Climate change: two funds, same money

08/10/2015
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The United Nations has managed to raise $10 billion to address climate change; that should make it possible to help the developing world reduce its impact and adapt to new environmental conditions.

 

But the U.N. pot — known as the Green Climate Fund — is now facing competition from a similar fund at the World Bank. The Climate Investment Fund was only meant to act as an interim trustee, administering money earmarked to combat climate change while the U.N.’s fund got underway.

 

International climate finance is a competitive environment: It relies on donations by states, whose budget is non-expandable. Both funds will soon be operating without having explained how they will synchronize, or compete for states’ generosity.

 

This duplication of efforts reflects badly on the new commitment to action announced by Mogens Lykketoft on becoming President of the 70th U.N. General Assembly. It also bodes ill for some of the new sustainable development goals to be announced.

 

The Green Climate Fund had to lower its initial $15 billion target, finally gathering $10 billion to start operations in 2015. But a year earlier, as the new fund was being inaugurated in Berlin, the World Bank’s fund had its own mandate reaffirmed. It announced new donations from the United Kingdom and Norway, making clear that it intended to continue its own activities alongside the U.N.’s fund.

 

The continuation of the Climate Investment Fund poses problems. Its legitimacy relies heavily on its sunset clause: to avoid an interference of the World Bank’s financial architecture in the establishment of the U.N. fund. But no one seems worried about this overlap.

 

For Anton Hilber, head of the Climate Global Program section of the Swiss Agency for Development and Cooperation, one of the reasons the Climate Investment Fund will still be around for a while is that it has had “rather low disbursement rates”. So far, its main investments have been in preparatory work such as renewable energy investment. “Perhaps an innovative institutional linkage between the GCF and the CIF could be achieved?” he ventured. But none of the six specialists interviewed — including board members of both funds — could explain the linkage between the two funds, or how the competition would play out.

 

NGOs and civil society organizations have long protested the Climate Investment Fund’s use of their budget and the World Bank’s invasive role in the set up of the Green Climate Fund. In April 2012, 50 NGOs wrote a letter to the United Nations Framework Convention on Climate Change warning finance ministers and other officials that the Green Climate Fund would be in dire need of financing, and urged them “to pivot away from provision of funds for the World Bank’s Climate Investment Funds and similar initiatives under the multilateral development banks and to commit to redirecting these monies toward the GCF.” Three years later, their demand has not been addressed.

 

These NGOs have also questioned the World Bank’s activities because of its investments in “dirty energies” and other conflicts of interests over the years. But for Dr. Billy Pizer, professor at Duke University, who worked as the assistant secretary for environment and energy in the U.S. Department of the Treasury from 2008 to 2011, “the World Bank doesn’t have a lot of independent ability to do things with its money. In every step even within the Climate Investment Funds, the money doesn’t get spent until the donors agree on each country and each project, so it would be hard to blame the World Bank ultimately.”

 

In the meantime, the international community is left to decide who deserves the money; some countries seem unsure of the Green Climate Fund’s reliability. Switzerland initially was cautious, deciding to split its $100 million contribution in two separate brackets. The first $30 million were signed over to the U.N. immediately but the remaining $70 million were only confirmed once 50 percent of the pledged $9.35 billion had been signed by other countries. “We were among the first to formalize our contribution and we paid a first tranche of 30 millions immediately,” Hilber explained. “However, we had to make sure we would not be required to pay a second tranche even if the effectiveness threshold was not reached.”

 

The United States has “moved cautiously, and prudently with respect to the Green Climate Fund. Before they committed to it they wanted to make sure that the fund was going to operate in a responsible fashion, in an accountable fashion and when they had these insurances they made a very significant pledge,” said Gilbert Metcalf, a former Deputy Assistant Secretary for Environment and Energy at the Department of Treasury. Theoretically, the US will thus start supporting the U.N. fund once it has fulfilled its commitment to the Climate Investment Fund — but it could resume donating to the World Bank fund, should it deem the U.N. one not successful enough.

 

This shows the international community’s worry about the Green Climate Fund’s efficiency and ability to really meet its financial goals.

 

But Pizer doesn’t see a reason for concern. “Personally I think that competition is good. I think it makes people operate more efficiently and be more responsive.” Metcalf is also optimistic about the competition. But for Steven Stone, head of the United Nations Environment Programme’s Geneva-based Economics and Trade Branch, “Here essentially we are talking about public goods, so I am not sure how useful that argument is.” The Climate Investment Fund declined to answer these questions and the Green Climate Fund’s answering machine is still set in Korean.

 

 

- Deganit Perez is pursuing an M.A. in International Relations and Journalism, New York University.

 

Copyright ©2015 Le Monde diplomatique -- used by permission of Agence Global

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