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Info Service on Climate Change (Jul14/02) UNFCCC’s Standing Committee on Finance discuss important finance issues Kuala Lumpur, 10 July (Hilary Chiew) -The 7thmeeting of the UNFCCC Standing Committee on Finance (SCF7) took place on 16-18 June 2014, in Bonn, Germany and continued discussion on the inter-related agenda items in its work programme for the period 2013-2015. The challenging agenda items included the production and delivery of the first biennial assessment report and overview of climate finance flow (BA), the fifth review of the financial mechanism, the draft guidance to the operating entities of the financial mechanism. Apart from these, members also discussed the draft communication strategy aimed to achieve transparency and openness in the conduct of the SCF work. (At SCF6 in March this year, the working group of the BA agreed to concentrate on finalising the BA first and giving more attention to the issue of measurement, reporting and verification (MRV) of support later in 2015.) The SCF formal meeting was followed on the afternoon of the third day by a mini workshop on the preparation of the first BA (18 June). This report only focuses on the main discussions held during the SCF meeting. Biennial Assessment and overview of climate finance flow At its fifth meeting (August 2013), the SCF discussed the objective and scope of, and a tentative timeline within the framework of its 2013-2015 work programme for, the first BA and overview of climate finance flows. The overview of climate finance will cover the period 2007-2012, with specific attention to the fast-start finance period (2010-2012); it will also focus on tracking trends since 2007/2008, when an updated report on investment and financial flows to address climate change was issued. The timeline and process set out for the BA in 2013 included agreement on the scope of modalities and time for the first BA, and the establishment of an open-ended working group on the first BA with two co-facilitators, Houssen Alfa (Seyni) Nafo (Mali - Africa) and Outi Honkatukia (Finland - Annex I). The members of the SCF also worked between sessions on the structure of the report of the first BA and key data sources. The 6th SCF meeting discussed the zero draft of the climate overview paper and the outline of the technical paper of the BA. The meeting also reflected on the COP 19 request that the SCF, in preparing the first BA, considered on-going technical work on operational definitions of climate finance, including private finance mobilised by public interventions and to assess how adaptation and mitigation needs can most effectively be met by climate finance (Decision 4/CP.19, paragraph 11). Co-facilitator of the working group, Nafo informed members that a side event on the BA was held during the recently concluded UNFCCC intersessional meeting in June, where the outcome was shared and there was good discussion. He also briefed the contact group of the Subsidiary Body for Scientific and Technological Advice on the sub-item agenda 11 on methodologies for reporting on financial information where he shared the same power-point presentation. On the first day of the 7th meeting of the SCF, members of the SCF and observers were provided with a copy of the draft of the BA for internal discussion and co-facilitator Honkatukia sought general feedback. Annex I countries members were generally uncomfortable with a table that showed their financial contributions. The complex issues underpinning different reporting approaches were represented in a table (which is a work in progress) with columns presenting the data on climate finance provided by Annex II Parties for the OECD Development Assistance Committee (DAC) reporting system, the Biennial Report (BR) and the Fast-start Finance (FSF) report for 2011 and 2012. However, developing country members were of the opinion that the table provided a good overview. During the first break-out session, co-facilitator Nafo said the working group was engaged in literature review, conference calls, and held its first technical meeting in March at the end of SCF6 focusing on the overview and methodological chapters (both have reached the second draft order) as well as producing a zero draft on the chapter on assessment. He noted that the area where we can really add value is the methodological issues on climate finance data to address the gap in reporting and urged members to help. He said the scope of the methodological chapter covered two broad areas – the tracking and reporting system and the challenges which include the gap of data such as those presented by private finance, the lack of format for developing countries to report and the issue of country ownership (consistent with recipient countries’ priorities). He said one question the SCF often gets is if the finance flows can be assessed and added that this simply cannot be done as members do not have the developing countries’ perspectives. He stressed that in the next BR, the tracking approach needs to be improved and