Author Archives: Anju Sharma

Addressing the finance gap in sub-national contributions to the fight against climate change

By Anju Sharma

Nationalism and globalism are the polarising -isms of our times, replacing (according to bestselling author Yuval Noah Harari) even the traditional political divide of conservatism vs. liberalism. With nationalism on the rise again, innovative solutions have become necessary to address global existential challenges that no country can address on its own.

How, for instance, do we tackle a global existential threat like climate change in a world of rising nationalism? Multilateralism, in the form of the Paris Agreement, delivered only national determination as countries bunkered down and refuted any top-down, global determination of responsibility. But even this “global-lite” version of multilateralism was rejected by staunch nationalists in the US.

In response, globalists have rallied to offer sub-national action as an alternative. The Global Climate Action Summit (GCAS), which just took place in San Francisco, was a celebration of pledges from sub-national entities – cities, states, businesses, and individuals – to act against climate change. The Summit gathered an impressive list of commitments, from ambitious targets for carbon neutrality, to the use of green bondsand pension funds to build more climate resilient infrastructure and invest in renewable energy.

Although the pledges will not entirely make up the 28% reduction by 2025 (from 2005 levels) promised by the US under the Paris Agreement (which was already inadequate to meet the overall goal of the Paris Agreement to keep temperature rise within safe levels), they are important steps in engaging sub-national entities directly in the global fight against climate change.

A sub-national call to arms is not, however, a substitute for multilateral negotiations. As was evident at GCAS, such voluntary action may not heed the delicate balance of priorities that is necessary and can be achieved in a multilateral setting where all countries are formally represented.

For instance, the vast majority of ambitious announcements made at GCAS relate mainly to mitigation action – including target setting, and the US$ 4 billion pledged for mitigation by philanthropies. In the absence of adequate representation of the world’s most vulnerable, it is easy to forget that in addition to the “mitigation gap,” there is an adaptation gap, and a climate finance gap. This is recognised in the Paris Agreement, which includes a hard-won balance between adaptation and mitigation; and an emphasis on the importance of adequate finance for both mitigation and adaptation.

While a multilateral setting is essential to give equal voice to all, sub-national entities can still take a cue from the global negotiations and strive for more balance in their pledged action. A GCAS affiliate event on “Funding Climate Justice: Advancing Sub-National Action on Multilateral Climate Finance”, organised by Oxford Climate Policy (OCP), 350 Seattle, and Cool Effect on 14 September pointed to ways in which sub-national entities can contribute to the neglected area of climate finance – in particular to climate finance for adaptation, which is unlikely to attract private sector contributions.

As OCP Director Benito Müller pointed out while introducing the event, the multilateral negotiations are currently fraught with distrust – in particular, the discussions on climate finance. Sub-national entities can help dissipate the distrust by contributing finance that can be relied upon and is delivered through channels trusted by developing countries, such as the multilateral funds that serve the Paris Agreement.

Alex Lenferna, 350 Seattle, said California Governor Jerry Brown’s claim that the pledges made during GCAS would meet the US commitments under the Paris Agreement are not quite accurate. The commitments made for climate finance, critical for increased ambition in developing countries, have not yet been met. As one of the wealthiest countries in the world, and the country with high responsibility for climate change, he called on the US to contribute its fair share.

Three concrete ways in which sub-national finance could be raised were then presented at the event: individual contributions through crowdsourcing; individual contributions of tax refunds; and a “share of proceeds” from sub-national emissions trading.

Jodi Manning, Cool Effect, described a proposal for a crowdsourcing initiative, #STILLIN, that will allow individuals to pledge US$ 1 or more toward funding the gap caused by the current administration’s exit from the Paris Agreement. Contributions will be directed toward mechanisms such as the Adaptation Fund, she said, with an emphasis on supporting projects that directly help people most effected by climate change.

Massachusetts State Senator Mike Barrett then described a Bill he has authored, calling for a  Massachusetts-UN Least Developed Countries Fund (MLDCF) to be established under Massachusetts state law.  Describing the idea as “disarmingly simple”, Senator Barrett said the bill proposes to add a new “check-off” option to the six options involving other good causes that are already included on Massachusetts state income tax forms for the convenience of taxpayers who wish to make donations over and above their income tax obligations. He felt the idea had a good chance of going viral and travelling across state borders, as all 42 US states with a state income tax provide options for contributions on their income tax forms; and many US citizens would like to push back on the home-grown populism advocated by President Trump. The MLDCF would be legally constituted to receive other gifts, grants, and donations to the Fund as well, and all contributions would then be relayed to the UNFCCC’s Least Developed Countries (LDC) Fund.

