October 9, 2012

Part 5: Examining the UN FCCC Financial Mechanism


Update: Correction appended to this post

Introduction

To be honest, the UNFCCC financial mechanism is one of the most contentious issues in the climate change negotiation process, and a concise look into its inner workings brings to light a number of issues that have been the cause of the tug of war between Parties. This is a highly politicized issue, and after much deliberation, I thought it wise to bring out the issues that have been contentious, rather than examine the different political angles in the process.

Brief overview of the UNFCCC Financial Mechanism

I can bet that you have all heard of the famous Brundtland Report of 1987. For starters, this report is more commonly known as “Our Common Future”, and it is famous for bringing to the global arena the concept of sustainable development. However, it is important to note that there were a number of interesting things discussed in this report; the one that is most relevant to this report called on the need “to assign significant financial resources to address the global environmental challenges.”

Role of the COP in the UNFCCC financial mechanism

It is important to clarify the role of the COP (Conference of Parties) in the UNFCCC financial mechanism so as to avoid any confusion down the road. Simply put, COP is the governing body of the Climate Change Convention (CCC) and it decides on the policies, programme priorities and eligibility criteria of the financial mechanism.

Current Funds

The GlobalEnvironment Facility (GEF) is the main fund under the UNFCCC financial mechanism. In addition, there are four special funds:

1.     Special Climate Change Fund – managed by the GEF
2.     Least developed Countries Fund – managed by the GEF
3.     Green Climate Fund – falls under the Climate Change Convention
4.     Adaptation Fund - falls under the Kyoto Protocol

In this blog post, we will mainly focus on the Global Environment Facility (GEF), while the other funds will be discussed in a forthcoming post.

Brief history of the GEF

It is important to note that the financial mechanism of the UNFCCC provides funds on a grant or concessional basis.

The establishment of the GEF was partly due to a UNDP – WRI (World Resources Institute) study that brought forth proposals on establishing an international fund for the global environment. The GEF became a pilot facility of the UNFCCC in 1990, where it was being tested for the first time. In 1992, it became an interim operational entity of the financial mechanism for UNFCCC and Convention for Biological Diversity (CBD). At COP 4, it was confirmed as an operational entity of the UNFCCC.

Linkage between UNFCCC and GEF

Since GEF was a facility for both UNFCCC and CBD, there was need to establish a legal linkage between UNFCCC and GEF. This linkage led to the restructuring of the GEF into:

·      A Trustee – participants’ assembly that would convene every three years
·      A Council
·      A Secretariat
·      The Implementing Agencies
·      Scientific and Technical Advisory Panel (STAP)

Main objectives of the GEF

The main objective of the GEF was to provide funding to countries interested in either starting up projects or introducing environmental components to existing projects. The main areas of concern for the GEF were:

·      Depletion of the Ozone layer
·      Green House Gas emissions
·      Biodiversity
·      Pollution of international waters

Onset of problems

From the very beginning, the GEF was beset by numerous problems, mainly attributed to its fundamentally flawed design. One of the main challenges was the introduction of the ill-fated Resource Allocation Framework, which in essence watered down and even annihilated some of the objectives of the GEF. Political bickering began when the GEF was launched. Before this, developing countries were calling for a Green Fund, and what they got in response was the GEF, which they perceived as a pre-emptive project of the developed countries. Also, the transparency and participation in the GEF activities was questioned, as developed countries, who contributed more to the GEF, took control of its operations and locked out other parties, mainly from the developed countries.

Since the World Bank and UNDP set out to run the fund, there were concerns that these two institutions did not have sufficient capacity to address serious environmental matters. The details of the linkage between the GEF and UNFCCC were not clear, and they were the main cause of the weak nature of GEF. The main weakness was in tweaking the GEF, which was addressing more than one Convention, to address the issues of UNFCCC COP climate change.

The financial resources allocated to the GEF under the Convention are grossly inadequate, and this has been made worse by the global financial turmoil of the last four years.

Changes in context

 Because we are talking about money matters, it is important to note that the global financial scenario now and in the ‘80s and ‘90s is pretty different. The effects of the global financial recession of the last four years are still lingering, affecting the flow of funds into the UNFCCC financial mechanism.
Also, there are many more ways in which funds are being channelled to address climate change issues, such as the Clean Development Mechanism, innovative green energy as well as carbon-friendly technologies. Most of these channels are market-based.

Efforts to strengthen the UNFCCC Financial Mechanism

·      Establishment of level of ambition

The GEF was weathering an onslaught from all directions, and the calls for it’s restructuring led to some few changes. The Bali Action Plan, for example, established the level of ambition, as well as the level of resources, for funding climate change activities in developing countries.

·      Standing Committee

At COP 16, Parties decided to establish a Standing Committee to assist the COP in exercising is functions with regards to the financial mechanism of the Convention.

·      Long-term Finance

At COP 17 (DurbanPlatform), parties decided to make Global Climate Fund (GCF) an operational entity of the financial mechanism of the Convention; this was in accordance with Article II of the Convention. COP 18 (Doha, Qatar), will aim to conclude the arrangements between COP and GCF. The main emphasis will be on enhancing accountability.

Conclusion

Thus, it is apparent that the GEF was poorly conceived, and the window of getting a more functional fund is closing. In the next post, we will examine the special funds we had mentioned earlier on in great detail, as well as the outlook of the future of the UNFCCC financial mechanism. See you then!

Correction:

It has been incorrectly insinuated in this post the the GEF (Global Environment Facility) is a fund; in essence, it is a facility, and the fund associated with the GEF is the GEF Trust Fund, whose trustee is the World Bank.

PS: As usual, if you are interested in contributing to this COP series, please send an email to mbevakl@gmail.com and I will be glad to have you on board!

Useful links used in this research:

  1. Brundtland Report: http://conspect.nl/pdf/Our_Common_Future-Brundtland_Report_1987.pdf 
  2. Global Environment Facility (GEF): http://www.thegef.org/gef/ 
  3. Resource Allocation Framework (RAF): http://www3.unfccc.int/pls/apex/f?p=116:42:2011527075018979 
  4. Bali Action Plan: http://unfccc.int/resource/docs/2007/cop13/eng/06a01.pdf
  5. Durban Platform: http://unfccc.int/files/meetings/durban_nov_2011/decisions/application/pdf/cop17_durbanplatform.pdf
  6. The Financial Mechanism of the UNFCCC: http://www.oxfordclimatepolicy.org/publications/documents/ecbiBrief-FMHistory.pdf 



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