TWN Info Service on Climate Change (Sept11/06)
15 September 2011
Third World Network

Divergences emerge on design of Green Climate Fund

Geneva, 14 Sept (Meena Raman) - Views from members of the Transitional Committee (TC) to design the Green Climate Fund (GCF) under the United Nations Framework Convention on Climate Change (UNFCCC) who met in Geneva from the 11-13 September, revealed clear disagreements on critical aspects of the elements for the design of the Fund.

There was divergence of views on elements such as the objectives, guiding principles, governance and institutional arrangements, legal status and engagement of the private sector.

The Co-chairs, Vice-chairs and Co-facilitators (of four work-streams) presented a document on the final day of the meeting on September 13, which contained their “reflections”, “based on the work done in previous sessions, discussions held and submissions presented”.

The document states that “it reflects areas that would be included in the final outcome of the TC and, to the extent possible, provides guidance on the content without prejudice to the specific language, placement or final format. It is expected that this document be complemented by the TC members, through further discussions and interactions, and serves to facilitate the preparation of the draft report that would be considered” at the next TC meeting in Cape Town to be held on 16-17 October 2011.

The main headings of the elements in the document are: objectives, guiding principles, scope, governance and institutional arrangements, legal status, participation/membership, financial instruments, operational modalities, engagement of the private sector, environmental and social safeguards, monitoring and evaluation, accountability mechanism and stakeholder input and participation. 

Co-chair Mr.Trevor Manuel from South Africa told members that the document was “not for adoption but for enrichment”.  He asked for reactions to the document which saw many TC members expressing their views. 

Mr. Gilbert Metcalf of the US and Mr. Remy Rioux of France expressed strong reservations over the whole document.

Metcalf said that the “reflections” document did not reflect a consensus or convergence. He said that there were many issues that were not discussed. Rioux said that he could not agree to a “standalone instrument” and that he could not agree to the “package” and “had strong reservations”.

Among the elements that drew much reaction from developing countries was reference to “transformational change” in several parts of the elements including the objectives, guiding principles, and funding windows.  

Mr. Wu Jinkang of China said that “contribution to transformational change” as an objective was not in the Convention and asked for deletion of the phrase. He noted a similar reference in the “guiding principles” which referred to “catalyze transformational changes”. He said that trillions of dollars would be needed to make this happen which is more than what the GCF could handle. He also called for the deletion of reference to “activities for transformational change” under the element of “funding windows”.

Mr. Jorge Ferrer of Nicaragua said that there was no definition of what is meant by “transformational change” and that everyone had a different interpretation. Ambassador Sergio Serra of Brazil, Dr. Yaga Reddy of India, Ms. Bernarditas Mueller of the Philippines and Dr. Omar El-Arini of Egypt all expressed similar views in this regard.

On the “guiding principles”, some members had concerns over the term “results-based approaches”. Serra of Brazil said that “results-based approaches” should not be a principle as this could hinder access to funds, especially for adaptation and it was better for this to be reflected under “monitoring and evaluation”. Muller of Philippines also expressed similar concerns, adding that several aspects of the “guiding principles” appeared to be conditionalities.

In relation to the “scope” which had a reference to “mobilizing and leveraging of private sector investment and other finance, especially domestic private sector”, Wu of China questioned what “other finance” was and whether the reference “to domestic private sector” meant that the private sector in developing countries are expected to make contributions to the GCF. Serra of Brazil said that there was no mention at all under the scope to “public funds” and this was “an obvious imbalance.”

On the “engagement of the private sector,” the document provided three elements which were: the “GCF to engage the private sector through a private sector facility; advisory committee of private sector actors and non-voting members of the Board”. These proposals were mainly advanced by developed country members of the TC.  

Mr. Ahmad Abdulkader of Saudi Arabia said that there was no consensus on the engagement of private sector in the GCF.

Ferrer of Nicaragua said that the Cancun decision made no reference to “non-voting members” and to call for this now would “open a Pandora’s box.” He said that some developed countries had called for the private sector to be a non-voting member of the Board but there was no consensus on this as the issue of private sector engagement had been controversial during the discussions. 

