Frequently Asked Questions on Climate Change Finance

Q1. What is the relevance of finance in the climate change debate and negotiations?

Climate change has major implications in terms of finance. All actions to address climate change ultimately involve costs. Funding is vital for countries like India to design and implement adaptation and mitigation plans and projects. On the other hand, it is widely acknowledged that the costs of climate change actions are relatively high for developing countries The problem is more severe for developing countries like India, would be among the hardest hit by climate change. Moreover, beyond being vulnerable to climate change impacts, developing countries have fewer resources to adapt: socially, technologically and financially and also have claims of competing demand on the scarce resources available.

Q2. How does the provision of finance to developing countries relate to the articles of the Convention?

In view of 'common but differentiated responsibilities', and varying contributions to climate change by different countries, the articles of the UNFCCC Convention clearly make provisions regarding , who the providers of the resources would be and where the resources are needed. Article 4.3, establishes that the developed country Parties and other developed Parties included in Annex II shall provide new and additional financial resources to meet the agreed full costs incurred by developing country Parties in complying with their obligations under the convention. It also states developed country Parties shall also provide such financial resources, including for the transfer of technology, needed by the developing country Parties to meet the agreed full incremental costs of implementing climate change measures. On the same lines, Article 4.4 deals with adaptation cost, and Article 4.5 with technology transfer. The Convention also acknowledges that climate change actions taken by developing countries are contingent on the resources made available to them, and hence, it is stated in article 4.7 that, 'The extent to which developing country Parties will effectively implement their commitments under the Convention will depend on the effective implementation by developed country Parties of their commitments under the Convention related to financial resources and transfer of technology' . To facilitate the above principles article 11 of the convention makes a calls for a mechanism for the provision of financial resources on a grant or concessional basis, including for the transfer of technology, which shall function under the guidance of, and be accountable to the Conference of the Parties, which shall decide on its policies, programme priorities and eligibility criteria related to this Convention.

Q3. Do the provision of funds under the Convention justify the requirement of climate change finance needed to address global adaptation and mitigation?

Even though, the Convention has squarely put the responsibility for the provision of financial support on the developed countries, the pledges and commitments taken by them to provide financial resources under the head of fast start finance and long term finance, only collectively amounts to US$ 30 billion for the period 2010-12 and US$ 100 billion annually from 2020, respectively. It has been estimated by many studies that the funds currently available under the Kyoto Protocol and the Convention are small compared to the magnitude of need assessed. The UNFCCC has estimated a requirement of US$ 200-210 billion in additional annual investment in 2030 to return GHG emissions to current levels. Further, additional investment needed worldwide for adaptation is estimated by the UNFCCC to be annually US$ 60-182 billion in 2030, inclusive of an expenditure of US$ 28-67 billion in developing countries. Most recent estimates at the recently held UNFCCC's three day workshop on Long term Finance (July 2012) point out to an even enormous scale of funds in the range of $600-$1500 billion a year that would be needed by developing countries for mitigation and adaptation. This amount is at least 5-10 times the prospective financing flows when referring to the $100 billion per year goal by 2020 agreed under the Cancun Agreement. Therefore, the current provision of funds clearly does not justify the requirement estimated globally for climate change finance.

Q4. How do the developed country Parties intend to meet their commitment under long term finance? What is the stance of developing countries on this?

The goal of long term finance is to raise US$ 100 billion annually by 2020 to fund climate change adaptation and mitigation in developing countries. The mobilization of this requisite amount has been agreed from a variety of sources- public and private, bilateral and multilateral, including alternative sources. However many developing countries are of the view that though alternative and private sources can be explored to fill the gaps between the demand and supply of climate finance, public finance should be at the core to ensure predictability and reliability of flow of funds to the developing countries. On the other hand, developed countries seem to be pushing this responsibility on the alternative and private sector due to their current weak fiscal and economic environment. This is also reflected in the report of the High Level Advisory Group (AGF) convened by the UN Secretary General to identify sources of finance to generate the US$ 100 billion target. The AGF recommendations are not designed to fit within the requirement that finance be mobilized from primarily public sources.

