Info Service on Finance and Development (Sep08/03)
G77-CHINA PROPOSE “ENHANCED FINANCIAL MECHANISM” FOR UNFCCC
major highlight of the
The proposal was put forward at the contact group on “delivering on technology and financing, including consideration of institutional arrangements”, one of three contact groups in Accra under the Ad-hoc Working Group on Long-term Cooperative Action (AWG-LCA) of the UN Framework Convention on Climate Change (UNFCCC).
An important aspect of the proposal is that any funding pledged outside of the Convention shall not be regarded as fulfilment by developed countries of commitments under Article 4.3 of the Convention, or commitments to provide measurable, reportable and verifiable finance, technology and capacity-building as required by the Bali Action Plan.
Below is a report on the G77-China proposal. It was published in SUNS #6542, Thursday, 4 September 2008.
This article is reproduced here with the permission of the SUNS. Reproduction or recirculation requires permission of SUNS (firstname.lastname@example.org).
Propose “Enhanced Financial Mechanism” For UNFCCC
major highlight of the
The proposal calls for enhanced financial resources and investment to support action on mitigation and adaptation as well as the development and transfer of technology, as required by the Bali Action Plan.
proposal was put forward at the contact group on “delivering on technology
and financing, including consideration of institutional arrangements”.
It was one of three contact groups in
proposal builds on the experience of other relevant funds such as the
Multilateral Fund established under the Montreal Protocol, which deals
with the phase-out of ozone depleting substances. Other proposals on
finance were also presented in
the proposal, Bernarditas Muller of the
The proposal identifies five principles to guide an enhanced financial mechanism under the Convention. It must: (1) be underpinned by the principle of equity and common but differentiated responsibilities; (2) operate under the authority and guidance of, and be fully accountable to, the Conference of Parties; (3) have an equitable and geographically-balanced representation of all Parties within a transparent and efficient system of governance; (4) enable direct access to funding by recipients countries; and (5) ensure recipient country involvement during all stages of identification, definition and implementation, rendering it truly demand driven.
The main aims of an enhanced financial mechanism would include recognizing, promoting and strengthening engagement at the country level, to ensure a country-driven approach and direct access to funding. It would enable a shift from a project-based approach to a programmatic approach to help optimize and scale up implementation. It would facilitate linkages between various funding sources and funds to promote access to a variety of available sources and reduce fragmentation. It would ensure that activities relevant to climate change undertaken outside the framework of the financial mechanism (including those related to funding) are consistent with the Convention and relevant Conference of Parties decisions.
The main source of funding will be the public sector through implementation by developed countries of their commitments under Article 4.3 of the Convention. Funding will be “new and additional” and over and above overseas development assistance. According to the proposal, any funding pledged outside of the Convention shall not be regarded as fulfilment by developed countries of commitments under Article 4.3 of the Convention, or commitments to provide measurable, reportable and verifiable finance, technology and capacity-building as required by the Bali Action Plan.
The proposal calls for predictability, stability and timeliness of funding. Resources shall be essentially grant-based (particularly for adaptation), without prejudice to concessional loan arrangements. The level of the new funding is proposed at 0.5% to 1% of the gross national product (GNP) of Annex I Parties. The mechanism would address quantified commitments by developed countries to adequate and predictable funding for mitigation and adaptation. According to the proposal, a Board will decide and periodically review funding allocated to adaptation or mitigation, taking into account historical imbalances and the urgency of funding for adaptation.
The proposal sets out a range of activities to be funded. It would fund the agreed full incremental costs for the implementation of developing countries’ commitments under Article 4.1 of the Convention, including: (1) mitigation; (2) deployment and diffusion of low-carbon technologies; (3) research and development for technologies; (4) capacity-building; (5) preparations of national action plans and their implementation; (6) patents; and (7) adaptation in accordance with Articles 4.4 and 4.9. The mechanism will also fund the agreed full costs for the preparations of national communications.
proposal states that in accordance with Article 4.3, developing countries
would receive new and additional financial resources, including for
the transfer of technology. Funding can be used for: (1) adaptation
and its means of implementation; and (2) mitigation and its means of
implementation. Meeting these two objectives may include technology
development, deployment and transfer, capacity building and risk management,
including insurance, and so on. The mechanism will also finance action
programmes developed under the Convention, such as the national adaptation
plans of action (
The proposal sets out the design and structure of the enhanced financial mechanism’s institutional arrangements. The mechanism will operate under the authority and guidance of the Conference of Parties, which will decide on policies, programme priorities and eligibility criteria for funding. The Conference of Parties will appoint a Board, which shall reflect an equitable and balanced representation of all Parties within a transparent and efficient system of governance. The Board, in turn, shall be assisted by a Secretariat of professional staff contracted by the Board.
The Conference of Parties and Board shall establish specialized funds and funding windows as well as a mechanism to link various funds. The funds would be administered by a Trustee or Trustees selected through a process of open bidding. Each of the separate funds may be advised by an expert group or committee, which could also be supported by a technical panel or panels addressing specific issues addressed by the fund.
To ensure transparent and efficient governance, other possible components of the structure include a consultative/advisory group of all relevant stakeholders, and an independent assessment panel. Modalities for determining the role of existing funds and entity or entities for the operation of the financial mechanism will have to be worked out.
the contact group, a number of other delegations also put forward proposals
designed to deliver on technology and financing.
a means to raise funds,
Australia, in response to the G77 and China, agreed on the need for direct access to funding, on adopting a demand driven, on the need for coherence in any financial architecture, on funding to be new and additional (provided it is considered as ODA), on a transparent governance, and on independent assessment. It said, however, that the proposal should recognize that Article 11.5 of the Convention provides for implementation through bilateral, regional and multilateral channels.
said that revenues from the global CO2 tax would go mainly to adaptation
in two main areas: to fund a pillar relating to prevention of disasters;
and to fund a pillar relating to insurance and responses to adverse
events. In response to the proposal by the G77 and
European Union welcomed proposals by others and regretted that it could
not offer its own concrete proposal at this stage. It said it was committed
to scale up finance and investment flows and optimize the existing ones
as part of a comprehensive
On adaptation, the EU said that public resources remain important but it is clear that this is not enough and we will need to identify how to generate private resources as well. Funding should be reserved for the poorest countries and those with the least resources. On mitigation, the EU said that the carbon market has potential and should become a key vehicle. Innovate financing mechanisms are equally important. The EU is considering allocating 15% of the EU aviation allowances to be auctioned to provide financing for climate efforts.
response to the G77 and
The transfer of intellectual property rights should set a more appropriate balance between holders and the public good, it said. It added that a number of references had been made to the carbon market, and suggested that a key driver of the market is the commitment of developed countries to fulfill their own commitments. It is their enhanced commitments that will create demand and spur the market.