provide clarity of data. Nafo also pointed to the concern over the lack of a clear definition of climate finance and data collection. More importantly, he said the assessment chapter was very ambitious as Parties want to assess policies, and the lack of historical data will be a challenge to assess the trends. Co-facilitator Honkatukia pointed out that with regard to the overview chapter, the working group has not done any original data collection but instead relied on what is out there and synthesized them to get a good picture of where we are but is not saying where we are going and where we should be. She noted that the difficulties with the overview chapter were that the data serves different purposes and actually posed difficulties in synthesising. On the assessment chapter, she said among others, the assessment is on the financial criteria, meeting the climate change objectives, country ownership and transparency. Stefan Ange (European Union – Annex I) said the BA is an opportunity for members to discuss what is feasible and not for the future. The conclusion from this exercise will feed into the next Conference of Parties (COP) and it is important to see what guidance will be given by the COP. It is the Committee’s task to inform the COP what is possible and what is not. On assurance from data, he suggested looking into the research bodies in the countries. He reminded that members have to be thinking about what the SCF can do and what others are doing and make sure that the work is complementary. Roger Dungan (New Zealand – Annex I) said the draft is shaping up to be a useful overview, noting the challenges and opportunities. On managing expectations, he said members need to emphasise that this is the first BA and as such it is not going to be perfect but is the best that can be produced. Noting that it could be quite an intimidating document, he said the consultants would need a bit of guidance to work through it. (Three consultants have been contracted by the UNFCCC Secretariat to support the work of the SCF on the BA. They are Dennis Tirpak, Eric Haties and Smita Nakoda.) He said the most useful aspect is the gap analysis, pointing out that filling those gaps will require members to walk a fairly fine line in terms of the definition of methodological approach – what counts and what does not as climate finance. He said it is not the SCF’s job to pick the definition but it should set out what the range of approaches are and these can discussed as members go forward in the COP. He also noted that the focus of climate finance flows is on the North-South flow but should also include South-South flows to give a broader picture. Suzanty Sitorus (Indonesia – Non-Annex I) said that the co-facilitators notes were provided ahead of the meeting and that there was a high ambition set from the beginning for the BA. She said one added value from this exercise is to open up communication between the UNFCCC and other organisations that have gathered and analysed data on climate finance. She said another value adding exercise for the future is to harmonise the (reporting) system which would be able to reduce a lot of difficult issues related to the tracking of climate finance. The SCF can also provide recommendations taking into consideration the development and progress and the reporting of climate finance from developing countries. Kyekyeku Yaw OppongBoadi (Ghana – Non-Annex I) said the data gap was of concern and would suggest that members could look at other multilateral agencies to provide some of the data. He said there is need to press for more details so that the SCF can make good decisions and recommendations. Rajasree Ray (India – Asia-Pacific) emphasised that the main objective of this exercise (BA) was to provide evidence-based information of finance flows and how they relate to the objective of the Convention. She said it was an extremely important exercise that can provide for the shortcoming so far. She saw the importance of comprehensiveness of all types of flow so it could provide a complete picture and make clear distinction of what falls under and outside the ambit of the Convention. She agreed that all the finance flows are important with numbers circulating from miniscule to large but we need to make clear what is climate finance under and outside the Convention so that we know what will be the takeaway. Inka Gnittke (Germany – Annex I) said sequencing of the chapters of the overview and assessment is important. Members should separate what is technical and what will be seen as political. She said if there are recommendations to the COP, they should be put out there early as well. Ayman Shasly (Saudi Arabia – Asia-Pacific) said the mere fact that this report highlighted the challenges already made it a good report. He said it was something Parties had wanted to know when it comes to assessing the finance flows. The biggest challenge, he said is identifying what constitutes climate finance as if this is not able to be done, the SCF will not be able to assess. He said climate finance can be