The Berlin Pledging Meeting: Success is More than Just one Number!

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Climate finance flows focus overwhelmingly on large emerging economies, but largely bypass poor developing countries

Ten billion US Dollars: One figure will be enough to judge the success of the first ever pledging conference for the Green Climate Fund on Thursday, November 20th in Berlin. Though, equally important will be in what form and how soon the pledge reaches the trust fund as an actual payment.

Ten billion US Dollars? Less? More? Just one figure and a few choice words will be enough for the global public and climate negotiators around the world to judge the success of the first ever pledging conference for the Green Climate Fund (GCF), which will be held on Thursday, November 20th in Berlin, Germany. The Berlin session is the culmination of the initial resource mobilization process for a new game-changing international climate fund in the making since a political agreement in Copenhagen in 2009. Its outcome has the power to raise or dash hopes for significant progress in international climate negotiations toward a new global climate deal post-2020. These talks will continue at the 20th Conference of Parties (COP 20) of the UN Framework Convention on Climate Change (UNFCCC) in Lima, Peru in just two week’s time.

In Berlin, the stakes are high. Those watching the pledging meeting from the outside – including most developing countries and civil society observers – will consider anything less than USD 10 billion in confirmed pledges as a sign that rich countries are not fully supportive of the GCF and not willing to uphold their end of a global climate bargain, in which they provide financial support so that developing countries, who are under no emissions reductions obligation under the current climate agreement, take voluntary actions to cut their carbon emissions as deeply as possibly. Ten billion US dollars is already the lower end of a fundraising spectrum of USD 10 – 15 billion, with which the GCF resource mobilization process started out in early July, even though that lower number has now become the hoped for goal.

Were Berlin to lower the bar even further, developing countries that have fought long and hard for a funding alternative to the multilateral development banks and the Global Environment Facility and that wanted to see at least USD 15 billion in initial pledges for the Fund, might lose trust in the possibility of a fair global agreement post-2020. This would also squander the political momentum that the recent bilateral climate deal between the United States and China, in which the world’s two largest carbon polluters commit to a significant ramp up of steps to accelerate domestic emissions reduction efforts. has created going into Lima.

Developing countries in particular consider the GCF, which is part of the UNFCCC’s financial mechanism and reports to and takes guidance from the COP, to be more than just another climate fund. Plenty of multilateral and bilateral climate financing instruments already exist (many tracked by the HBF-ODI initiative Yet, many of these are largely donor-driven (most of the bilateral initiatives, including Germany’s International Climate Initiative); take a pilot country-approach benefitting only select few countries (like the World Bank administered Climate Investment Funds); or provide funding for all developing countries, but only for a few smaller-scale projects per country (such as under the Global Environment Facility or the Kypto Protocol Adaptation Fund).

Benefits exclusively for large emerging economies

What makes the GCF new and different – and thus requires an ambitious financial commitment of new and additional resources by the industrialized countries which have financial commitments under the UNFCCC – is its vision to affect the paradigm shift toward low-carbon and climate-resilient development in recipient countries. The GCF envisions promoting this shift by providing programmatic funding at scale for all developing countries, by transforming sector approaches and policy environments, and by prioritizing above all national institutions and domestic private sector engagement and investments.

The GCF charter also enshrines the principle of country ownership, including by guaranteeing countries direct access to its resources without the mandatory involvement of multilateral agencies or banks. The new Fund sports an inclusive governance structure with half of the 24 Board seats held by developing country representatives. And it promises to overcome the false dichotomy between climate protection and economic development by placing its efforts in a sustainable development context and mandating that GCF adaptation and mitigation funding also yields and supports multiple non-climate economic, social, development and environmental benefits and – as the first climate fund ever –takes a gender-sensitive approach from the outset.

