Climate Treaty’s Finances on Shaky Ground

This primer explains why faith is beginning to wane in the Green Climate Fund, designed to heal divisions between rich and poor nations.

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French Foreign Minister Laurent Fabius speaks at a news conference on global warming in June 2015. Paris will host the critical UN climate change talks in December 2015. A key element of a climate deal, the Green Climate Fund, is struggling to live up to expectations. REUTERS/Pascal Rossignol

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Faith in the Green Climate Fund, the finance arm long believed to hold a key to achieving a global climate change accord in Paris in December, is beginning to wane.

The Green Climate Fund is supposed to be the primary distributor of tens of billions of dollars in climate aid to help the world’s poorest countries deal with climate change caused primarily by the actions of others. It was designed to help heal the deep divisions between rich and poor nations that have long dimmed hopes for a meaningful global warming solution. 

But with just one more board meeting to go before the Paris climate talks begin, the money it has to work with is not close to what’s needed, the $3 billion contribution from the United States is looking iffy, and the fund has partnered with several financial institutions that developing nations distrust. 

Here’s a guide to the Green Climate Fund and where it stands:

What It Is

As part of the 2009 Copenhagen Accord, wealthy nations promised to direct at least $100 billion per year in private and public climate aid to poor and vulnerable countries beginning in 2020. The Green Climate Fund was created by United Nations climate negotiators a year later to be the main conduit for a large portion of that $100 billion.

The fund is based in the South Korean city of Songdo, and it functions as an arm of the UN’s Conference of Parties. So far, it has pledges for $10.2 billion. All 130-plus developing countries that are parties to the UN climate convention are eligible to receive the money, but the emphasis is on assistance to small-island developing states, African states and the 48 countries classified as least-developed.

To secure the trust of the poor countries that are wary of the World Bank and many other development banks, the fund’s mandate was to operate differently by giving recipient countries far more say in what kind of projects get pursued. Board representation is split evenly between developing and developed countries. In addition, the fund pledged to spend half of its money on adaptation projects, which tend to receive less money from development banks and other traditional funders.

Why It Matters

The Green Climate Fund takes aim at a fundamental conflict at the heart of the climate talks: the rift between rich and poor nations. Poorer nations are already feeling the effects of global warming and can’t afford to invest in projects that will help them survive what’s yet to come. Those climate effects were caused mostly by the historical emissions from United States and other wealthy nations. For that reason, the poorest and most vulnerable countries have made it clear that they will not sign off on any climate treaty without adequate financial assistance from developed countries.

Key Players

There are 24 board members, with half representing developed countries and half representing developing nations. Board members for developing nations include representatives from Africa (Benin, Egypt and South Africa); Asia-Pacific (China, Saudi Arabia and Pakistan); Latin America and the Caribbean (Cuba, Argentina and Peru); least-developed countries (Zambia); small-island developing states (Barbados); developing countries (Georgia).

Developed nations with representatives on the board include: Australia, Netherlands, France, Germany, Japan, Norway, Poland, Italy, Switzerland, Sweden, Great Britain and the United States.  

Who Has Pledged What

So far, 35 governments have pledged a combined $10.2 billion to the Green Climate Fund, surpassing its goal of $10 billion, a benchmark that was lowered from the original $15 billion. The largest single pledge came from the United States, which promised $3 billion over four years. European Union nations pledged $4.8 billion; Japan pledged $1.5 billion. The contributions have come almost exclusively from developed countries, and their pledges are meant to reassure vulnerable nations that wealthy countries will line up the promised funds in 2020. The fund may accept money from other public and private sources.

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Reasons for Concern   

  • The United States is lagging. The United States pledged $3 billion, but it has yet to sign an agreement for providing the funds, and many believe the amount is well short of what’s commensurate for the U.S. contribution to the problem. There is $500 million set aside in the Obama Administration budget for the Green Climate Fund this year, but it will have to be approved by a Republican-led Congress that is hostile to the climate issue in general.

  • Not enough money. The Green Climate Fund is starting up with much less money in hand than had been hoped. The fund barely got to its lowered target of $10 billion in pledges late last year, and it took until late May for it to secure formal agreements for more than half of that money.

  • Unsettling talk of limiting grants. A paper from the Green Climate Fund secretariat suggested that loans should be the primary financing method for the fund, with grants being used sparingly and possibly reserved for low-income economies. The idea drew criticism from board members for developing countries, who said adaptation projects should be supported with grants, not loans, because such projects don’t generate revenue. Providing grants only sparingly also doesn’t jibe with allocating half the funding to adaptation projects, they said.  

  • The usual players are in the mix. The GCF board has approved 20 entities that will channel funds from the GCF to approved projects, and developing countries have complained that the list is dominated by large financial institutions that are unpopular with many of them. The last 13 of the partnering entities were approved at a just-concluded board meeting, a move that set off objections from the Asian People’s Movement on Debt and Development and 20 other  civil society and environmental groups that are participating in the GCF process as observers. The list of 13 included the World Bank, the European Bank for Reconstruction and Development, the Inter-American Development Bank and Deutsche Bank, a major funder of coal projects. The groups said those institutions have poor track records on climate finance and issues related to human rights. By embracing them as partners, they said, “The fund is at a real risk of losing credibility.”

  • Lack of transparency. The Green Climate Fund board kept the names of institutions up for accreditation secret until after the board had approved them in closed session, which meant that non-governmental organizations had no opportunity to raise warning flags about those companies’ track records in the field. The board also approved all 13 applicants as a slate, leaving board members without a chance to weigh their merits and vote on them individually. In addition, the fund doesn’t provide webcasting of its board meetings, which leaves observers with burdensome travel expenses and makes the deliberations less open and accessible.

  • No exclusion list. So far, the fund has not produced a list of what kinds of projects it won’t fund. Environmental groups and others see that as a basic necessity, especially after news spread that Japan had counted a coal project as “climate finance” because it would produce fewer emissions than other coal power plants.

Reasons for Hope

  • The fund has set aside $16 million for readiness and preparatory support. The money is for helping developing countries establish goals and priorities and form the necessary oversight and support on the ground. The GCF is about to disburse $2.5 million of that funding to nine countries.  

  • The board agreed to launch a $200 million pilot program to allow recipient countries to choose specific projects and have more oversight. The board intends to approve at least 10 pilot projects, with at least four of them in small-island developing states, least-developed countries and African states.  

  • Board members plan to approve the fund’s first few projects at their next board meeting in November, just days ahead of the Paris climate talks.

  • The fund expects to be able to allocate up to $1.4 billion total for projects and programs in 2015.

Next Steps

The next GCF board meeting—its 11th—will be held in Zambia, sometime in November. The dates are not yet set. The most crucial task is to approve some projects for developing countries to show climate negotiators what the fund can do. 

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