confused by other funding which is just a switch of labels. As the financial mechanism is operationalised, for example the Green Climate Fund (GCF), we need to know how much is flowing and where it is going. He also noted that the SCF started it right by taking on the challenge of defining climate finance. He said relationship with the GCF needs to be enhanced although GCF has a lot on its plate but without the cooperation, the SCF and the GCF will be working in silos resulting in redundancy. He also added that it was prudent that as the GCF starts with financial capitalisation, the SCF could provide information to that work. Edith Kateme-Kasajja (Uganda – LDCs) said the LDCs look for support to predict what will come to them and how effective the financial flow has been. She noted that when one assesses something, one has to answer the question of what one intends to do for the future. She pointed out that in some instances, we look at bilateral finance as far back as the 1990s and called that climate finance. Citing the example of climate finance to civil society organisations which do not report to the government, she said Uganda has no clue and it is difficult for us to appreciate what we as a country have received, noting that this is a common problem for many developing countries. She wondered how the SCF can deal with this matter as the CSO is a sector takes a lot of money but it is impossible to get an overview of the flow. Raymond Landveld (Suriname – GRULAC) supported the recommendation on addressing the gaps in information. On the second day, co-facilitator Honkatukia chaired the breakout session focusing on the assessment chapter. Discussions focused mainly on a graphic with concentric circles depicting scale of climate finance flows which most members referred to as ‘the onion’. The different ‘layers’ of the onion showed the sources and amount of finance that are colour-coded to indicate the accuracy of the information. For example, US$500 million from the Convention funds (Global Environment Facility [GEF], LDC Fund, Special Climate Change Fund, Adaptation Fund and GCF) was colour-coded as highly accurate while the ‘all global flows amounting between US$343 billion and US$585 billion was regarded as highly uncertain. Gnittke as regards the ‘layer’ on Overseas Development Aid (ODA), she said Germany counts multilateral development bank flow as public finance as that comes from the national budget. She had earlier noted that disregarding bilateral finance as not being under the Convention is politically unacceptable as well as risking double-counting. Dungan reckoned that the concentric circle is a useful illustrative info graphic and the data could be improved. On the issue of ODA, he said it is not time to discuss it as New Zealand been outright that its funds are in development aid. The representative of Peru (who was an observer party) thought the illustration was great and people are going to look at this (BA) report for answer like the US$100 billion (pledged by Annex I Parties at the Cancun COP) and noted that there is a value in mainstreaming climate finance into ODA. On country-ownership, he said there are a lot of challenges but developing countries are trying to track the financial flows. Rajasree said the size of the public finance that is on the table will be an important determinant when it comes to cost-effectiveness. For leverage in climate investment to happen, she said a certain level of public finance as a pre-requisite is necessary. Going back to the overview chapter, she expressed concerns over the phasing out of fossil fuel subsidies without taking into account national circumstances where in some countries, the subsidy is to address energy poverty of poor populations. She pointed out that in some countries there is cross-subsidy which means the actual fossil fuel subsidy comes to zero and if we put the matter in a general context then it may not be fair. Suzanty also expressed concern on the claim of ‘increasing government revenue by phasing out fossil fuel subsidies’. She said she did not know that countries can increase revenue from subsidy reduction, stressing that we need to be as sensitive as possible as well as technically correct to avoid misinterpretation. Shasly said it would be good to know what are the assumptions and sources of the fast-start finance and for them to be reflected in the report. He also would like to see definition on ‘new and additional’, noting that if we cannot define climate finance then we will also have difficulty defining ‘new and additional’. Referring to a chart on mitigation finance flows, Dungan questioned why mitigation-related fast start finance is going to support fast growing economies with big emissions, while small countries are given smaller amount of finance. Nafo said the issue of ‘new and additional’ has to be part of the discussion. He pointed out that in the guideline for biennial report of developed country Parties there is request or invitation for them to give their own definition of what is ‘new and additional’. The