Müller introduced the Western Climate Fund, a regional instrument proposed by OCP in collaboration with the Chair of the LDC Group, to collect “share of proceeds” from carbon policy instruments such as the sale of emission trading permits, or carbon tax revenue. He described efforts by OCP to bring on board the Canadian Provinces and US States of the Western Climate Initiative, with the aim of collecting funding for the multilateral funds serving the Paris Agreement. Québec, one of the states participating in the WCI, had already contributed Cdn$6 million to the LDC Fund during the Paris Climate Conference, Müller said, and efforts are underway to make this a more regular contribution on the basis of a fixed share of proceeds from trading, and from more states and cities. This could provide up to US$ 96-125 million annually, he estimated.

The three initiatives described at the meeting are “innovative sources” of climate finance. The idea of resorting to innovative solutions to fund sustainable development is at least as old as the Brundtland Commission report. Given the urgent threat that climate change poses, and the high estimates of finance needed to address this challenge, it is an idea whose time has come.

In the panel discussion that followed, facilitated by Achala Abeysinghe from the International Institute for Environment and Development, LDC Chair Gebru Jember explained why climate funds should be channelled through the financial mechanism of the UNFCCC, saying this will increase the chances of all countries accessing the funds (not only “donor darlings”); allow greater national determination of priorities; and enable the funds to be democratically governed by all countries, to ensure easier access. Tosi Mpanu-Mpanu, Board Member of the Green Climate Fund and former LDC Chair, agreed, saying certainty with international climate finance will allow developing countries to make their Paris Agreement contributions more ambitious.

Perhaps, then, sub-nationals can play a vital role in building a bridge between nationalism and globalism. But, as Heather Coleman from Oxfam America concluded at the meeting, addressing climate change will not only need divestment from fossil rules, but also investment, particularly in minimising climate impacts on poor and vulnerable populations.



A lifeline for the Adaptation Fund?

Should the Adaptation Fund seek accreditation with the Green Climate Fund?

by Benito Müller


The Kyoto Protocol Adaptation Fund (AF) was established to finance concrete adaptation projects and programmes in developing countries that are particularly vulnerable to the adverse effects of climate change. Its first projects were approved in September 2010. It has since allocated $265m in 44 countries with project sizes ranging between $0.7m and $10m, i.e. for what the Green Climate Fund (GCF) refers to as ‘Small and Micro Projects’ (less than $10m).

From the very outset, the AF was innovative in a number of ways:

  • It has a majority of Board members from developing countries.
  • It was designed to receive innovative international financing in the form of a 2% adaptation levy on the credits generated by projects under the Kyoto Protocol Clean Development Mechanism (CDM).
  • It pioneered the innovative ‘direct access modality’, under which project proposals could be submitted through National Implementing Entities.
  • It also championed transparency through live webcasting of its Board proceedings.

The AF has evolved to fund smaller-scale innovative adaptation projects and has dedicated processes that can accommodate this scale. The transaction costs for small- and micro-projects can be high, and need dedicated systems and monitoring. The AF has also developed a nurturing environment for direct access and a network of peer-to-peer learning among developing countries. The AF allows for countries to ‘learn by doing’ in a lower-risk environment – pure grants, adaptation only – all within the confines of a performance-based monitoring system.

The main problem facing the AF in the near to medium term is that it has been let down by the inability of developed countries to support the CDM credit price; which at its peak was over €14 per ton, but has since been reduced to currently below 50 cents per ton. Having said this, it is important to emphasize that this issue should not be used as an argument against ‘international innovative funding’, but against putting all one’s eggs into one (carbon-market-based) basket. This is why the provision of predictable GCF ‘core funding’ for the AF is key to a sustainable future for the AF.

