ISIS Report 02/04/08
World Bank Climate Funds May Undermine Climate Talks
NGOs concerned over the World Bank’s proposed US$7-12 billion portfolio
of climate investment funds. Celine Tan of Third
The initiative, led by a handful of G8 countries,
will undermine existing multilateral negotiations on climate change and create
conflicting parallel mechanisms for delivering climate-related financing.
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In a letter
sent to UK Secretary of State for International Development, Douglas Alexander,
on Tuesday 11 March 2008, representatives from more than 20 UK-based and international
non-government organisations (NGOs) said that the current rush
to finalise the proposals for the funds could lead to the establishment of
“top-down funds, without adequate participation of developing countries, without
much needed accountability mechanisms, and without promoting the wider environmental
and development benefits and sustainable transformations”.
The NGOs include the Bretton
Woods Project, Christian Aid, Friends of the Earth, Greenpeace, Jubilee Debt
Campaign, Oxfam GB, Practical Action, Third World Network and WWF-UK and the
letter was copied to Hilary Benn, Secretary of State for Environment, Food
and Rural Affairs, UK.
The World Bank expects to
conclude discussions on arrangements for its climate investment funds, including
securing financial pledges from donors, at the G8 environmental ministers’
meeting in Tokyo in late May this year and seek final approval
for the funds from its Executive Board in early June.
The World Bank has proposed
the creation of three specific climate investment funds - the Clean Technology
Fund, the Forest Investment Fund and the Adaptation/ Climate Resilience Pilot
Fund - along with a Strategic Climate Fund to deliver donor financing for
climate change mitigation and adaptation projects.
According to a leaked draft
of the Bank’s proposal dated 22 January 2008, the funds will
be aimed at providing “concessional finance for policy reforms and investments
that achieve development goals through a transition to a low carbon development
path and climate-resilient economy for developing countries”.
The combined target size
of the funds is between US$7-12 billion and stems from the institutions’ dialogues
with a tripartite of countries, the UK, the US and Japan, building upon the
UK’s earlier initiative for an Environmental Transformation Fund (ETF), the
US’s proposed Clean Technology Fund and Japan’s Cool Earth 50 initiative.
Financing will take the
form of credit enhancement and risk management tools, such as loans, grants,
equity stakes, guarantees and other support mobilised through donor contributions
to the respective trust funds and implemented in collaboration with the regional
NGOs are concerned that
the proposed Bank funds, established as trust funds under the Bank’s Concessional
Finance and Global Partnerships Vice-Presidency, will lead to parallel structures
for the mobilisation and disbursement of climate-related financing and bypass
existing multilateral negotiations.
For example, they are worried
that the inclusion of the US-led Clean Technology Fund into the Bank’s portfolio
“could imply support for the US Major Emitters Meeting process,
which lies outside the UN track of negotiations on a post-2012 framework”.
This is compounded by the
fact that the Bank will host a secretariat for the climate investment funds
and, in collaboration with regional
development banks, will be
responsible for selecting staff for the secretariat and managing the secretariat.
The governance structure of the climate investment funds will also be
donor-dominated, governed by trust committees made up of the contributors
to the respective funds. The trust fund committees would be responsible for
reviewing and approving country applications for financing and determining
the terms of access to the funds.
The Bank itself has an asymmetrical governance structure
where voting power is allocated according to capital invested in the Bank,
giving five developed countries almost 60 percent of the votes in the institutions.
NGOs are concerned about
the potential conflict between the Bank proposed Adaptation/ Climate Resilience
Pilot Fund and the United Nations Framework Convention on Climate Change (UNFCCC)
Adaptation Fund agreed at the climate change talks in Bali, Indonesia in December
last year. The NGOs said: “While this latter fund faces some challenges going
forward, it importantly has a far greater degree of developing country ownership.”
The NGOs added: “We appreciate
that difficulties may exist as to whether the UNFCCC fund can accept certain
types of funding, but we believe that all options need to be fully considered
and the option of [the UK’s Department for International Development]
channelling significant funds via this route should not be discounted at this
The Adaptation Fund which
finances climate change mitigation and adaptation activities in developing
countries is funded by proceeds from the 2 percent levy on transactions under
the Kyoto Protocol’s Clean Development Mechanism (CDM).
At Bali, it was decided that the Adaptation Fund is to be
supervised and managed by an Adaptation Fund Board represented by developed
and developing countries. Although the secretariat for the fund will be held
by the Bank-based trust fund, the Global Environmental Facility (GEF), this
is meant to be temporary and the secretariat would have to report to the aforementioned
board and the GEF’s status as secretariat will be reviewed after three years.
The NGOs are against the
proposal that the Bank’s Adaptation/Climate Resilience Pilot Fund is to offer
concessional loans for adaptation, saying that “it is inappropriate to use
loans given that the problems that developing countries must tackle were largely
created by rich countries in the first place”.
parts of the climate investment funds will be counted as official development
assistance (ODA) by donor countries, including the UK, which means that it will compromise additional
overall development financing to developing countries. This
goes against existing multilateral commitments under the UNFCCC, which states
that developed countries should provide new and additional financial resources
to meet the agreed full costs incurred by developing countries in meeting
their climate change commitments.
“We believe, however, that funding to help developing
countries respond to the challenges of climate change should be additional
to the long-standing ODA commitment of 0.7 percent GDP,” said the NGOs in
their letter to Alexander.
The NGOs also have reservations about the
role of the World Bank in climate change activities, given its negative track
record on social and environmental issues. They point out that the Bank’s
“energy portfolio continues to be skewed towards fossil fuels
over decentralised renewable energy” and that in order for the Bank and other
regional development banks to be “credible” partners in the fight against
climate change, they must make sure that they have adequate social and environmental
safeguards in place.
The NGOs called for governments
to ensure that the proposals for climate change financing are appropriate at this crucial juncture,
when “it is vital that these proposals are opened up to wider ownership and
engagement from civil society and developing countries”.