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TWN Info Service on Climate Change (Oct18/03)
23 October 2018
Third World Network

Green Climate Fund should not be hijacked by politics - say developing country members

Manama, 23 October (Prerna Bomzan+) – Developing country Board members of the Green Climate Fund (GCF) called on developed countries not to play politics when making decisions over funding proposals, at the 21st meeting held in Manama, Bahrain that took place from 17-20 October.

While the Board approved 19 funding proposals that involved a contribution of a little over USD 1 billion from the GCF, a funding proposal from China was deferred for approval to the next Board meeting, after intense and considerable wrangling in the Board, with the United States (US) Board member in particular opposing its approval.

Another funding proposal from the host country, Bahrain, was also contentious, but was finally approved when the grant contribution from the GCF was reduced and with conditions attached.  

Given the spat over the China proposal by the US, developing country Board members firmly denounced the “politicisation” of the GCF.

Several members reminded the Board that the GCF is a “fund” established under the United Nations Framework Convention on Climate Change (UNFCCC) for delivering on the “financial obligations” by the developed countries to “all” developing countries, adding that the GCF is accountable to the “higher body” which is the Conference of Parties (COP) to the UNFCCC and is also to serve the Paris Agreement (PA).

Following long-drawn negotiations of “closed-door consultations” and failure to reach consensus on the final day of the Board meeting on the China funding proposal, Chinese Board member Wenxing Pan requested for postponement of a decision, “in the spirit of cooperation”. He expressed regret about approval being “unfortunately blocked by only one member,” (referring to the US) and when China was “even willing to accept unfair conditions” adding that decision-making on funding proposals should not require consensus but some voting procedure.

The Chinese Board member denounced the “politicisation of the GCF” and said “we cannot accept political considerations.”  He appealed for the GCF not to be hijacked by political considerations, adding that China “very cautiously” uses its “veto power” and that there has been “abuse of power” in this case, which has caused “suspicion, tension and confrontation” in the Board. He stated that its request was for a loan and not a grant from the GCF, and that it was not competing for funds with Least Developed Countries (LDCs) and other developing countries. Pan lamented further that the situation has led to a “negative impact of China with the GCF” which was a “loss for China and a loss for the GCF.”

The controversial project proposal from China titled ‘Catalyzing Climate Finance: Shandong Green Development Fund’ was submitted by the Asian Development Bank (ADB) and proposed to establish a mechanism to mobilize and channel funding from investors to promote climate change mitigation and adaptation interventions. The ADB sought a loan of USD 180 million from the GCF, and the programme aims to reduce 50 metric tonnes of carbon dioxide and build the resilience of 10 million people directly. (See further exchanges below on the China proposal).

The Board also approved several other decisions, including a key decision to launch the first formal replenishment of the Fund.  Other decisions taken included the accreditation of  16 new entities to access resources from the Fund, instituting a process for the selection of a new Executive Director of the Fund and performance review of the GCF. Some other controversial issues included  decision-making in the absence of consensus, and selection of permanent trustee for the Fund. (Further articles to follow).

Exchanges over the China proposal

Mathew Haarsager (US) expressed concerns about the proposal, emphasizing the aspect of research and development in high-tech commercial products as being “broad in scope”, adding that this “does raise some intellectual property rights considerations that we think need to be addressed much more fully.” He further focused on “disclosure” enquiring about the mechanism for “environmental disclosure” as well as better clarity on the mechanism for “feedback from the Board, civil society and other impacted stakeholders.” He also said that the US did not see a compelling case for the GCF to finance the programme in addition to other financiers.

Hiroshi Maatsura (Japan) welcomed the project but had concerns about the sub-projects of the proposal, the additionality of the GCF contribution, the research and development scope being general and broad lacking clarity on the climate impact. Although expressing reservations, Maatsura said there is “room for further improvement” to “satisfy the investment criteria” of the Fund.

Despite the comprehensive responses and explanation by the Secretariat and the ADB to the concerns expressed by the US and Japan, when Co-chair Lennart Bage (Sweden) tabled the funding proposal for adoption by the Board, the two members were not satisfied and wanted more consultations with the Secretariat and the ADB.

Ayman Shasly (Saudi Arabia) in welcoming the proposal said that it had a huge potential for unlocking a great deal of mitigation and adaptation actions and could be a role model for regional green financing. Shasly further stressed on how this could help “south-south cooperation” and asked Board members to “not to look at whether this project is coming from China.” He called on members to “think of the long-term benefits of unlocking such a regional cooperation and not to be fixated on who is going to take this project.”

