Summary of Developed Country ‘Fast-Start’ Climate Finance Pledges

Reiterating a pledge made in Copenhagen in 2009, the Cancun Agreements of December 2010 formally commit developed countries to collectively provide resources “approaching USD 30 billion for the period 2010 - 2012” to support developing countries’ climate efforts. This so-called “fast-start” finance will help developing countries, particularly the poorest and most vulnerable, mitigate (reduce) their greenhouse gas emissions, and adapt and cope with the effects of climate change. These pledges also present an opportunity to build trust between developed and developing countries in the international climate arena, in turn fostering progress towards a comprehensive post-2012 international climate agreement.

WRI has carried out a preliminary analysis based on available information on countries’ immediate pledges announced thus far. The accompanying table sets out both the amounts and the mechanisms by which funding would be delivered. WRI has also looked at how countries indicate whether their pledges will provide “new and additional” funds compared to what they provide as official development assistance.

This table will be continuously updated as more information becomes available.

Q&A on this Analysis

(Updated on November 23, 2011)

Have developed countries met their fast-start finance pledge?

Based on our research, as of November 18, 2011, 23 developed countries and the European Commission have publicly announced their individual fast-start finance pledges, in addition to the European Union’s collective pledge. These pledges total USD 28.22 billion.

While this represents a significant step in the right direction, developed countries still have much to do in meeting the fast-start pledge. The Cancun Agreements mandate that fast-start funds have a “balanced allocation between adaptation and mitigation,” are “new and additional,” are “prioritized for the most vulnerable developing countries, such as the least developed countries, small island developing States and Africa,” and include “forestry and investments through international institutions.” It is not clear that developed countries’ fast-start finance contributions fulfill these criteria.

Finally, ensuring that pledges are actually delivered will be essential. Though the pledges are clear, their delivery is uncertain. According to reported information, of the pledged funds, USD 16.23 billion has been requested and/or budgeted by the executive bodies of the countries during the fast-start period. In some cases, the legislative bodies have also approved these requests. Some of the requested or budgeted funds may have even been delivered, yet the actual delivery and implementation of the finance is often not clear in countries’ fast-start finance reports.

Do the funds have a “balanced allocation between adaptation and mitigation”?

Countries often specify the general objective that their fast-start funds will support. For example of the EUR 4.68 billion mobilized for fast-start by the EU, 39% will support mitigation, 31% will support adaptation, 12% will support REDD+, and 18% will support multipurpose activities. While Germany has pledged that one-third of its 2010-2012 fast-start funds will support adaptation, only 21% of its 2010 reported funds do so. In its 2010 fast-start finance report, Germany highlighted the challenges of identifying suitable adaptation projects as the reason for this, and recognized the remaining need to adjust the allocation of funds across the three areas of mitigation, adaptation and REDD+. Several countries involved in the Interim REDD+ Partnership — a process created parallel to the UNFCCC to ensure effective and sustainable REDD-plus (reduced emissions from deforestation and forest degradation) actions over the next few years — have also specified that at least 20% of their funds will support REDD-plus. However, without an agreed-upon definition among countries of what constitutes a “balanced allocation,” we cannot answer this question.

Are the pledged funds “new and additional”?

“New” funding represents an increase relative to pledges or allocations from previous years. However, a number of pledges include commitments already made in the past. For example, Japan’s USD 15 billion fast start pledge announced in December 2009 as the Hatoyama Initiative includes USD 10 billion announced previously in 2008, while the fast start pledges of the United Kingdom and the United States also include their 2008 commitments to the Climate Investment Funds (CIFs) of roughly USD 1.4 billion and USD 2 billion respectively.

Funds that are “additional” ensure that their delivery does not result in the diversion of funds from other important development objectives. In other words, climate mitigation and adaptation funds should be additional to development aid. Parties to the UNFCCC have not yet achieved consensus on a clear and specific definition of ‘additionality’ that can be applied uniformly to developed country financial pledges. As a result, countries have proposed a variety of methods for defining the additionality of their fast-start finance.

Do the pledges include “investments through international institutions”?

