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From Copenhagen to Cancun: Climate Finance

An update on the role of climate finance in the international climate negotiations.

[!]Note:[/!] This post has been updated. Read the most recent version here.

The Copenhagen Accord acknowledged that supporting developing countries’ efforts to reduce emissions and adapt to the impacts of climate change will be essential to any new climate agreement. To make these financial commitments a reality, the next two UNFCCC Conferences of the Parties (COP) will need to settle on a financial architecture to manage and distribute these funds.

In a series of steps from COP-16 in Cancun (2010) to COP-17 South Africa (2011), the COP must achieve three goals: ensure that developed countries deliver on their financial pledges from Copenhagen; set criteria and priorities to guide the distribution and allocation of climate funds; and establish the financial architecture to channel and deliver this support.

The financial architecture must address the following elements:

  • short-term and long-term funding commitments;
  • bilateral and multilateral delivery channels for these funds; and
  • international institutional arrangements for measuring, reporting and verifying both the delivery and the spending of these funds in order to build trust and ensure accountability.

Finance in the Copenhagen Accord

The Copenhagen Accord, which has been supported by over 120 countries since Copenhagen, outlined two significant funding commitments from developed countries to the developing world, which together include finance for adaptation, forest loss prevention (REDD+), and technology development and transfer. The first is a “fast start” investment of US$30 billion over three years (see table, below); the other is a long-term commitment of US$100 billion per year by 2020. Countries that supported the Accord agreed that the funding would be “new and additional” and come from a “wide variety of sources,” including public and private, bilateral and multilateral, and alternative sources.

Given the challenge of raising $100 billion annually, the Accord called for a high-level advisory panel to study innovative sources of funding, including levies on airplane fuels and redirecting fossil fuel subsidies.

The Copenhagen Accord also called for the establishment of a Green Climate Fund to support developing countries, but it provides no details on the fund’s governance structure and how it should operate. Climate-specific funds already exist both within and outside the UNFCCC that support projects in developing countries. These funds include the Global Environment Facility, the Adaptation Fund, the Least Developed Country (LDC) fund, the World Bank’s Forest Carbon Partnership Facility (FCPF), and the Multilateral Development Bank (MDB)–administered Climate Investment Funds (CIFs), among others. In addition, bilateral agencies and MDBs have started to take climate change into account as they funnel significant resources toward energy projects in developing countries.

While the Copenhagen Accord set some important political priorities and directions, it remains controversial, particularly for countries that feel it falls far short of the scale and ambition necessary. Formalizing and clarifying Accord provisions through the UNFCCC process will be a struggle that will require trust and goodwill.

Next Steps for Cancun and Beyond

As Cancun rapidly approaches, several actions are necessary in order to rebuild trust and goodwill for the negotiations.

  1. First, developed countries should begin to deliver the $30 billion “fast start” funding. At the moment, the pledges add up to approximately $27.9bn [Note: this number has been updated to reflect the analysis of August 12, 2010. For the most recent number, click here.] In order to ensure its delivery, agreed rules are needed to measure and report this information. The COP in Cancun could agree on a decision requesting developed countries (Annex II Parties) to provide interim reports to the UNFCCC Secretariat prior to COP-17 on their contributions toward the US$30 billion fast start fund.

  2. Second, to get moving on the long-term finance commitment in the Accord, countries should clarify what new sources of funding could contribute to this goal. Since Copenhagen, UN Secretary General Ban Ki-Moon has chaired the High-Level Advisory Group on Climate Change Financing. It is possible that the findings of this group could be endorsed/recognized through a mandate from the COP in Cancun, and if this mandate is secured, it is possible that the advisory group’s recommendations will be considered and reflected in a decision by at COP-17 in South Africa.

In order to enhance the delivery of financial resources and investment, negotiators should take into account country ownership, effective use of resources, and maximization of impact while also ensuring funding for the most vulnerable countries and communities. To achieve these goals, the COP-16 in Cancun should focus in the following areas:

Transparency

Developed and developing countries need to commit to transparency in both the delivery and utilization of climate finance. This will build trust on both sides that the money is flowing and being spent effectively.

However, current UNFCCC finance reporting guidelines and related guidance from other institutions such as the OECD DAC’s Creditor Reporting System are neither transparent nor comprehensive. (WRI is researching ways to accurately track this information and report it.) A decision at COP-16 could request the UNFCCC Secretariat to cooperate with the MDBs, the OECD, and experts from developed and developing countries to formulate a draft decision on guidelines for reporting and review of financial information at COP-17.

Regular reporting to the UNFCCC will give countries a transparent way to see how other countries are meeting their financial commitments and how the money is being utilized. It is critical that these initial financial pledges offer additional funding to what developed countries already provide through official development assistance (ODA).

Governance

If a decision on climate finance is to gain the political support necessary, any new financial mechanism must embrace strong governance structures and procedures that will give a greater voice to developing countries. This should be done in a manner that ensures efficiency, effectiveness and accountability, but more importantly results in better environment and development outcomes.

Delivering this money effectively requires: an institutional architecture that is inclusive and transparent; reform of the governance structure of existing institutions involved in climate financing; and equitable and balanced representation between developed and developing countries on relevant governing bodies.

To ensure that decisions around finance are made with strong governance rules in place, relying solely on existing multilateral funds that many developing countries are wary of, such as the MDB-administered Climate Investment Funds, may not be sufficient. Figuring out whether or not these so called “live experiments” fit into a larger finance mechanism under the COP should be a priority this year.

Read More From This Series

[thumbnail nid=11602 align=left] From Copenhagen to Cancun: Technology Transfer

[thumbnail nid=11606 align=left] From Copenhagen to Cancun: Adaptation

[thumbnail nid=11611 align=left] From Copenhagen to Cancun: Forests and REDD

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