Zaheer Fakir (South Africa) fully supported the project as being “transformative” and drew attention to the fact that “this one proposal will generate more tonnes of emissions reductions than our entire portfolio” and also has “leveraging potential”. Referring to the concern over the lack of clarity over the sub-projects referred to in the proposal, he said that a number of GCF proposals in the past have been approved with much higher amounts where such sub-projects were not identified; hence this “has not been a benchmark” for approving proposals.

Tosi Mpanu Mpanu (Democratic Republic of Congo) strongly encouraged the Board to support the project as it would bring a wealth of knowledge and lessons learnt that can be shared in the context of South-South cooperation. He also said that while 25% of the funds of the GCF are for LDCs, SIDS and Africa, all developing countries are eligible for the rest of the Fund’s resources.

Jorge Ferrer (Cuba) stressed on the need for “coherence” in decision-making, referring to many projects in the past with similar concerns which had been approved. He said the project is from a “developing country with more than 50 million poor people” for a financing facility for energy efficiency that is very related to the mandate of the Fund.

Rajasree Ray (India) in strongly supporting the proposal said that when discussing climate finance in the multilateral regime (referring to the UNFCCC process), “we are often told that we have to catalyse and mobilise private capital and private sector finance,” and yet in the GCF concerns are being raised. She added that “here we have an opportunity with an innovative project in front of us with substantial mitigation and also adaptation benefits”.  

Ignacio Lorenzo (Uruguay) said that “this project is fully aligned with the mission of the GCF to make a significant ambitious contribution and is a good example of what the Fund can achieve in terms of the scaling up of finance and the results possible where the “numbers are indeed impressive.”

On the final day of the Board meeting, the Japanese Board member was willing to go along in support of the proposal, following conditions it had negotiated. However, the US Board member still expressed its objections and did not support the proposal.

Ferrer (Cuba), referred to the conditions being imposed for funding approval such as “no support for research and development” in the China proposal and said that this was in violation of the Governing Instrument of the GCF, which refers to technology development and transfer, an important component of “paradigm shift”. He further requested for his reservations to be recorded as he did not want a “precedent set” in this regard.

Shasly (Saudi Arabia), echoing similar concerns said the Board cannot ask the GCF not to finance research and development as this “is the essence of dealing with climate change which is about innovation and technology,” and having such a condition “is killing the potential to address climate change,” and is contrary to the UNFCCC, the Paris Agreement and the Governing Instrument.

In this regard, Shasly asked pointedly if there was something that the developed countries were worried about which had to do with competing with developing countries on technology advancement and innovation which reflected their “national interests.” He made clear that such a conditionality cannot be allowed in the GCF and set a precedent. Shasly also proposed that if there was no agreement, Board members could record their objections but not block the consensus on the proposal as a practical way forward.  

Fakir (South Africa) said that the function of the Board is to take decisions on funding proposals. After having explored for four days and many hours over the China proposal, “we have exhausted efforts to reach consensus,” adding that previously when there had been no consensus on certain matters, the Board had developed procedures to resolve them. Fakir was referring to the previous practice in relation to the appointment of the Executive Director of the Board and the selection of the headquarters of the Fund, and requested the Co-chairs to employ the same practice for the China project again.

Developed country Board members could not accept the proposal by Fakir and other developing country members on following the previous practice of adopting decisions in the absence of consensus. Several of them said that there needed to be a clear decision-making procedure in the absence of consensus and they could not go along with voting on an ad hoc basis. (Decision-making in the absence of consensus was another item on the agenda on which discussions were happening separately. However, there was no consensus among the Board members on the issue.)

When some developing country Board members asked the Co-chairs to use their prerogative to go for a vote by asking who was in favour and who was not in favour of the proposal, Co-chair Oquist  disclosed frankly that there was “no consensus” among the Co-chairs, “which reflects our differences in our (respective) consistencies, adding that the Board was in a “lamentable situation.” Although there was precedence before, the Co-chairs were divided in opinion (in following this) and hence, there was an impasse over the issue.

 

Even the GCF’s legal counsel was summoned to give his view and he said that “if the Board could not reach consensus, procedures for voting can take place but the  Board needs to agree on procedure.  He also said that a one-off procedure may not be possible.

At this juncture, the Chinese Board member intervened to say that he would like to propose for a postponement of decision on the China project, since there was no consensus on voting and made a strong statement, reflected above.  