Countries are channeling investments through a mix of multilateral, bilateral, and public-private institutions. Several countries, including Japan and the United States, are channeling a considerable amount of their funds through export credit agencies and other public-private channels. The Climate Investment Funds (CIFs) and the Global Environment Facility (GEF) are the primary multilateral institutions of choice through which other funds will be channeled. Still, a significant portion of this funding, particularly for 2011 and 2012, has not been specified by the countries. The governance of the funds has implications for the effectiveness and perceived legitimacy of the overall climate finance architecture. Developing countries generally prefer that institutions governing finance ensure developing country ownership of funded activities and prioritize funding for climate vulnerable countries. Developed countries tend to emphasize the need to minimize bureaucratic costs and ensure the effective use of resources.

Why is fast-start finance “prioritized for the most vulnerable developing countries, such as the least developed countries, small island developing States and Africa”?

Countries under the Convention recognize that developing countries are highly vulnerable to climate change impacts because they have fewer resources to adapt to the effects of climate change, which can include increased droughts and floods, rising sea levels, and greater uncertainty in the agricultural sector. Least developed countries (LDCs) and small island developing States (SIDS) in particular are recognized as needing special consideration due to their extreme vulnerability. For these reasons, developed countries have pledged to prioritize fast start funds for the “most vulnerable countries.” Several countries are channeling their fast start finance through the Least Developed Countries Fund or the Adaptation Fund, many are channeling finance directly to SIDS and LDCs. Australia in particular states that it will channel at least 25% of its fast-start finance to SIDS. Japan has specified that over 50% of it is grant aid to vulnerable countries, including Africa and the LDCs, is devoted to the area of adaptation.

What types of financial instruments are countries using?

There are several different types of financial instruments countries are using to deliver their fast-start finance, including grants, loans, equity, loan guarantees, insurance, and private investments. Many countries have provided some information on the type of financial instruments used. For example, the EU’s internal reporting process for fast-start finance distinguishes between “grants” — which made up about 45% of EU Member State contributions in 2010 — and “loans, equities or others” — which constituted 55%. Norway reports that all of its fast-start finance will be grants. Meanwhile, Japan’s fast-start finance includes grants and loans that meet ODA standards, finance in the form of ‘other official flows’, and private finance. However, reporting on the type of financial instrument used is neither comprehensive nor consistent. For example, no information is reported on the concessionality of the loans when used, save for by the United Kingdom.

What are the next steps to ensure clarity on the delivery of climate finance pledges in the future?

The UNFCCC system for developed countries to report on the delivery of climate finance faces several challenges, which limit the utility of available data. For example, countries currently use multiple methods for reporting and often provided insufficient information even where requested. To address this, the Cancun Agreements mandate more frequent reporting by developed countries using an enhanced common reporting format.

While these enhanced reporting provisions will be essential for successful tracking of developed country climate financial flows, they will not be ready in time to provide guidance for reporting on the short-term, fast-start finance. In the meantime, the Cancun Agreements invited developed country Parties to submit information to the UNFCCC secretariat, for compilation, on the resources provided to fulfill their fast-start finance commitment by May 2011, 2012, and 2013. Nine developed countries and the EU¹ submitted their reports on or around the May 2011 deadline. While the Cancun Agreements include reporting provisions for fast-start finance, it does not provide guidance on what these reports should include, resulting in reported information that is neither fully comparable, transparent, nor complete, as is demonstrated by the gaps in information in WRI’s fast-start table and in a report by IIED assessing the transparency of the May 2011 fast-start finance reports. The UNFCCC secretariat recently launched a fast-start finance module on its finance portal that enhances the comparability of the May 2011 reports but it remains limited to information provided by developed country Parties. It also does not capture information available on the faststartfinance.org website or on individual donor or recipient websites, or other sources such as NGOs, the private sector or multilateral development banks.

To build trust with developing country counterparts, developed countries should improve their fast-start finance reporting in the future, for example, by including more comprehensive, comparable and transparent information on the following seven elements in their annual fast-start finance reports: scale, method for determining that the money is “new and additional,” channeling institutions, objective, geographic distribution, status of the pledge, and type of financial instrument.