TWN Info Service on Climate Change (Mar14/01)
3 March 2014
Third World Network  

Green Fund adopts key decisions on operations
Bali, 3 March (Meena Raman) – The Board of the Green Climate Fund (GCF) met in Bali, Indonesia on 19-21 February and made key decisions to advance the institution’s operations.

The GCF is established under the United Nations Framework Convention on Climate Change (UNFCCC). The 6th meeting of the Board was co-chaired by Jose Salceda (the Philippines) and Manfred Konukiewitz (Germany).

Among the key decisions adopted relate to guidelines for the allocation of resources during the Fund’s initial phase; the development of a comprehensive work programme on readiness and preparatory support for developing countries (for which the governments of Germany and Republic of Korea committed to contributions amounting to a total of USD 30 million); the terms of reference for the Independent Evaluation Unit, the Independent Integrity Unit  and the Independent Redress Mechanism and the integration of gender considerations in its policy documents including defining a gender action plan in October 2014.

Progress reports prepared by the Secretariat on various aspects were also discussed, relating to the Fund’s design such as its result management framework, the risk management and investment frameworks, the accreditation framework, the proposal for an approval process and the structure of the Fund, including the Private Sector Facility.

Other important elements discussed were country ownership, including the no-objection procedure (for all proposals for funding to go through a no-objection procedure conducted through the national designated authorities); best practices for the establishment and composition of the national designated authorities and focal points and best practice options for country coordination and multi-stakeholder engagement; additional modalities that further enhance direct access, including through funding entities; and financial terms and conditions of grants and concessional loans.

Two matters that took a significant amount of time of the Board’s consideration were on the ‘Administrative policies of the Fund’ and ‘travel policy’. A decision on the former was reached but in relation to the latter, no decision was reached at the Bali meeting. On the travel policy issue was disagreement between board members from developed and developing countries on whether all developing countries should be eligible for travel funding to attend meetings. The developing countries did not want any eligibility criteria to be imposed. No consensus was possible on the matter.

An issue that drew the flak of observers from civil society organisations (CSO) was the selection of their representatives to the Private Sector Advisory Group (PSAG). They expressed grave disappointment with the selection process of the two civil society representatives by the Board, which ignored the CSO selection of their own representatives. The active CSO observer from developing countries said that CSOs had proposed their nominees to the PSAG and had hoped that this would be respected by the Board, as was the practice in the UNFCCC and in the selection process of the GCF’s active observers. Since it was learnt that their candidates were not selected, the CSO representatives approved by the Board could not speak for the CSO constituency, said the CSO active observer from Third World Network.
The decision on the allocation of resources during the initial phase of the Fund was adopted after much wrangling and intense discussions among Board members, especially on an initial proposal by the Secretariat for the consideration of the Board that imposed a cap or  “a ceiling of 5% for any one country’s share of total cumulative commitments” (of the Fund).

This proposal drew a sharp response from large developing countries led by China which viewed the approach as not being scientific. It also stressed that the Fund was not a development but an environment fund. China’s position was supported by India, Brazil and Saudi Arabia but was countered by South Africa, which insisted on the cap. South Africa’s stance was supported by the Democratic Republic of Congo (DRC), Zambia and Ecuador.
Brazil said the Board was discussing the allocation of the “pizza without any dough”, referring to the fact that the size of the resources of the Fund is yet to be known, a sentiment also echoed by Egypt.  Egypt said the “bargaining was bizarre” when the initial capitalisation of the Fund was not known.

The final decision adopted did not provide for a cap but did agree that there would be “a review of the initial allocation parameters and guidelines, including of concentration risks, subject to the size of the Fund, no later than two years from the start of allocation of resources.” The risk of concentration of resources of the Fund in a few developing countries was a final compromise reached to address the issue of equity in the distribution of the Fund’s resources.

Another matter relating to the allocation issue was the proposal by several developed countries to raise the allocation level from the initial proposal of 20% to 50 % for the Private Sector Facility (PSF). This drew a harsh response from several developing countries including from India and Egypt who questioned this approach when the role of the PSF was yet to be ascertained. The final decision adopted did not have a numerical figure for the allocation to the Facility but it was agreed that it would be ‘significant’.

Allocation of resources

The following decisions on the initial parameters and guidelines for allocation of resources during the GCF’s initial phase were adopted by the Board:

i. to aim for a 50:50 balance between mitigation and adaptation over time;
ii. to aim for a floor of 50% of the adaptation allocation for particularly vulnerable countries, including least developed countries (LDCs), small island developed States (SIDS) and African States;
iii. to manage access to resources with a view to seeking geographic balance and a reasonable and fair allocation across a broad range of countries, while maximizing the scale and transformational impact of the mitigation and adaptation activities of the Fund;
iv. to maximize engagement with the private sector, including through a significant allocation to the PSF;
v. that sufficient resources should be provided for readiness and preparatory support; and
vi. that all allocation parameters should be determined in grant equivalents.

The decision also requested the Secretariat to report annually on the status of resources in respect of the allocation parameters and the Board agreed to “undertake a review of the initial allocation parameters and guidelines, including of concentration risks, subject to the size of the Fund, no later than two years from the start of allocation of resources.”

Highlights from the exchanges among Board members on the allocation issue are set out below.

