issue of the timeline and the decision to be taken in September. The US Board member said it was hard to make a compelling case that the GCF was an entity worth putting the money into. It was also opposed to having any burden-sharing arrangements among developed countries for financial contributions and was not ready for any timelines for the mobilisation of resources.
The interim secretariat document also provided three options for the Board to consider as follows: option 1: to follow an ad hoc resource mobilisation process; option 2: to start the Fund with an ad hoc resource mobilisation process, with a goal to transition to a periodic replenishment process; and option 3: to immediately move into a periodic replenishment process.
Dipak Dasgupta (India) said there is need to talk about the scale of the resources required upfront which is predictable and significant in size and ambition. As regards predictability, there is need for upfront contributions and the GCF was neither a donor programme nor a charity. It is also not a multilateral development bank. It is about contributions to get the actions done in developing countries; these actions cannot be committed to by developing countries unless they know what the actual resources there are. There is need to support policies and investments in the long term. There could not be a voluntary approach to contributions. If one country feels that it wants to make a contribution and others do not, that will make it difficult for everyone to come and board and free-riding needs to be prevented, elaborated Dasgupta further.
Dasgupta said the Board needed to define the scale and process of mobilisation of resources which was significant and ambitious. If it was difficult for some countries to raise resources to the scale needed, the developed countries as a group could go to the bond markets and raise resources collectively. Global bond markets were ready to finance if developed countries wished to go to it. The costs could be covered later by fiscal measures or other steps like national lotteries, he said further. There were plenty of existing instruments and special purpose vehicles to raise the resources needed. Climate change is here and was ahead of the Eurozone and financial crisis, he added.
Hong-Sang Jung (Republic of Korea) said that having periodic replenishment of resources and appropriate burden-sharing sharing arrangements (among developed countries) is most effective for stability and predictability of financial resources.
David Kaluba (Zambia) supported Dasgupta and said that members were familiar with the extent of resources needed for the paradigm shift. Developing countries did not have the luxury to wait and some LDCs are already taking climate action. Kaluba said that predictability of resources is needed to meaningfully respond to challenge; hence a periodic replenishment of resources is needed.
Omar El-Arini (Egypt) said that resource mobilisation for the GCF is in the context of the United Nations Framework Convention on Climate Change (UNFCCC). He was surprised that document prepared by the interim secretariat on resource mobilisation had not referred to the Convention’s relevant articles or to the decision of the Conference of Parties in Cancun (where the GCF and the mobilisation by developed countries of the USD 100 billion per year by 2020 was agreed to.)
El-Arini also reminded members to be mindful of on-going negotiations for the new agreement under the Durban Platform which is to conclude in 2015. He said that the agreement would be impossible if the Fund was not functioning well and with appropriate scale of resources. He stressed the importance for the Board to agree to an initial capitalisation of the GCF for a stable amount of funding over 3-5 years. Members could discuss how the capitalisation could be funded, he added.
Kjetil Lund (Norway) said that while Norway remained committed to making contributions, it is unable to talk about resource mobilisation without knowing what the business model of the GCF is.
Nicholas Dyer (UK) said that in order to attract resources into the Fund, there is need for objectives and results; pledges to demonstrate performance and to score well based on multilateral aid criteria. He said a periodic replenishment cycle would allow for planning and a more strategic approach, while ad-hoc mobilization which gives flexibly and can be fast. Dyer also supported limited earmarking of funds.
Yoshiki Takeuchi (Japan) said that while resource mobilisation is important, he needed to see the business model of the GCF to view its value addition. He said a unique aspect is the private sector facility. He suggested starting the GCF with a pilot phase approach with resources mobilised on an ad hoc basis. The GCF should not close its door to contributions from developing countries and the private sector. The type of contribution should be open and flexible, he added, referring to the World Bank’s Climate Investment Funds, where a wide variety of financial support is provided through grants, loans, guarantees and equities. He also supported earmarking of funds.
Manfred Konukiewitz (Germany) said that ambition is not just to mobilise the GCF but to also get the results, which is to limit or reduce greenhouse gas emissions. He preferred periodic replenishment of financial resources that allowed for better predictability and was willing to consider ad hoc pledges for initial funding. Konukiewitz also favoured a transparent and fair burden sharing arrangement (in determining the financial contributions) that should be based on ability to pay and responsibility for the emissions. He said further that it was difficult to explain to the average person that (developing) countries which are wealthier than the EU and which have more emissions per capita should not be requested to pay.
Rod Hilton (Australia) said that there could be no pledging session before the business model framework, standards and safeguards policy and procedures are in place. A key issue for Australia was for resources to be allocated to SIDs and LDCs. Engagement with the private sector was also important, he added. Hilton supported option 2 referred to in the interim secretariat document as regards resource mobilisation.
Derek Gibbs (Barbados) also supported option 2 and said the ad hoc approach should start in 2013, given that a number of donors are ready to contribute to the Fund.
Arnaud Buisse (France) supported option 3 and was open to option 2 for a short period of time since the Fund was just starting. On the financial inputs, he said there must be flexibility. He expressed strong reservations against earmarking of funds.