The GCF is to become the main multilateral channel for the Copenhagen commitment to raise USD 100 billion by 2020 in support of climate action in developing countries. Crucially important for the poorest developing countries, including the small island developing states, least developed countries and African states, the GCF is mandated to spend 50 percent of all its resources to help developing countries to adapt to climate change, with half of this money reserved for the most vulnerable states. In contrast, globally, climate finance flows to developing countries at the moment focus overwhelmingly on emissions reductions. These benefit almost exclusively a handful of large emerging economies such as India, Brazil, South Africa, China or Mexico, but largely bypass poor developing countries, which have profited little so far from carbon-focused development but whose populations suffer already most severely from climate change impacts caused by the accumulation of historic emissions of the industrialized countries.

Going into Berlin, a number of individual country pledges are already publicly known. In theory, anybody can contribute to the GCF on an ongoing basis -- from private sector companies and philanthropic foundations to high net wealth individuals, although the Fund’s initial resource mobilization process focused on public contributions coming from interested countries exclusively. Industrialized countries –the traditional donors, who under the Copenhagen pledge must be the first to pay in – tried their hardest to encourage developing country governments to also contribute. Some of them, like the United States, use the potential contributions by developing country governments as a selling point to their own tax payers and as proof for the innovative structure of the Fund.

Immediate reporting will focus on the numbers

Thirteen countries have already made their contribution announcements, using various political opportunities over the past five months (a meeting here, a summit there) for maximum publicity. First of was Germany, which in mid-July committed up to EUR 750 million for the GCF. France with its USD 1 billion commitment and others used the UN-Secretary General’s extraordinary climate summit to highlight their country’s financial support. The G20 Summit in Brisbane the past weekend served as the latest backdrop for the high profile announcements of Japan of up to USD 1.5 billion and the United States of up to USD 3 billion for the GCF – to the dismay of G20 host country Australia, which under the new Abbot government turned from a GCF supporter to a GCF fiend and is unlikely to contribute anything to the Fund.

Taken together, pre-Berlin pledges already add up to USD 7.43 billion – three quarters of the pledge meeting goal (for an overview, see the table below). That last quarter, though, might prove to be the toughest to fundraise. Of the remaining traditional donor countries, the largest contribution will likely come from the UK, which is rumored to bring a check over £ 650 million (roughly USD 1 billion) to Berlin. The prospects for generous contributions from the rest, among them Canada, New Zealand, and quite a number of other EU member states (including several like Italy, Spain, Poland, or Belgium with seats on the GCF Board) are uncertain. Of course, the pledges are more than just the sum of individual numbers. Politically, several pledges stand out already out before Berlin, both for what they signify and what they don’t.

It seems conceivable now that some developing country governments at the Berlin pledge meeting will put some of the traditional donors to shame with their willingness to contribute – as has already happened with South Korea as a developing country matching the Swiss pledge of USD 100 million. Mexico came already forward with a USD 10 million GCF contribution, almost as much as the Czech Republic and Luxembourg put together, while countries like Belgium, Poland, Austria, Iceland, Ireland, Finland, Spain or Portugal have so far remained uncommitted and might not come forward in Berlin at all. And: while the pledging meeting itself and the immediate reporting thereafter will inevitably focus on the numbers – the quantity – of the contributions, a more thorough analysis will be needed to look at the quality of the individual contribution promises of industrialized countries under Annex II of the UNFCCC and their relative fairness in an assumed burden-sharing approach. Lastly, it will be important to tally which countries will not step up to the plate at all and why.

TABLE/GRAPH: Overview over current confirmed pledges to the GCF

[1] Exchange rates used (as of 11/16/2014): 1 EUR = 1.25 USD; 100 SEK = 13.53 USD; 1 GBP = 1.57 USD

Although the GCF was conceived to address several shortcomings of existing funds, the greatest shortcoming of all international climate funding efforts – the absence of mandatory assigned contributions for those countries with financing obligations under the UNFCCC –continues on in GCF resource mobilization. With only voluntary efforts by industrialized countries, there is no guarantee for a fair burden sharing of GCF inputs commensurate with an Annex II country’s economic strength, relative share of global emissions or comparable contributions to other multilateral climate funding efforts, such as the GEF or climate-relevant official development assistance (ODA). While no one single formula to tally such an approach exists, several efforts such as the greenhouse development rights (GDR) approach or a recent calculation by Oxfam America (taking the average of relative contributions to ODA, the GEF, Fast Start Finance and the UN budget) can provide some rough guidance on what could be considered a fair share. For example, for USD 10 billion in initial GCF pledges, the German contribution of EUR 750 million (or USD 938 million) is approximately in line with Germany’s fair country share (but also not overly generous).