Q5. What do the terms "new and additional" mean in the context of climate change finance negotiations

The term "new and additional" in the context of provision of finances by developed countries can be traced right from the text of the Convention to various COP decisions like Bali Action Plan, Copenhagen Accord and Cancun Agreements. For example, the Copenhagen Accord notes that, "The collective commitment by developed countries is to provide new and additional resources, including forestry and investments through international institutions, approaching USD 30 billion for the period 2010-2012 with balanced allocation between adaptation and mitigation." In this sense "new and additional" refers to provision of financial resources that represent new commitment, rather than those that are diverted from flows that have already been earmarked for some other form of development assistance. Increasing resources flowing to climate finance should not lead to a reduction of resources available for development assistance. While, this sounds quite simple, but there is no agreed definition of additionality in climate finance and the developed and developing countries have diverging views. As far as the experience on fast start finance is concerned, developed countries resort to self reporting of their fast start pledges, and each country had its own interpretation to the term. Developing countries are of the view that provision of climate finance by developed countries should be "new and additional" to the developed countries commitment of providing 0.7% Gross National Income (GNI) for overseas development assistance (ODA). Another important point with development programmes and many adaptation and mitigation programmes is that they have significant overlapping benefits, hence, developing countries want that there should be no relabelling or rediversion of development aid as climate finance.

Q6. What is Global Environment Facility (GEF)?

Global environment Facility was created in 1991 as a result of mounting concern in the preceding decade over global environmental problems and efforts to formulate financing responses to address these problems. Of the many ideas for financing environmentally beneficial projects proposed by various governmental and non-governmental institutions, the GEF was the one which finally received the necessary political and financial support. The GEF is funded by donor nations, who commit money every four years through a process known as GEF replenishment. The GEF makes these grants available to developing countries and economies in transition to support actions to address critical threats to the global environment in the areas related to biodiversity, climate change, international waters, land degradation, the ozone layer and persistent organic pollutants. Apart from serving as the financial mechanism of UNFCCC, GEF also serves as the financial mechanism of other Conventions, namely Convention on Biological Diversity (CBD), the Stockholm Convention on POPs and the UN Convention to Combat Desertification (CCD).

Q7. Why was there a need to set up the Green Climate Fund , when already the GEF was set up?

With the growing realization about the large amount of resources that would be required for climate change mitigation and adaptation, especially in developing countries and also with fourth assessment report of the IPCC establishing this fact. It became evident that the funding and operational arrangements under the Global Environment Facility were inadequate, and there was a need for major and urgent reforms in the financial mechanism. With this, the developing countries initiated the talks on the need of a new green fund to carry out the full mandate of provision of financial resources to developing countries exclusively dedicated to climate change, unlike GEF which serves broader areas of global environment. Moreover, the GEF is based on voluntary contributions rather than being based on the principle of assessed contributions, which generates concerns over the political neutrality of the Fund. It was established at that time without any legal capacity and there were also other concerns, like lack of financing for adaptation. This is also because adaptation targets local impacts and associated vulnerabilities rather than generating global benefits, which the GEF mandates. Most importantly the funds received under the climate change focal area in GEF were not in line with the actual requirement of funds, and neither was the scope of GEF large enough to channel and disburse a significant part of the US $100 billion pledged under long term finance by developed countries, which would now flow through the Green Climate Fund. All these reasons lead to the formation of the Green Climate Fund.

Q8. What is the green climate fund?

The Green Climate Fund (GCF) is designated as an operating entity of the Financial Mechanism of the United Nations Framework Convention on Climate Change (UNFCCC), which is accountable to and will function under the guidance of the Conference of the Parties (COP). It has been formed in accordance with article 11 of the Convention, and has been founded within the framework of the UNFCCC as a mechanism to transfer money from the developed to the developing world, in order to assist the developing countries in adaptation and mitigation actions to combat climate change. The formal decision to form this Fund was taken at the 15th CoP in Copenhagen. And it is expected that the GCF would deliver a significant portion of the climate finance pledge by developed countries to mobilize $100 billion per year by 2020 for mitigation and adaptation in developing countries.

Q9. Which countries are obligated to provide funds and which all Parties or countries are eligible to seek such funds provided by the GCF and the Convention?