secretariat then showed a timeline until December. It said the work will begin with revision of the draft with cross-checks on the statistics. With that, the SCF will have a new version towards late August and final report by September for final sign-off by the next meeting in late October. At the next SCF meeting, there will be discussion about recommendations and in wrapping up the work of the BA. 5th review of the financial mechanism The SCF at its 6th meeting in March 2014 started its work on the fifth review of the financial mechanism (FM) and conducted in‐depth discussions based on a background document prepared by the secretariat which contained a draft outline of a technical paper on the review of the FM. The SCF agreed on a revised outline of the technical paper and that the working group on the fifth review would continue to work on the paper intersessionally and for it to serve as an input for the 7th meeting. The SCF Co-chair Diann Black-Layne presented the technical paper which used methodologies that included desk research and literature reviews, reference to the GEF’s overall performance studies (OPS 4 and 5), submissions from Parties on the guidance to the operating entities (OES), articles, papers and independent reviews of the OEs. A major point of discussion revolved around the preliminary findings on the delivery of financial resources, accessibility and timely disbursement of resources. The technical paper found that there is wide recognition that approval procedures of the implementing agencies of the GEF render access difficult to recipient countries (OPS5), although it also noted that speed and efficiency of disbursements appear to be improving at the GEF. With regards to the GCF, it found that there is a readiness programme to provide technical support and capacity building particularly for national and sub-national institutions to meet the standards of the Fund and to better access resources. Jozef Buys (Belgium – Annex I) said the evaluation of the GEF was based on OPS5 but does not look at the 21 technical documents that accompanied it. Roger
Dungan (New Zealand – Annex I) said the technical paper paints
a rosy picture of the GEF5 allocation but many Pacific Island nations
have difficulties accessing that money. Although the GEF5 is now ending,
they still have not got the money. Buys retorted that there is no evidence of what Dungan and Black-Layne were saying as this (problem) is not flagged in the evaluation report so something is off. From the GEF Council’s views, everything is working fine. As co-Chair of SCF, Black-Layne urged members to think about how to give guidance to the COP on the 5th Review as well as guidance to the OEs, noting that there should be two distinct COP decisions on these inter-related matters. She said the 5th Review looks backward while the guidance looks forward. Stefan Ange (EU – Annex I) said the 5th Review is an opportunity to step back and look at the overall picture. He said there are merits beyond the guidance to be given and hoped to draw some conclusions of the overall architecture of the climate finance system under the Convention or beyond and it is the SCF’s mandate to make recommendations to the COP. On the last day, Black-Layne said members and observers have until 17 July to provide feedback on the technical paper and a revised document will be issued by 8 August. Guidance to the operating entities of the financial mechanism Members discussed the revised initial paper on improving the draft guidance to the OEs of the financial mechanism which was prepared under the guidance of Josef Buys. The aim of this paper was to support the SCF in coming to a decision with regards to the overall improvement of the draft guidance to the OEs to be provided to the COP in the future, as well as with regards to the provision of draft guidance to the OEs in 2014. Otui Honkatukia (Finland – Annex I) said the starting point should be ‘what needs to be changed’. She said giving obvious guidance would be repetitive and she was not convinced that the value-added would be so significant. She requested examining past guidance if they are sufficient. She wondered if there is a rationale for annual guidance pointing out that in the Convention on Biological Diversity, guidance is given every other year. Suzanty Sitorus (Indonesia – Non-Annex I) said the OEs need to give reports to the COP to not only to seek guidance but to inform Parties what they have been working on which will affect many discussions on agenda of the Conference. There is strong desire to give recommendations according to the timing of the COP. Hence, it is more logical to receive the report and give guidance every year. She pointed out that there are political implications if we just listen to the report and no opportunity to response. Stefan Ange (European Union – Annex I) said the practice was established before there was the SCF. Hence, members can now have a more flexible approach. He said SCF can discuss the report and give assessment to the COP about whether guidance is needed or not. He said