So are Japan’s promised USD 1.5 billion and the American USD 3 billion pledge (which the White House says it will only fulfill, if its USD 3 billion do not constitute more than 30 percent of total confirmed pledges, i.e. the USD 10 billion are reached). All three countries announced their pledges as “up to” financing, meaning they reserved the right to pay less into the Fund if other countries in their opinion do not pledge enough. Compared with such nickel-and-diming, the generosity of Sweden stands out: it pledged already the equivalent of USD 541 million, or more than four times what could be considered its “fair share.” France’s solid USD 1 billion commitment irrespective of other countries’ pledges is likewise more generous than that of some of its neighbors, including the Netherlands’ USD 125 million, which – given the economic strength of the country – could have been almost twice as high. Norway’s USD 33 million promise is likewise weak, although it might be revised upward during the Berlin meeting.

Budget appropriations might be threatened by domestic renegotiations

Ultimately, though, the numbers tell only half of the story. As important as how much money a developed country promises in Berlin will be in what form and how soon the pledge reaches the GCF trust fund as an actual payment. There is a world of difference between committing money to the GCF exclusively in grants as the American pledge is expected to be rather than in loans or capital contributions which is the form that a significant part of the German and French contributions is expected to take (although most details of individual contributions are not yet known). If the vast majority of pledges at the Berlin meeting are in the form of grants, then the GCF Board will have the most flexibility, not only to pass on grants to developing country recipients, but also to take some riskier investments that could be needed for sector-wide or private sector approaches. With loan or capital contributions, in contrast, the GCF Board will have to favor loan investments that guarantee a solid return to be eventually in a capacity to pay contributors back or out – but which might not necessarily be the most forward-looking or innovative investment decisions or those addressing the most urgent needs of developing countries especially for adaptation.

Likewise, it will matter how quickly and over what time-frame pledges are fulfilled. For example, if the German contribution schedule could indeed span up to nine years, as has been reported (with just a minor first payment in 2015) , it could prove to be a lot less significant for the Fund early operations than a smaller pledge fulfilled very quickly. On the other hand, if a hostile parliament does not support a country government’s pledge – as could be the case with a Republican-led US Congress actively opposing a number of climate initiatives by American President Obama – concrete budget appropriations might be lingering or threatened by domestic renegotiation or scaling back. Some industrialized countries might be tempted to prevent negative parliamentary reaction by turning to “targeting” – placing conditionalities on their contribution by stipulating that it might be only used for a specific purpose. For example, the White House has already announced its intention to “target a significant portion of our GCF support to the GCF’s Private Sector Facility.” It also warned that the US government “reserves the ability to direct a portion of this pledge to other multilateral climate funds” if the GCF does not finalize its governance and institutional policies speedily enough (or to the US government’s liking?) in 2015.

The United States are not alone in attempting to place conditions on the use of their contributions for the GCF. In the two previous meeting of potential GCF contributor countries in July and September leading up to the Berlin pledge meeting, a number of countries proposed that suggested future voting procedures for the GCF Board in the absence of a consensus could be tied to contributions and that countries could target contributions for mitigation, adaptation or private sector activities respectively. These are practices common in the Bretton Woods organizations, where donor governments hold most sway. Although the full GCF Board had rejected any contributor conditionalities at its October meeting in Barbados, they might nevertheless make an unsavoury comeback in Berlin. This would be a sad beginning for a new climate fund promising to be innovative and moving beyond “business-as-usual” by firmly putting developing country recipients in the driver seat.