There appears to be a convergence of opinion among AF Board members that accessing such a core funding stream from the GCF would be desirable, if not essential, for the near- to mid-term survival of the AF, which currently has funding for another 18 months of operations. However, there is still a difference of opinion on how best to access such funding. On 2 March 2015 the AF Board decided to request its Secretariat for a further assessment of the two main options that have been under consideration, namely:

  • [A]: accreditation as a multilateral grant-providing intermediary (‘funding entity’), or
  • [B]: entering an MOU or legal agreement following paragraphs 33-4 of the GCF Governing Instrument.[1]

During the twenty-fifth AF Board meeting, a lively in-depth discussion of these issues began at an informal ecbi Seminar on 8 April (co-hosted by the incoming AF Board Chair) and was taken up in formal plenary on 10 April. In the course of these discussions it became clear that there are two quite distinct issues preoccupying Board members in this context, namely:

  • [a]: urgently securing predictable resources, and
  • [b]: making the best use of complementarities between the GCF and the AF.

So the Board decided (Decision B.25/21) at the end of the formal discussions to request:

  • (a): the Secretariat to prepare a document for consideration by the Board at its 26th meeting [6-9 October 2015] containing further legal, operational, and financial analysis on the implications of various linkages with the GCF, and
  • (b): the Chair and vice Chair to initiate consultations with the Standing Committee on Finance and start a dialogue with the Green Climate Fund (GCF) Board, on potential linkages between the two funds and request the issue of complementarity between the two funds to be considered by the GCF Board at the earliest.

These discussions also highlighted the need for clarification of the nature of the two main options [A] and [B] under consideration. Given the context in which these two options are presented, one might be tempted to interpret them as two independent ways of obtaining GCF funding. This, however, would be to misread the reality of how GCF funding can be accessed.

No [a] without [A]

Option [A] (GCF accreditation), would obviously suffice for accessing GCF funds. However, it would be wrong to think that option [B] (entering some MOU or agreement) on its own i.e. in the absence of accreditation, could achieve the same.

Why? For one, the very first paragraph of Section D on ‘Access modalities and accreditation’ in the GCF Governing Instrument stipulates that ‘[a]ccess to Fund resources will be through … entities accredited by the Board.’[2]

Moreover, as explained in Accreditation to the Green Climate Fund  November 2014

  • Entities seeking accreditation to the Fund in order to access its resources will be assessed against the Fund’s fiduciary principles and standards and environmental and social safeguards (ESS)
  • Through the 3-stage accreditation process [see figure] and the fit-for-purpose approach, entities will be accredited for certain fiduciary functions, size of project/activity within a programme, and environmental risk category.

GCF Accreditation Stages

Figure: The Three Stages of GCF Accreditation (click to enlarge)

Given this, it is difficult to see how the GCF Board would allow an entity to access funding without that entity having undergone these assessments and reviews.

To be quite clear, the accreditation process itself does involve a sort of (legally binding) ‘MOU’ (known as an Accreditation Master Agreement) between the GCF and an accredited entity. It is arranged in Stage III of the accreditation process and fixes issues such as:

  • Project/programme pipeline preparation;
  • Use of accredited entities’ standard forms of loan, grant and other agreements;
  • Project cycle, including internal approval processes;
  • Adherence to guidelines from the Fund, including the fiduciary standards and the environmental and social safeguards.

The point here is simply that on its own an MOU [B] is not a stand-alone option for accessing GCF funds.

No [b] without [B]

As it happens, [B] actually is a viable stand-alone option, but for a different purpose. The fact is: the GI paragraphs referred to in [B] do not relate to accessing funds, but to ‘A. Complementarity and coherence’. Paragraph 34, in particular, states that:

The Board will develop methods to enhance complementarity between the activities of the Fund and the activities of other relevant bilateral, regional and global funding mechanisms and institutions, to better mobilize the full range of financial and technical capacities.

[b] – that is, making the best use of complementarities between the GCF and the AF – is independent of [a] – accessing GCF funds – and requires separate arrangements, presumably under paragraph 34 of the GI, as referred to in Option [B]. Ideally, such arrangements could be made in order to designate the AF as the main multilateral ‘retail agent’ of the GCF for concrete micro adaptation projects. This would relieve the GCF of the need to deal with such projects and enable it to focus on larger-scale activities/programmes instead.

Next Steps

With regard to AF Board Decision B.25/21:

  • The AF Secretariat, following (a), should focus on clarifying, as soon as possible, all the outstanding issues that the AF Board will want to have settled in order to be able to take an informed decision on applying for GCF accreditation.
  • On the basis of the consultation with the Chair and vice Chair of the AF Board, the SCF should include request (b) in the next draft COP guidance to the GCF.

[1] See paragraph 19 (b) in Potential Linkages between the Adaptation Fund and the Green Climate Fund (AFB/B.25/Inf.6, 25 March 2015)

[2] Emphases added.