assessment could be made on a case-by-case or year-by-year basis. AymanShasly (Saudi Arabia – Asia-Pacific) said guidance can be just one paragraph or detailed on what is being reported. Having the opportunity every year to give guidance is to reinforce the hierarchy of the COP. Josef Buys (Belgium – Annex I) said the guidance could be given every four years on review of the Financial Mechanism and that is because members might have something reasonable to say after four years. InkaGnittke (Germany – Annex I) supported the idea of giving core guidance as an easier way to continue providing guidance and keeping yearly guidance short. On the last day of the meeting, members discussed further the ‘Proposal for the procedural approach to the provision of draft guidance to the operating entities before COP 20’. In view of the lack of harmonization between the reporting cycles of the two OEs (GEF and GCF), the situation will be similar to last year’s, with the report of the GCF probably not being submitted in time for the last SCF meeting of the year, therefore not allowing the SCF sufficient time to process and engage on the report during its last meeting. Buys said therefore, there are three options for the approach the SCF may wish to take in 2014 with regards to the provision of draft guidance: Option 1: SCF members could be invited to submit elements of draft guidance to the GEF no later than one week before the eighth meeting of the SCF based on the report of the GEF. SCF-8 will develop, based on the submissions by SCF members, submissions by Parties as available, as well as potential inputs received from the thematic bodies, a draft decision containing draft guidance to the GEF to be annexed to the SCF report. Should the SCF not come to an agreement with regards to such a draft decision, option 2 and 3 would be possible approaches for the provision of draft guidance to the GEF. Option 2: Similar to last year, the SCF could invite submissions of elements of draft guidance to both the GEF and the GCF from its members intersessionally, which would be compiled into the template and provided as is to COP 20 as an annex to the SCF report; Option 3: The SCF could mandate its co-chairs to provide, based on the submissions made by SCF members within a clear deadline to be agreed upon by the SCF, submissions by Parties as available, as well as inputs received from the thematic bodies, a co-chairs proposal for draft decisions containing draft guidance to the GCF and potentially the GEF (if option 1 is not applied), which would be annexed to the SCF report, clearly indicating that this is a co-chairs proposal and not an agreed text by the SCF. In addition, said Buys, to increase the consistency and practicality of draft guidance to the OEs, the SCF may wish to issue a letter of invitation to the thematic bodies of the Convention to provide the SCF with elements for draft guidance to be provided to the OEs in advance of the last meeting of the SCF in 2014, and/or in response to the issuance of the GCF report. Depending on the approach the SCF will take this year, inputs received from thematic bodies could then be incorporated into the template or the co-chairs proposal. Ange said it is good to encourage everybody to make submission but to avoid repetition and that it focus on the specifics rather than on long texts to the COP that Parties will have to renegotiate. Raymond Landveld (Suriname – GRULAC) asked if it is the conclusion of the SCF that the past guidance is redundant, incoherent and inconsistent with the COP mandate. He found the background paper a bit negative about the COP. He also wanted more information on the core guidance and performance-based guidance. Buys said it is not his intention to make it negative but that was the reality. He said there are more than 300 COP decisions and a lot of them are repetitive. He said Parties will need to focus on the core guidance. He said a similar exercise was done by the Convention on Biological Diversity where a good set of core guidance focusing on general and technical aspects was provided and that was kept on the website. He said this should be the suggestion to bring to the COP. In conclusion, Black-Layne said members will continue discussion on this at the next meeting. Issues of financing for forests During a break-out group discussion on coherence and coordination in the delivery of climate finance, members considered a background paper prepared by the secretariat entitled ‘the issue of financing for forests, taking into account different policy approaches’. The paper outlined the issues raised by Parties which were compiled from various official reports including the COP decision on Warsaw Framework on REDD-plus (reducing emissions from deforestation and forest degradation –plus); the report on the workshop on financing options for the full implementation of results-based actions relating to REDD-plus; the technical paper on the submissions made by Parties. It also included Parties’ views expressed through official submissions to the COP in 2013 on guidance to the operating entities of the financial mechanism of the Convention and submissions to the ADP. It said the SCF may wish to take the views expressed in such submissions when identifying possible areas of work. It also outlined the working modality and possible actions to be taken by the SCF at its 7th meeting such as forming a working group to consider:
