How will the international community raise billions of dollars to help developing countries reduce emissions and respond to the already emerging impacts of climate change? How will the funds be allocated and delivered to recipient countries? Next month’s climate summit in Doha is expected to focus intensely on these questions.
Don’t go looking to the Green Climate Fund (GCF), created last year at the Durban climate summit, for early answers. The GCF is intended to be an important mechanism for collecting and distributing up to $100 billion per year in climate finance. In preparation for Doha, the 24-member GCF board held its first meeting in Geneva last August. High on the agenda, according to official “media only” Press Advisory: “the decision on how to conduct the process to select the host country of the Fund.” (Six countries are competing for the honor: Germany, Mexico, Namibia, Poland, Republic of Korea and Switzerland.)
More substantive discussions were held this month at a workshop on long term climate finance, organized by the UN Framework Convention on Climate Change (UNFCCC) in Capetown, South Africa.
Among the questions: how to raise funds (extend cap and trade systems? put in place carbon taxes? Impose global taxes on international financial transactions or bunker fuels?); how to allocate funds (on a per capita basis? based on need or impact?); and how to channel funds to recipient countries (direct access? budgetary transfers? through intermediaries?).
Of key interest to the most vulnerable countries is how to mobilize and allocate funds for adaptation. Should the GCF use a resource allocation framework similar to the one used to allocate IDA credits, GEF grants or the Pilot Program for Climate Resilience (PPCR), all of which favor countries with sound economic and policy management? Or should the allocation decision be based solely on consideration of a country’s vulnerability to climate change? Should this include only physical vulnerability – things like the impact of extreme weather, rising sea levels and falling agricultural productivity? Or should it also weigh a country’s institutional vulnerability – its ability (or inability) to organize a societal response to climate change? Might core allocations be considered separately from disbursement and management of the funds?
These were among the questions discussed in a recent Washington, DC, roundtable on Climate Vulnerability Indices and Adaptation Finance co-hosted by the Center for Global Development and DARA, a Madrid-based organization focused on humanitarian concerns and vulnerability to climate change.
The roundtable, chaired by CGD VP Lawrence MacDonald, considered the use of vulnerability indices to allocate adaptation finance. Brief presentations covered three such indices: DARA’s Climate Vulnerability Monitor (presented by Ross Mountain and Matthew McKinnon); an adaptation resource allocation framework developed by researchers at the World Bank and the London School of Economics (presented by Kirk Hamilton); and an index of vulnerability and a proposal for allocating adaptation finance proposed by CGD, which I presented.
Discussants included ministers and ambassadors from highly vulnerable countries such as the Maldives, Bangladesh and Costa Rica. Roundtable participants—including Washington-based thought leaders from the worlds of both development and climate finance—generally welcomed the idea of using data on physical and institutional vulnerability to climate impacts to create transparent criteria that could lead to equitable allocations.
The debate centered on whether countries should receive a higher allocation if they have a record of good economic management and good governance, as is the case in the allocation frameworks for IDA and the GEF. This would penalize people with the bad luck to be born in the most vulnerable countries, which are often also the most fragile and corrupt.
Nancy Birdsall and I argue in our recent paper on adaptation finance that while a country’s allocation of adaptation finance should not be reduced due to poor economic management and weak governance, a country’s access to the funds should take into account these considerations: strong performers should be able to choose to receive the funds through budget support or other programmatic approaches. Weaker countries—think fragile states—would be required to select a third party with a strong management record (say, a private firm, international NGO or perhaps a regional development bank or the World Bank) to access the funds and deliver the adaptation assistance on the recipient country’s behalf.
This is a big departure from the IDA approach, which favors those with a proven ability to use money well. In our view, this difference is only fair, since adaptation assistance is not “aid” in the traditional sense of charity from the rich to the poor. Rather climate adaptation assistance is an obligation of today’s rich countries, which created the problem of destabilizing climate change through past and current emissions of heat-trapping gasses, to in some measure compensate the poor, who are feeling these impacts first and worst.
Of course, as Lawrence noted in chairing the discussion, for now allocation mechanisms are largely theoretical: there is precious little adaptation assistance to allocate. Getting the allocation system right won’t change that. But having in place an effective allocation system, one that is perceived by both contributors and recipients as equitable and efficient, will be necessary if not sufficient to get the funds flowing.
Whatever the climate negotiators and directors of the Green Climate Fund decide, the priority is to rapidly mobilize funds so that they can be directed to the large number of poor countries already suffering the impacts of climate change.