Mpanu-Mpanu (DRC) lamented that the members have “shot” themselves “in the foot,” over this matter, which did not give any incentive to China to contribute to the Fund.  

Bahrain proposal

The second controversial project proposal was from Bahrain titled ‘Enhancing climate resilience of the water sector’ and was submitted by the UN Environment Programme. It sought USD 9.8 million. It was a simplified approval process (SAP) funding proposal, the SAP pilot scheme supporting projects and programmes with a GCF contribution of up to USD 10 million with minimal to no environmental and social risks.

The proposal says that “the project will facilitate transformational change within Bahrain’s water sector by building technical and institutional capacity to monitor and model climate change impacts on water resources, mainstreaming climate resilience into sectoral water management planning, developing new policy and legislative frameworks (including water tariff reforms), and designing new financial instruments. It will also raise public awareness of the need for managing water resources under climate change conditions through demand management and re-use of greywater. The project interventions will directly benefit 130,500 people, including small scale farmers and low-income groups who are the most vulnerable to the climate change impact of reduced availability of water”.

Developed country board members Satu Santala (Finland), Frank Fass-Metz (Germany), Hans Olav Ibrekk (Norway), Sue Szabo (Canada), Lars Roth (Sweden), Roelof Buffinga (Netherlands), Haarsager (US), Cyril Rosseau (France) raised concerns about “weak climate rationale” and little change “directly related to climate change” with “development issues” rather than mitigation and adaptation actions and hence the lack of “paradigm shift”. Concerns also revolved around whether to provide “grant financing” rather than loans and additionally, “doubts” were expressed about the accredited entity as well as the executing entity, the department of the National Oil and Gas Authority.

Ferrer said that the climate rationale was that the country is a “small island” with increased contmination of water resources and “not an oil-exporting country”. He said that grants had been given to the private sector and not to “apply double standards in our decisions”. He further requested the Secretariat not to bring host country proposals to the table.

Mpanu supported the proposal coming from a small island development state (SID) and  expressed concern about biased reading by the independent advisory technical panel (IATP) on assessment of adaptation and on climate impacts. He stated that the project is indeed an adaptation project in line with mainstreaming climate change so “for me it is a climate change project”. He further added that if the proposal does not qualify then “obviously we’re not giving right guidance” given so much of rigorous work by the IATP and the Secretariat.

Ray said that the project is enhancing climate resilience in the water sector and “in climate change, water sector is important and impacted” as well as “adaptation in this sector is clearly focused”. “When looking at the national circumstances, it is a challenge and climate rationale has to be looked at national circumstances which is well anchored in Article 2 of the Paris Agreement”. She said “we strongly support and appeal approval” of the project.

Omar El-Arini (Egypt) said that Bahrain had been water stressed for thousands of years, and that developing countries were well aware what is development and what is climate change. Responding to comments that the project did not achieve paradigm shift, Arini reminded the Board that the objective of the GCF is to “promote” and not to “achieve” paradigm shift. He also asked if  the developed country members have a “list” of paradigm shift since “we don’t have any matrix and without matrix and examples, it is judgmental”. “Please don’t come with the mindset that it is your money and do not call our embassies and ministries before you come here”, he added. “Developing countries will no longer accept this condescending attitude” and “all developing countries to the Convention have the right to access this Fund and our job is to enable to access their Fund,” he said.

Fakir also echoed Arini and said that “we never defined the paradigm shift” and that the project was “clearly” an adaptation project. He stressed on the USD 1 billion loss in foreign exchange saying “no one talks about it and we talk about USD 9 million” expressing dismay by “doublespeak or bipolarness”. He also expressed concerns on questions raised by developed country Board members on a country’s right to choose an accredited entity.

Pan, Lorenzo, Teimuraz Murgulia (Georgia), Ali’ioaiga Feturi Elisaia (Samoa), Karma Tshering (Bhutan), echoed support to the project.

Shasly underscored “not to politicise the proposal” and “not to dictate sovereign governments”. He notified expressing regret that “there are some serious intimidation happening” inside the closed-door negotiations”.

The project proposal after a negotiated compromise was finally approved with the requested amount of grant reduced from about USD 10 million to USD 2 million, to “finance exclusively the activities under output 1.1 of  component 1” on “enhanced institutional capacity and knowledge management to mainstream climate resilience into sectoral water management planning, with a focus on demand-side management”.