The discussion was co-facilitated by Raymond Landveld (Suriname – GRULAC) and Stefan Agne (European Union – Annex I). SuzantySitorus (Indonesia – Non-Annex I) cautioned that there might be different understanding of some of the terminologies such as results-based finance and the joint mitigation adaptation mechanism. Members needed time to think thoroughly on the background document to update it and consult other sources for information. Georg Borsting (Norway – Annex I) said the background paper was useful to kick-start discussion and that he will have a lot of comments on the paper. Roger Dungan (New Zealand – Annex I) also said he liked the background paper and supported bringing in experts. Stefan Agne (European Union – Annex I) said as a start, the paper should be as factual as possible. He reckoned that the information provided on GEF resources for financing of sustainable forest management is useful and it is good to see what the forest finance landscape is out there to coordinate the work. He noted that the degree of fragmentation of the financing landscape required efficiency analysis, including looking beyond results-based finance and on how the different funding instruments could be fitted together. Ayman Shasly (Saudi Arabia – Asia-Pacific) said that members must not lose sight of discussions under the UNFCCC. Members need to send the right signal as far as financing is concerned for REDD-plus. He pointed out that some countries nationally-determined contributions is through REDD-plus. He also drew members’ attention to the different views expressed at SBSTA 40 and the need to reflect the diversity of views. (At the closing plenary of SBSTA 40, some developing countries supported by developed country Parties called for an end to the methodological guidance work under SBSTA for REDD-plus activities while some developing countries reckoned that there is still work to be done in terms of non-market based approaches and non-carbon benefits of forest activities.) Co-facilitator Landveld said bringing relevant actors of REDD-plus and establishing the working group are among the steps forward. By the 8th meeting, the background document will be updated with more sources of information and urged for a clear idea on the next inter-sessional meeting to start the analysis of the fragmented financing landscape. Dungan and Ange cautioned that as a body under the Convention, members might be casting the nets too wide in having a parallel stream of work that is already done by REDD-plus negotiators under the UNFCCC process. Landveld said SCF should help by producing something on ‘who is doing what’ and organising a forum to exchange such information to help make the outside initiatives more effective. He said the issue is in understanding the scope of work and the interpretation of the mandate from the COP. Ange endorsed Landveld’s suggestion, adding that once members have more information (from an updated background paper), everyone will be clear what the landscape is and the SCF could provide inputs outside of the negotiation setting to look at the larger picture. Communication strategy The Secretariat presented a 7-page background paper on a communication strategy of the SCF to enhance concrete areas of collaboration and to facilitate its overall outreach activities with key stakeholders and thematic bodies under the Convention. It said the strategy will inform the communication efforts of the SCF in the coming years and it will serve as a working document that will be updated as the SCF work plan evolves. It contained the following elements for each activity of the SCF in the year 2014 and beyond: areas of synergy with stakeholders and thematic bodies; partners and active engagement; the target audience for information sharing activities; and responsibilities. The respective activities also identify possible outreach, networking, and/or communication approaches in order to address the partners/target audience appropriately, as well as to make best use of the information received from other stakeholders. (The
activities for the year included biennial assessment and overview
of climate finance flows; reviews of the financial mechanism; forums
of the SCF; guidance to the operating entities of the financial mechanism;
measurement, reporting and verification of support beyond the biennial
assessment and overview of climate finance flows; and financing
for forest.) Overall, members were pleased with the strategy that will give high visibility to the SCF work but cautioned against managing expectations of the wide range of target audience. Next meeting of the SCF will be held on the last weekend of October.
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