The UNFCCC (Art 4.3) calls for developed country Parties and other developed Parties included in Annex II to provide new and additional financial resources to meet the agreed full costs incurred by developing country Parties in complying with their climate change obligations and needs. As far as the GCF is concerned, the governing instrument of the GCF specifies that the fund will receive financial inputs from developed country Parties to the Convention and it may also receive financial inputs from a variety of other sources, public and private, including alternative sources. There are no obligations towards the developing country Parties to provide finance or other resources as they are not responsible for the current climate change. However, as specified in the governing instrument of the GCF, all developing country Parties to the Convention are eligible to receive resources from the Fund. As far as the countries eligible to obtain funds are concerned, article 4.7 of the Convention only refers to "developing" countries, and not further subsets of "eligible" and "ineligible" when talking about provision of resources for climate change needs . However, Article 4.8 does permit a prioritization in terms of climate finance for specified categories of developing countries that are particularly vulnerable to the adverse effects of climate change in respect of adaptation and response measures, but again it does not refer to eligibility. Therefore, all developing country parties are eligible to seek funds for climate change needs, under the Convention. The specific Parties that are acknowledged as being particularly vulnerable are:

  • Small island countries;
  • Countries with low-lying coastal areas;
  • Countries with arid and semi-arid areas, forested areas and areas liable to forest decay;
  • Countries with areas prone to natural disasters;
  • Countries with areas liable to drought and desertification;
  • Countries with areas of high urban atmospheric pollution;
  • Countries with areas with fragile ecosystems, including mountainous ecosystems;
  • Countries whose economies are highly dependent on income generated from the production, processing and export, and/or on consumption of fossil fuels and associated energy-intensive products; and
  • Landlocked and transit countries

Q10. At the 17th CoP in Durban, which all features of the Green Climate Fund was India particularly interested in achieving? Were we able to strike a deal on all of them?

India wanted to see the Green Climate Fund to be operationalized particularly with a strong and independent legal status, a strong relationship between the COP and the GCF, as well as strong role for the National Implementing entities in the operation of Green Climate Fund. India played a key role in pushing for a satisfactory consensus outcome on the above features and was able to secure them through challenging rounds of negotiations. Through the final outcome of the negotiations, India and like minded countries were able to secure juridical personality and legal capacity as is necessary for the exercise of the GCF's functions and the protection of its interests. The final decision also ensured a paramount role of the National Implementing entities to ensure consistency of fund use with national climate strategies and plans, and most importantly a clearly articulated relationship with COP, by making the Board accountable to it. Also, in order to ensure accountability to the COP, the Board will receive guidance from the COP including on matters related to policies, programmes priorities and eligibility criteria, and matters related thereto. The Board will also submit annual reports to the COP for its consideration and receive further guidance.

Q11. What is the role of the Board in the matters relating to GCF? How will this Board be formed? Why is the membership important for India?

The Green Climate Fund will be governed and supervised by a Board that will have full responsibility for funding decisions. The Board will oversee the operation of all relevant components of the Fund, approve operational modalities, access modalities and funding structures, approve specific operational policies and guidelines, including for project cycle, financial management etc. Because of the extremely important role that the Board will play in the decision making of funds, India's strategy is to pitch in for membership in the Board. The Board will have 24 members, comprising of an equal number of members from developing and developed country parties. Representations from developing country Parties will include representations of relevant United Nations regional groupings, and from Small Island developing States (SIDS), and the Least Developed Countries (LDCs). Within the regional groupings of the UN, India falls in Asia Pacific group from which three members would be chosen.

Q12. Now that India is part of the 24 member board of the GCF, what issues are of concern to towards operationalization of GCF?

One of the significant achievements of the Durban meeting, held last year was the agreement by the Parties on operationalizing the GCF. However, a lot more needs to be done for ensuring enhanced operationalization of the GCF. The COP 18 held in Doha in December 2012, did take steps to further operationalize the GCF, which is expected to take off fully by the end of 2013. Also, the 24 member Board of the GCF, that India is a part of, has been set up. The Board selected the host country for the GCF as the Republic of Korea. With these developments, we hope to see the GCF get fully operationalized. However, three issues will need mention: (i) a "Business Model Framework" of the GCF, which places country ownership at its core;(ii) Mobilization of significant funds that the GCF will intermediate to help developing nations adapt to and mitigate climate change; and (iii) Determining how the GCF shall conduct its work - including countries will access funds, will be key to moving forward with operationalizing the Fund. As a member of the Board, India is making efforts to ensure that progress is being achieved, which caters to the climate financing needs of the developing countries and simultaneously gives effect to the ultimate objective of the Convention.