Funding proposals approved

Following is the list of the other funding proposals approved:

·         Under the SAP: USD 8.6 million for “Climate services and diversification of climate sensitive livelihoods to empower food insecure and vulnerable communities in the Kyrgyz Republic” with the World Food Programme (WFP) as the accredited entity (AE);

·         Under the SAP: USD 10 million for “Energy Efficient Consumption Loan Programme” in Mongolia with XacBank, as the AE;

·         USD 100 million for “Indonesia Geothermal Resource Risk Mitigation Project” with the World Bank (WB), as the AE;

·         USD 43.4 million for “Enhancing climate resilience of India’s coastal communities” with the United Nations Develop Programme (UNDP), as the AE;

·         USD  49 million for “Green BRT Karachi” in Pakistan with the ADB, as the AE;

·         USD  101.4 million for “Green Cities Facility” in Albania, Armenia, Georgia, Jordan, Moldova, Mongolia, Serbia, The Former Republic of Macedonia and Tunisia with the European Bank for Reconstruction and Development (EBRD), as the AE;

·         USD 22 million for “Building livelihood resilience to climate change in the upper basins of Gautemala’s highlands” with the International Union for Conservation of Nature (IUCN), as the AE;

·         USD 35.8 million for “Upscaling climate resilience measures in the dry corridor agroecosystems of El Salvador (RECLIMA)” with the Food and Agriculture Organization (FAO), as the AE;

·         USD 29.9 million for “Tonga Renewable Energy Project under the Pacific Islands Renewable Energy Investment Program” with the ADB, as the AE;

·         USD 28.6 million for “South Tarawa Water Supply Project” in Kiribati with the ADB, as AE;

·         USD 67.8 million for “Programme for integrated development and adaptation to climate change in the Niger Basin (PIDACC/NB)” in Benin, Burkina Faso, Cameroon, Chad, Cote d’Ivoire, Guinea, Mali, Niger and Nigeria with the African Development Bank (AfDB), as AE;

·         USD 28.3 million for “Yeleen Rural Electrification Project in Burkina Faso” with AfDB, as AE;

·         USD 41.9 million for “Ensuring climate resilient water supplie in the Comoros Islands” with the UNDP, as AE;

·         USD 279.7 million for “Transforming Financial Systems for Climate” in Benin, Burkina Faso, Cote d’Ivoire, Ecuador, Egypt, Kenya, Madagascar, Mauritius, Morocco, Namibia, Nigeria, Senegal, South Africa, Tanzania, Togo and Uganda with the Agence Francaise de Developpement (AFD), as AE;

·         USD 21 million for “DRC Green Mini-Grid Program” in the Democratic Republic of the Congo with the AfDB, as AE;

·         USD 15.5 million for “Productive Investment Initiative for Adaptation to Climate Change (CAMBio II) in Costa Rica, Dominican Republic, El Salvador, Gautemala, Honduras, Nicaragua and Panama with the Central American Bank for Economic Integration (CABEI), as AE;

·         USD 55.6 million for “DBSA Climate Finance Facility” in Eswatini, Lesotho, Namibia and South Africa with the Development Bank of Southern Africa (DBSA), as AE;

·         USD 100 million for “Climate Investor One” in Burundi, Cameroon, Djibouti, Indonesia, Kenya, Madagascar, Malawi, Mongolia, Morocco, Nigeria and Uganda with the Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. (FMO), as AE;

Accredited entities approved

The list of new accredited entities approved are:

·         Caixa Economica Federal (CEF) based in Brazil

·         Fondo para la Acción Ambiental y la Niñez (Fondo Acción), Colombia

·         IDFC Bank Limited (IDFC Bank), India

·         Ministry of Finance and Economic Management (MFEM), Cook Islands

·         National Rural Support Programme (NRSP), Pakistan

·         Nordic Environment Finance Corporation (NEFCO), Finland

·         Pegasus Capital Advisors (PCA), US

·         Austrian Development Agency (ADA), Austria

·         Compañía Española de Financiación del Desarrollo S.A. S.M.E. (COFIDES), Spain

·         Financiera De Desarrollo Territorial S.A. (Findeter), Colombia

·         Fundo Brasileiro para a Biodiversidade (Funbio), Brazil

·         LandBank of the Philippines (LandBank), Philippines

·         Protected Areas Conservation Trust (PACT), Belize

·         BNP Paribas S.A. (BNP Paribas), France

·         Consortium of International Agricultural Research Centers (CGIAR), France

·         Inter-American Investment Corporation (IDB Invest), US

 


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