Wu of China had similar views, saying that the Cancun decision had no reference to the private sector being represented on the Board. In his earlier intervention during the day, Wu referred to comments from some developed country delegates who talked of the private sector being involved in “bankable activities”. He said that climate change projects are not bankable nor are they all economically viable. Mitigation, technology development and transfer are not necessarily economically viable or financially bankable unless supported by governments. He referred to the Chinese government’s decision to close some coal power plants which involved the government having to pay for this. Wu said that the role of the private sector should not be over-emphasised. On the suggestion by some developed countries that the GCF should be attractive to pension funds, he said that if such funds could have done the job in the first place (in climate financing), there was no need for the GCF. 

Reddy of India clarified that during the discussions, the proposal for an advisory committee for the private sector was an alternative proposal to the private sector being a non-voting member of the Board. Serra of Brazil expressed concerns over the suggestion for an advisory committee for the private sector. He suggested both the private sector and civil society could be called for advice if the Board needs it. El-Arini of Egypt also said that he did not understand what an advisory committee for the private sector was.

Mueller of Philippines said that the engagement of the private sector should be considered under the element of “stakeholder input and participation” along with civil society.

(Several developed countries including the US had also suggested that CSO’s have a seat on the Board as a non-voting member but this was not reflected in the document).

In contrast to the views of developing countries, Metcalf of the US wanted more modalities to deal with the private sector. He said that a funding window for the private sector should be part of this. Ms. Naoko Ishii of Japan stressed the need for private sector engagement and asked how the private sector facility related to the GCF. Mr. Nick Dyer of the United Kingdom also echoed the need for the right modalities for the engagement of the private sector. He said that “engaging the private sector must signal to business that we mean business.”

Another problem issue was the “relationship of the COP” to the GCF, which is addressed under “governance and institutional arrangements”.

Mueller of Philippines was of the view that this element was the “weakest part of document.” She said that the GCF must be guided by and be accountable to COP and this means a “strong relationship and touches upon the activities of the GCF”. “Ensuring accountability is not simply about reporting by the GCF to the COP and there was need to address this.” 

Similar sentiments were expressed by Wu of China who said that the Board of the GCF was accountable to the COP and the Board therefore must have clear obligations in relation to its role and functions in decision-making. El-Arini of Egypt said that the Geneva meeting did not conclude discussions on the relationship between the Board and COP.

While developing countries stressed the need for a strong relationship between the GCF and its Board with the COP, Metcalf of US expressed concerns. In his earlier intervention during the meeting on this issue, Metcalf said that the COP should have no role in choosing the members of the Board, on issues related to the trustee or in the hiring of the head of the secretariat. The accountability mechanism is for the Board to report to the COP as is the case with the Global Environment Facility. This view was supported by several other developed countries including France, the UK, Germany and Australia.    

In relation to the legal status of the GCF, the document refers to two elements: the GCF to be endowed with legal status and form of legal identity to be based on specific functions of the GCF. It states that the form of the legal status of the GCF should be discussed.

Most developing country members of the TC want the GCF to be endowed with legal status, while many developed countries including the US, UK and France want its “form to follow function,” and not decide the issue at this stage.

In his reactions to the document, Reddy of India drew attention to the proposals from several developing countries to follow the model of the Multilateral Fund of the Montreal Protocol and said that this should be flagged as an option.

(See TWN Info Service on Climate Change (Sept11/04), 13 September)

Another area of contention related to the issue of “financial instruments”. The document has two elements in this regard: the GCF to provide grants, non-grant instruments, including concessional loans, guarantees and others; and results-based financing mechanisms, including payment for verified results.

El-Arini of Egypt said that he was unclear as to what “results-based financing mechanisms, including payment for verified results,” was and added that this was outside the scope of the terms of reference of the TC. Mueller of Philippines expressed similar views and said that if this element was to be applied, then there could be no adaptation funding, and this concept was totally contrary to the provisions of the Convention.

Serra of Brazil said that there was convergence among members that grants would be the most important instrument and suggested that the GCF should provide mainly grants. Reddy of India said that in dealing with “financial instruments” it was important to consider the type of risk that the GCF would bear and there was need to address what risks are permitted and what are not. He said that there should not be “currency risks” and there were also “reputational risks”. Hence, there was need to introduce the concept of risk and to address who bears what.

The representative from Zambia said that the GCF should not be another institution that leaves LDCs in debt and stressed the importance of grants.

Given the lack of convergence on key issues relating to the design of the GCF, there are concerns among some developing country members as to how the drafting of the final report by the Co-chairs, Vice-chairs and Co-facilitators is going to reflect a balanced outcome for the consideration of the members at their final two-day meeting in Cape Town in October.