Global Trends by Martin Khor

Monday, 24 October 2011

Setback in designing Green Climate Fund

The launch of the Green Climate Fund is expected to be a highlight of the Durban Climate Conference, but there was a setback when the committee to design the Fund could not reach consensus on their report.

-----------------------------------------------------------   

The Green Climate Fund which developing countries are relying on to support their actions against global warming suffered a setback when a committee designing the fund could not agree on recommendations to give to the United Nations Climate Convention.

Last week, the transition committee held its final meeting in Capetown, South Africa.  A draft of the instrument of the Fund (containing its aims, governing structures and functions) prepared by the committee’s Co-Chairs was not agreed to by two members, the United States and Saudi Arabia.

Earlier, several others of the committee’s 40 members also criticized parts of the report.  But they did not reject the document.

The committee’s failure to reach a consensus could deal a blow to the climate conference in Durban (South Africa) in November.  It was hoped that the launching of this fund would be one of meeting’s few bright spots, if not the only one.

The Durban conference needs a success, following the disastrous 2009 Copenhagen conference and the only partial recovery in Cancun last year.

But on the main issue – actions by countries to cut or minimize emissions that cause global warming – there is a lot of disagreement.

The Kyoto Protocol, under which all developed countries (except the United States) make binding commitments to reduce their emissions, may not survive because key members like Japan and Russia have stated they do not want to continue with it.

They and the US want it replaced by a system of voluntary pledges by developed countries, while developing countries are also pressed to take on more commitments (such as pledges and strict reporting on actions taken) than previously.

This has angered the developing countries. They have pledged that the Kyoto Protocol must be saved and not buried at Durban.  But few are optimistic.

If the climate regime unravels, the consolation could be the operationalising of the Green Climate Fund, established last year in Cancun. The transition committee was tasked with recommending the objectives, governing structures, working methods, sources and uses of the funds.

The Conventions’ conference of parties was expected to endorse the report, and the fund could  get down to business early next year.

It was thus a great disappointment that after four meetings the committee could not reach an agreement on the fund’s design.

The committee’s Co-Chair Trevor Manuel, South Africa’s economics minister, presented a draft report towards the end of the three-day meeting on 18 October.

The developing countries were generally happy with some points in the draft, especially that the Fund would have its own legal personality and an independent Secretariat.  For them, the rationale for a new Fund is that it would be able to operate on its own, and not borrow the legal personality or its Secretariat from other organizations such as the Global Environment Facility and the World Bank.

There were also many points that developing countries such as Egypt, China, India, China and the Philippines disagreed with, including:

●          The report did not state how voting would be done if the Fund’s Board is unable to have a consensus, leaving it to the Board itself to decide.  An earlier draft stating that voting would require a majority vote had been replaced.  Some developed countries had proposed that votes be weighted by the amount of funds contributed by countries, a principle that is strongly opposed by developing countries.

●          The report gave too little authority to the Fund’s general membership, its Conference of Parties, in which developing counties have a large majority, and too much to the Board, in which the developed countries will tend to dominate (although there are to be 12 members each from developed and developing countries).

●          A special facility is created to finance the private sector, including at international level.  This  may divert funds away from developing counties towards developed countries’ companies and financial institutions which may then have direct access both to the funds and to the developing countries (by-passing the governments).  Special “access modalities” and other “necessary arrangements” for the private sector are also to be established later by the Board; this text is diluted from an earlier draft that mentioned a separate system of governance and modalities for the private sector facility, which was criticized by some as being a “fund within a fund.”

●          The Fund was expected to provide mainly grants to developing countries, supplemented by concessional loans.  However developed countries also want instruments such as loan guarantees for and joint equity with companies in order to “leverage” the private sector’s funds.  These instruments and especially the term “leverage” were objected to by some developing countries for encouraging the Fund to engage in risky activities and for setting up a different model for the Fund.  The final draft has changed the terms but the Board is still tasked with developing such instruments.

●          The Fund has only windows for mitigation and adaptation initially, while many developing countries also wanted technology and capacity building windows.  Developed countries (backed by some developing countries) also wanted a window for forests.

Except for Saudi Arabia, the developing countries did not explicitly object when the Co-Chair proposed that the draft be submitted by consensus to the Durban conference.

However, the US clearly objected to the Chair’s proposal.   It had earlier indicated several disagreements with the draft, including that the general membership was given too many functions; that the Fund would receive funds from developed countries (it wanted developing countries to also contribute); and that the draft restricted the ability of the private sector to engage.  It also questioned the section on the Fund having its own juridical personality.

Saudi Arabia also mentioned a few issues to which it wanted changes and could not accept the draft.

Eventually it was agreed that the draft would be submitted to the Conference, but not as a consensus document.  The Conference can consider the report.

There is a distinct possibility that the Conference of Parties (the full membership of the Climate Convention) will “open” the report and re-negotiate the text of the Fund’s instrument. 

That may not necessarily be a bad thing, since the draft can then be improved.  However, if the 40 members of the committee could not agree, it would be even harder for the 190-plus members of the Convention to reach a consensus.

Since so much is at stake, there were appeals by some committee members to prolong the meeting or to hold another meeting to try to get an agreed report.  However, there was no agreement for the committee to prolong its work.