Financial Mechanism under the UNFCCC Maria Netto United Nations Development Programme 3 September 2008

1 1 1 Common but differentiated responsibilities Action by developing countries to address climate change depend on the financial support that these countries would receive from developed countries (Article 4.7) Climate change requires “new and additional finance” (to ODA) because it is a public good. Developed countries (Annex II) are expected to support developing countries with new and additional resources for “agreed full incremental costs” (Article 4.3). A number of areas for which support is to be provided are identified (articles 4.1, 4.4, 4.5, 4.8 and 9). Important provisions on financial support in the Convention

2 2 2 Does not stipulate what are to be the sources of funding for the mechanism Provides for some concepts of governance: -Shall function under the guidance of and be accountable to the Conference of the Parties -Shall have an equitable and balanced representation of all Parties within a transparent system of governance Grants or concessional basis. Allows that its operation shall be entrusted to one or more existing international entities. Article 11 – the financial mechanism

3 3 Provides for issues the COP and entity(ies) operating the mechanism are to consider for: Ensuring operations Determining predictable and identifiable manner of the amount of funding necessary and available for the implementation of this Convention and the conditions under which that amount shall be periodically reviewed. Acknowledges that donors may also support countries through other sources (bilateral or multilateral). Article 11 of the KP – mainly refers to the Financial Mechanism of the Convention!

4 4 Global Environment Facility Became at COP 3 “an entity operating the financial mechanism of the Convention” (before was operating the financial mechanism on interim basis) Operations of the GEF as an entity operating the FM are to be reviewed every 4 years Comprehensive multilateral financial mechanism for environmental Conventions (as opposed to fragmented bilateral / multilateral funds) Has its own criteria and principles (such as the principle of global benefits) Has its own governance system and specific procedures. Replenishment follow a burden sharing system and is “voluntary”.

5 5 Frustrations with the financial mechanism More than 40 decisions referring to the FM…. perception of little progress as result. While at Marrakesh/Bonn (2001): A number of donors declared they would contribute collectively $ 410 million annually by 2005, with this level to be reviewed in Parties agreed that there would be an increase of contributions to the FM (decision 7/CP.7) The LDCF and SCCF were created to cope with areas the GEF trust fund could not cover. In reality: Most donors have not reported on the contributions referred to at Bonn GEF 4 is in real terms smaller than GEF 3 – COP has little input on replenishment. The SCCF and LDCF took about 3 years to be operationalized and have very small amounts of funds.

6 6 6 Relatively small amount of funds in Convention Funds. Financial mechanism discussions have suffered of reflecting “donor recipient” traditional development cooperation relationship - resulting in “ossification” of negotiations. Difficulty to track what “new and additional” resources other than the GEF that have been provided by Annex II Parties. Difficult experiences of developing countries in accessing and receiving support through existing funds. Frustrations with regard to interpretation of guidance and lack of transparency. The recognition that additional financial flows will be needed to cope with needs and that one has to move from project by project to programmatic approaches. New mechanisms were created since – CDM and AF – “international funds” with innovative governance. FM negotiations – challenges

7 7 Financing has been acknowledged as one of the building blocks of the Bali Road Map: challenge – need for innovative approaches that can be negotiated and put in place by Negotiations regarding financing to address climate change have evolved to a much broader range of issues relating to relationship between the costs / needs to address climate change and economic growth an development. Governments want to be in the “driving seat” on discussions regarding financing to address climate change – while acknowledging strong need for input from other players. Developing countries have stressed strongly the importance of balanced governance and effectiveness of new mechanisms. Some proposals to better deliver support are being tabled: regional centers of excellence, programmatic approaches for adaptation, etc.. Financial Mechanism – evolution in negotiations

8 8 8 Options under discussion How to best allocate international public funds and what is the role of the GEF (as entity operating the financial mechanism) given their small share? What governance changes are needed to ensure more equitable representation of various Parties interests and improve effectiveness of access to finance? What are the possible innovative mechanisms to leverage additional funding and how should these new mechanisms be governed and used? What is the possible role of, and what are the possible incentives to, promote national and international policies and regulations that can stimulate shifts in private and public investment and finance? How to ensure consistency of investments and finance to address climate change with overall investment and finance for development?

9 9 9 Funds Convention / Kyoto Protocol Mandates GovernanceSupport servicesLevel of fundsSource of funds GEF Trust Fund Art.11 FCCC GEF Council - Members selected under GEF system - Members represent GEF constituencies - Equal representation of developed and devoting countries (with special weight voting rights to donors) GEF secretariat GEF implementing and executing agencies Mitigation: $ 3.3 billion* (from ) Adaptation: $50 million (until 2010) Contributions by donors following “burden sharing” agreement SCCFArt. 11 FCCC SCCF Council (under the GEF) - Members selected under GEF system - Members represent GEF constituencies - Representation of depends on constituencies willingness to participate in this fund GEF secretariat / GEF implementing and executing agencies $ 74 million (until March 2008) Voluntary contributions by donors LDCFArt 11 FCCC LDCF Council (under the GEF) - Members selected under GEF system - Members represent GEF constituencies - Representation of depends on constituencies willingness to participate in this fund GEF secretariat GEF implementing and executing agencies $173 million. pledged (until March 2008) Voluntary contributions by donors AF Art 12.8 KP Art 11 KP? Adaptation Fund Board - Members directly elected by the CMP - Members representing 5 UN regions - Majority of developing countries GEF secretariat World Bank as trustee Depending on quantity and price of CERs (until 2012). Assumingly $ 80−300 million per year 2 % share of proceeds of CDM Voluntary contributions by donors CDMArt 12 KPCDM Executive Board - Members directly elected by the CMP - Members representing 5 UN regions - Majority of developing countries UNFCCC secretariat DOEs Depends on price, estimated revenue per year (based on 2006): $ 5.5 billion CERs