TWN Info Service on Finance and Development (Apr08/01)
7 April 2008
Third World Network

WORLD BANK CLIMATE FUNDS UNDER FIRE FROM G77 AND CHINA

A World Bank initiative to establish climate funds of US$5-11 billion has come under heavy fire from the Group of 77 and China and individual developing countries during a meeting of the UN Framework Convention on Climate Change (UNFCC).

Developing countries have criticised the proposal to establish the World Bank funds as donor-driven, contrary to the objectives of the Convention and potentially undermining the efforts at the UNFCC on financial resources. Developing countries say that their views and future engagement in the administration of the funds have not been fully taken into account and they further criticised donor countries for attempting to create parallel financing initiatives through an institution with an asymmetrical governance structure.

Below is report of the G77 and China’s views on the proposed climate investment funds. It was published in the SUNS #6448, Friday, 4 April 2008.

With best wishes
Martin Khor
TWN

World Bank Climate Funds under Fire from G77 and China

By Martin Khor, Bangkok, 3 April 2008

A World Bank initiative to establish climate funds of US$5-11 billion has come under heavy fire from the Group of 77 and China and individual developing countries during a meeting of the UN Framework Convention on Climate Change (UNFCC).

“There are monies and funds outside the UNFCCC that undermine the efforts at the Convention on financial resources,” said Bernaditas Muller of the Philippines and coordinator of the G77 and China in the ad hoc working group on long-term cooperative action, which is tasked with following up on the Bali Action Plan adopted at the climate conference in Bali last December.

Speaking on behalf of the G77 and China at the working group’s plenary meeting on financial resources on 3 April, Muller referred to the recent initiative by the World Bank to set up three funds, a US$5-10 billion Clean Technology Fund, a US$500 million adaptation or climate resilience fund, and possibly, a third fund on forest.

“For the G77 and China, transparency is very important in the funding issue,” said the group’s coordinator. “This (World Bank initiative) happened without the guidance of the Convention. The amounts are so huge, they would dwarf the funds under UNFCCC and would also divert away from whatever funding is decided under UNFCCC.

“The governance of these funds is also donor-driven. There is clearly money for climate actions, which is the good news, but the bad news is it is in the hands of institutions that do not necessarily serve the objectives of the Convention.”

She remarked that the resources for climate funds created outside the Convention come from the same developed country Parties that could have given those resources to the financial mechanisms under the Convention to enable developing countries to implement mitigation and adaptation measures and contribute to achieving the objectives of the Convention.

Muller added that a decision of the Conference of Parties of the UNFCCC mandated that there must be consistency in the funding of activities outside the Convention with the priorities and principles of the Convention, and these activities should not introduce new forms of conditionality.

Instead of placing funds into the World Bank, the G77 and China coordinator advocated that they be channelled into funds under the Convention. Muller proposed that an “umbrella fund” be set up that could mobilise and manage financial resources for climate change. This could complement existing funds under the Convention or protocol, such as the adaptation fund whose resources are “woefully inadequate.”

At an earlier plenary meeting on adaptation on 2 April, the G77 and China coordinator also criticized the World Bank initiative. “We have a serious concern about the planned adaptation facility under the World Bank,” she said. “Developing countries’ views and engagement will not be fully taken account of in this fund nor are we able to contribute our views or to the management of this fund.”

During the finance plenary on 3 April, India also criticised the World Bank’s climate funds initiative. “The current moves by some donor countries to finance parallel initiatives through the World Bank, outside the UNFCCC framework, are seen as potentially detrimental to existing developmental financing flows,” said India.

“Further, they are seen as promoting potential conditionalities that would creep into other developmental and commercial financing.

“Given the asymmetrical governance structure of the multilateral financial institutes (MFIs), developing countries cannot avoid seeing this creep into multilateral environmental governance and the MFI desire to deliver climate-related global public goods within the context of declining relevance and waning revenue streams.

“These parallel funding channels could further marginalise developing countries from having a stake in the fight against climate change and create solutions’ that undermine instead of supporting their efforts to develop adaptive capacities. In our view, UNFCCC must proactively provide governance and oversight in the management of such additional financial flows under a multilateral framework.”

Other developing countries also advocated that funds for climate change should be channelled through the UNFCCC.

Barbados, speaking for the alliance of small island states, said that AOSIS noted with concern that some developed countries pledged support to some developing countries, but they attach conditionalities to the funds, which were not appropriate. “We want new initiatives to be made through the Convention process.”

South Africa said that funding for climate change should not be piecemeal and not in a multitude of institutions but in one institution. Referring to the Kyoto Protocol’s Adaptation Fund, it said: “We prefer not to have a proliferation of funding from other multilateral agencies.”

Meanwhile, the World Bank’s Environment Department Director, Warren Evans, gave a presentation of the Bank’ climate funds initiative at a side event in a hotel in Bangkok, and also held a meeting with some NGO representatives.

Evans said the Bank now planned to have two climate-related funds – a Clean Technology Fund with US$5 billion, and a Strategic Climate Fund with some windows in it, including a window on climate resilience or adaptation with US$500 million. There is some uncertainty about a forest-related fund.

Evans indicated that there was “reasonable confidence” on funding for the initiative and “we are in a detailed phase.”

Over the next fortnight, the Bank will hold many consultation meetings in Washington with NGOs, developing country governments, donor governments and the private sector, culminating in a “design meeting” with donors and recipients on 14-15 April to “nail uncertainties” on scope, governance structure, decision-making process, etc.

On the funding he was confident about, Evans said that the UK had confirmed its participation, while the Bank was “not sure yet” about the US, and Japan was also up in the air. Other donors were interested too.

The initiative will be “high profile” at the G8 Summit in July and in August-September, the Bank expected to roll out the budget programme.

To a question on why the Bank was setting up another adaptation fund when there was already one in the UNFCCC framework, Evans said the Bank was not setting up an adaptation fund but was mainstreaming adaptation. If there is an objection to it, we won’t do it, he said, adding that “we are happy for someone else to do it.”