Global Policy Forum

Murky Climate Finance Risks Undermining Trust at U.N. Talks



By Megan Rowling

June 4, 2010


Urgent financial help for poor countries to curb their carbon emissions and adapt to climate change is viewed as one of the best ways to rebuild the trust needed to secure a global deal at U.N. climate talks. But is it shaping up to be the hoped-for silver bullet?

The non-binding Copenhagen Accord - glued together at December's summit and backed by some 120 countries - says developed nations will provide "new and additional resources, including forestry and investments through international institutions, approaching $30 billion for the period 2010-2012 with balanced allocation between adaptation and mitigation". But the document is not specific about who should give what to whom and how. Neither does it state which funds can be counted towards this "fast start" commitment nor how to define "new and additional". Those ambiguities are proving a headache for development and environment campaigners, as well as some poor nations. They suspect much of the money is being diverted from official development assistance (ODA) budgets, or will be counted towards aid targets, undermining poverty reduction efforts. As a result, there is growing interest in obtaining clear, transparent information from wealthy nations about the sources and uses of the money they are counting towards their fast start pledges.

This week, at the latest round of U.N. talks in Bonn, all eyes were on the European Union update on its members' short-term climate aid. On Thursday, the European Commission said the EU is on track to deliver 2.39 billion euros of fast start finance in 2010, with a total of 7.55 billion euros committed over three years - more than the 7.2 billion euros promised at the Copenhagen summit a few months ago. But it did not offer a country-by-country breakdown, as some activists had hoped.

In a factsheet, the EU stated that its fast start contributions "will not reduce the amount of funding provided to fight poverty and continue progress towards achievement of the Millennium Development Goals". But campaigners don't agree. In a statement, Climate Action Network (CAN) Europe - a coalition of over 130 citizens' groups - welcomed the EU's efforts to provide climate funding to the world's poorest but warned "the lack of transparency in the EU's latest progress report could undermine trust at a very delicate stage of the talks". "This unwillingness to be clear about the sources of their fast start finance is only corroborating the grapevine, which contends that a great majority in the EU intend to recycle their ODA commitments and baptise it climate finance," said Augustine B. Njamnshi of the Pan-African Climate Justice Alliance. "This lack of clarity is frustrating developing countries, especially those who quickly associated with the Copenhagen Accord with the hope of getting something from the package."


Artur Runge-Metzger, the EU's chief climate negotiator, told AlertNet from Bonn that the European Union is working to provide information on individual member states' fast start aid by the U.N. climate summit in Cancun at the end of the year. He said countries currently have different definitions of "new and additional resources". But the European Commission's share is coming from its budget reserves, meaning it is not being taken from funds that have been promised for development cooperation, he noted.

Some EU states are using the climate finance they provided in 2009 as a baseline, and a small number that have already reached the U.N. target of giving 0.7 percent of their gross national income in aid, including the Netherlands, are counting the climate cash they are offering on top of that. Poor nations say climate aid should only be classed as new and additional if it is over and above the longstanding - and widely unmet - 0.7 percent target. "It's no good having individual parties reporting on their own finance contributions," Oxfam's EU climate change policy advisor Tim Gore told AlertNet. "We need a common framework for accounting for the flows."

A factsheet issued by the United States earlier this year says climate-related budget appropriations total $1.3 billion for fiscal year 2010, with a further $1.9 billion requested for 2011. It says the administration is "moving quickly" to disburse climate funding this year, but contains only limited information on the fast start money and where it will be allocated.

A paper released by the International Institute for Environment and Development (IIED) this week outlines two workable options for defining a baseline that would balance the demands of donor and recipient nations.In the short-term, the briefing suggests climate financing should be counted as new and additional only if it comes on top of a baseline of predefined projections of development aid. And in the longer-term (after 2012), only assistance generated from novel funding sources - such as international air transport levies and currency trading levies - should be included.

"When is a promise not a promise? When there's no specified baseline that would allow anyone to know if the promise has been fulfilled," said co-author J. Timmons Roberts, director of the Center for Environmental Studies at Brown University in the United States. "That's the case with the Copenhagen Accord's climate finance promise, and that's why this issue needs immediate attention to get the negotiations back on track."

Yet while pressure is growing for the U.N. climate talks to agree on a definition, Runge-Metzger, who heads the European Commission's Directorate-General for Climate Action, believes it would be tricky. "I am rather pessimistic that you would be able to agree to something with all the 193 parties, so that means that transparency in terms of the numbers is ever more important," he said.
Anti-poverty group ONE issued an open letter to negotiators on Thursday, urging governments and institutions to apply five principles to their climate finance promises, including ensuring they are transparent and additional, and explaining how they will be kept.


Another aspect of the EU's fast start finance that has come in for criticism is that, of the 1.53 billion euros of 2010 money that has been alllocated so far, about two-thirds is being spent on mitigation activities, including preventing deforestation, and only one-third on adaptation. "At the moment, the bulk of the money is more likely to go to larger emerging economies instead of the world's poorest," warned Oxfam's Gore in a statement. Runge-Metzger said it would be more accurate to include all sources of climate finance in the breakdown, not just fast start money. But if there is an imbalance, with 36 percent of this year's pledges yet to be allocated, "now is the time to make sure we have a balanced outcome at the end", he noted.

Aid groups have also been warning this week against providing too much climate finance as loans rather than grants, with Oxfam urging donors to avoid offering loans for adaptation and restrict them to one third of mitigation funding. Just over a quarter of the EU fast start money allocated so far is concessional loans, with the bulk being given as grants. Runge-Metzger said using loans is an efficient way of funding projects that generate good returns - for example, schemes that result in energy savings or more climate-resilient farming methods. These can found in both mitigation and adaptation work, he added.

For poverty campaigners, it's more a question of ethics. "At a time of economic emergency, when several poor countries are slashing critical health and education budgets to avoid a debt crisis, rich countries are considering saddling them with climate debt for a situation they did not cause and are worst affected by," Oxfam policy advisor Antonio Hill said in a statement. "It's like crashing your neighbour's car and then offering a loan to cover the damages."

The poorest countries agree with many of the criticisms voiced by activists, but the weaknesses of fast start finance have yet to become a major stumbling block in negotiations. Runge-Metzger urged donors to make sure they satisfy developing countries' curiosity about their funding plans. "It could turn into suspicion if the information is not provided in an open fashion and if people do not respond to questions," he said. "I think that could turn out to be very difficult."


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