Zaheer Fakir (South Africa) stressed the importance of balance, relevance, equity and opportunities for all developing countries to the GCF funds. In terms of balance, he wanted to see the balance maintained between adaptation and mitigation and a proviso that at least 20% of that is available for the PSF for both adaptation and mitigation. On relevance, he said the Fund should be of scale to address the climate challenge. On equity, Fakir said there should be equal opportunities for all developing countries. He wanted a 5% country cap with an exception to address scale of the transformation impact. Fakir also called for a floor in the allocation for SIDs and LDCs of 20%, not just for adaptation but also for mitigation.
Tosi Mpanu-Mpanu (DRC)
wanted a clear allocation of 50% for adaptation. He also supported a country cap of 5%, saying that past experiences based on the Clean Development Mechanism (CDM) had benefited a few countries more than others.

Monica Hidalgo (Ecuador) agreed that the allocation of resources has to be balanced, equitable and fair. The definition of a cap was seen as controversial, but unwillingness to avoid concentration negates the notion of fairness and equity, she added.

David Kaluba (Zambia) also echoed the need for balance in the allocation of resources and that both adaptation and mitigation are important to LDCs, SIDs and African states. He also did not want a repeat of the CDM experience where only a few countries benefited. 

Liang Ziqian (China) said that it could not accept a cap on the allocation of resources to developing countries. He said he understood the concerns expressed but suggested putting a floor or a minimum allocation instead, which could be increased by discussions. The Chinese Board member said that the GCF is not a development fund but an environment fund to address climate change, whose aim is to maximise the environmental benefit. Climate change has no boundaries and countries have to mitigate.  

Omar El-Arini (Egypt) said that no one had any idea of the size of resources of the GCF. If the size was known, then talking of percentages would have significance. He called for a different system of allocation based on what was in the Governing Instrument of the GCF; which refers to allocation for vulnerable countries such as LDCs, SIDs and African states. He said there could be a cut of 10% for preparedness and readiness activities, which will enable the understanding of the needs of developing countries. The balance 90% can then be divided between mitigation and adaptation. The PSF is not ready yet and once it was, it could address both mitigation and adaptation.

Sergio Serra (Brazil) also said that members had no idea about the size of the resources. Discussing the percentages in this context had no meaning and was surreal. He said members were “making a pizza without the dough”. Serra stressed that the GCF was a climate change fund and was not conceived as a development fund. Hence, it needed to deal with question of impact in addressing climate change and for transformation on a global scale. He said the 5% cap level was an arbitrary figure. Agreeing that one should not repeat the problem of the CDM, he said there is need to have a review mechanism.

Dipak Dasgupta (India) said on the issue of equity, there needs to be a sense of justice that the small countries should not be left behind. There must be a balance between mitigation and adaptation and he called for a 50:50 allocation. The Fund also needs to result in impact on a scale that matters. Referring to the PSF, Dasgupta stressed the importance of competition to ensure innovation with the public sector engaging with the private sector to do the innovation in support of public goods. Hence, the reference to significant allocation should be with a view to getting innovation results on the ground.  

Ayman Shasly (Saudi Arabia) stressed the need for the Board to rely on information for designing the allocation of the Fund on the (Fifth Assessment Report) of the Intergovernmental Panel on Climate Change (IPCC) on mitigation and adaptation. He said that Board members appeared to be oblivious to the debates going on at the IPCC.

Patrick McCaskie (Barbados) said the allocation system must be fair and equitable, taking into account the needs of the vulnerable countries and must be climate effective. There is also need to give assurance to all developing countries that they can benefit in an equitable manner and avoid country concentration through a trigger instead of having a cap.

Henrik Harboe (Norway) said that the Board should not establish percentages which are too rigid. He asked if there could be a cap for developing countries with the flexibility to allow for transformative activities. 

Norbert Gorissen (Germany) agreed with China that this is a climate fund and not a development fund and there is need to have competition for good projects. He wanted a numerical figure for the allocation to the PSF.

Ana Fornells de Frutos (Spain) preferred an indicative cap for developing countries and for the Board to review projects and programmes to assess if the Fund was achieving its goals.

Marisa Lago (United States) said the Board should only agree here on broad indicative terms on ranges and not on fixed allocation as aspirational targets since so much is still in flux. If members are discussing numerical targets, then we should start with the assumption that the PSF should receive at least 50 % of the allocation, focused on having the most “bang for the buck”.

Kentaro Ogata (Japan) said that being most cost-effective means focusing on the PSF. He echoed the view that it might not be sensible to set rigid targets at this point as discussions were still on-going on the modalities for adaptation, mitigation and cross-cutting areas.

Arnaud Buisse (France) said that several principles were articulated in the Governing Instrument viz. balance between mitigation and adaptation and to address the needs of the SIDS and LDCS. Fairness means ensuring that low income countries do not have to compete unfairly with other countries. However, there was need also for some flexibility.

Josceline Wheatley (UK) said that the Board needs to look at allocation with the question of what is the intent. There needs to be a right for balance mitigation and adaptation; having a floor is clear and there needs to be agreement with the principle for preferential access and greater predictability. On the issue of ceiling, it was a matter to help with excessive demand management and the intent is right that it should be to address demand across the board and not just in a few countries. On the PSF, he did not understand why they should be a cap as it was a way of bringing finance in. If there is to be a cap, it should be considerably higher for the PSF, at least 50 % and there should be no restraint on this.

After the adoption of the decision, Zaheer Fakir (South Africa) wanted the following statement to be in the record of the meeting:
“Our preference for a reasonable and fair country allocation system requires the consideration of a flexible country cap, that will ensure that excessive concentration of resources is avoided, that a balanced distribution of resources is guaranteed, and that all countries will have equal opportunities for accessing the resources of the fund, while allowing for transformational projects to be considered on an exceptional basis under the flexibility allowed. The allocation systems which we introduce must be reflective and in the spirit of be within the ethos, intention and objective of this Fund as captured in the GI of the GCF.”

(Further articles will follow).