Jan Cedergren (Sweden), referring to the vision of the GCF, said the “animal” needs to be seen before we can put the money in it. He preferred option 3 as this is a periodic replenishment process which can give predictability related to the objectives. He also wanted peer pressure to be exerted (on developed countries to make contributions) and to push free riders. Resources trickling in, in bits and pieces should be avoided he said, and was against earmarking as this would be negative for the Fund.
Per Callesen (Demark) supported option 2 to start with ad hoc resource mobilisation and to move to periodic replenishment later. He also said it would be productive to work out a burden-sharing arrangement. He also had reservations about earmarking the funds.
Matthew Kotchen (US) said that while the US was committed to the GCF, it was premature to discuss resource mobilisation as the work on the business model framework was just beginning. He was against moving forward with the draft decision as proposed. He was against having a timeline in organising the initial resource mobilisation for the Fund as there was too much design work (of the GCF) to do and a short timeline would be counter- productive. It was also a challenge to disburse money through the GCF as there was too much uncertainty, he added. He said it was hard to make a compelling case that it was an entity worth putting the money into. The US was also opposed to the notion of burden-sharing and was not ready for any timelines for the mobilisation of resources.
Anna Fornells de Frutos (Spain) supported an ambitious timeline and was for option 2. Tosi Mpanu Mpanu (Democratic Republic of Congo) said that option 3 is the most attractive and that the prospect for the 2015 deal (under the Durban Platform) was very bleak if there is no clarity on finance.
Responding to the comments by developed countries, Dasgupta (India) suggested the need for a document from developed countries on timelines and processes for resource mobilisation. He said that developing countries too have Parliaments and they were being asked questions.
When McDonald asked members if they had any objections to the draft decision, the US Board member, Matthew Kotchen, reiterated his objection to formulating a specific timeline as it was premature to commit to resource mobilisation before clarity on the business model framework.
Dasgupta (India) in response said that asking the interim secretariat to resolve questions which are political was unfair, as it for developed countries to answer this. He said that all we hear is that developed countries want to see the business model framework and then only address resource mobilisation. This he said, sounded like only one side (of the bargain). He suggested that important financial source countries look at issues of burden sharing, their internal processes, and what guidance is needed from their Parliament which can be made known to members. He wanted to know what developed countries had in their mind between now and the next meeting in June on timelines which address the ambition and scale of resources needed.
Yoshiki Takeuchi (Japan) shared the US view that it was premature to talk about the timeline on resource mobilisation.Nicholas Dyer (UK) said there was no need for more papers. There were options for mobilisation of resources which can be worked on further.
The US once again insisted on deleting any reference to the timeline for organising resource mobilisation. India, in response insisted it would like to see a timeline as there was a close link between the business model framework and resource mobilisation.
At this juncture, McDonald proposed a short break. When the meeting resumed, McDonald once again asked members if they had any objections on the scope for further work on resource mobilisation as contained in the document prepared by the interim secretariat.
Matthew Kotchen (US) said that he did not have an objection but wanted to clarify why he had objected earlier. He said that the draft decision tasked the interim secretariat to lay out a timeline (for organising the initial resource mobilisation for the Fund) for the September meeting and that a decision would be taken in September when the business model framework would be seen for the first time. It wanted to avoid setting specific markers.
The US then said then agreed to the sentence on the timeline if it was interpreted as referring to “a set of possible timelines”. (The actual language in the document was “The strategy document will lay out key elements and a timeline for organising the initial resource mobilisation for the Fund).
As regards the decision which states that “Board meeting in September 2013: The Board will consider the resource mobilisation strategy and take decision on the Fund’s approach to resource mobilisation and key factors determining how that approach will be implemented,” the US said the word “consider” meant “consider taking decisions and not taking decisions on resource mobilisation.”
The decision was the adopted by the Board. In welcoming the decision, Dasgupta (India) wanted developed countries as a group to address the specifics in relation to the process of responding to: “the scale, predictability, upfront contributions; appropriate sharing of responsibility; relationship to other funds and the GCF; probable timelines, their intentions and processes; and innovative ways by inviting an ‘open’ architecture for contributions by private and public sources.”
During the session, civil society was also invited to give their views. The Sierra Club representative said that GCF should focus effort on an ambitious paradigm shift so resources could be scaled-up in accordance with Articles 4.3 and 11 of the Convention. Developed countries should put forward an initial pledge as a matter of urgency in 2013 and prepare the way for disbursement, said the representative. He supported the approach in option 2 and wanted rapid mobilising of resources. This did not have to wait for a burden sharing arrangement and should not prejudge the option of burden sharing. The resources needed to be adequate and predictable and could come from public sources and direct contributions from financial transaction taxes, aviation levies etc. The issue was political scarcity and not economic scarcity, he added.
The representative from the Third World Network said that the discussion of the Board members appeared to be a chicken and egg problem. She cautioned that the “chickens had come home to roost” and it was called “climate change”. She stressed that the GCF is about enhancing the implementation of the Convention, which was ratified in 1994 and it was now 2013, and very little money had been channelled under the Convention. It was immoral for developed countries to continue to delay making their commitments to the GCF, as the poor are already paying the price. She also supported the need for appropriate burden sharing arrangements among developed countries. She cautioned against the proposals by some Board members for the GCF to provide loan guarantees and other instruments that would put the GCF at risk. The TWN representative referred to a quote by a great leader who once said that if the climate was a bank, it would have been bailed out!