U.S. Contributes Additional $500 Million to Green Climate Fund

On January 17, with less than three days left in office, President Obama directed an additional $500 million to the Green Climate Fund (GCF), bringing the total U.S. contribution to $1 billon, out of a promised $3 billion. Many political observers saw this last-minute move as an attempt to strengthen the Paris Climate Agreement before the start of the new Trump administration, which has expressed skepticism about the agreement. The Green Climate Fund, which provides climate adaptation and resiliency funding for the world's most vulnerable countries, helped convince developing countries to sign on to the Paris Climate Agreement, a global deal to keep global warming significantly below 2 degrees Celsius (3.6 degrees Fahrenheit). The Paris Agreement, which was signed by 190 countries and the European Union, entered into force in November 2016.

The fund, which now has $10 billion at its disposal, actually predates the Paris Agreement by six years; it was established at the 2010 United Nations Climate Change Conference with the mission of helping less developed countries finance micro, small, medium, and large sized climate resilience and mitigation projects that also promote equitable economic growth. The least developed countries face the greatest climate risks along with the burden of building globally competitive and resilient economies. Indeed, poor nations are particularly vulnerable to the rising sea levels and extreme weather caused by climate change, both because they lack the resources to prepare for these events, and because they lack the resources to recover from them. The GCF framework is designed to help overcome some of these challenges.

The most basic barrier for climate finance in these countries is simply their lack of capital. The GCF attempts to address this shortfall by calling on diverse sources of funding. The core contributions come from 43 individual countries, including 9 developing nations. The United States gives the most money (but ranks 10th on a per capita basis) followed by Japan, the United Kingdom, France and Germany. The remaining funds are provided by regional development banks, private firms, and international organizations such as the World Bank. The GCF requires that funds be divided evenly between adaptation and mitigation projects, a crucial requirement given the tendency of private investments to favor larger scale mitigation projects.

The GCF also encourages the active participation of local stakeholders in the projects it funds. Research shows that when local stakeholders have a central role at all stages, projects are more likely to achieve their goals. If a project is not equitable and sustainable, it fails. After experts and regional bodies asserted the need for greater local authority on projects, the fund's governing body approved the formation of National Implementing Entities (NIEs). These domestic agencies receive “direct access“ funding, meaning that after receiving their accreditation from the Green Climate Fund, NIEs have autonomy over the deployment of funding. To date, 13 NIEs have been accredited.

These stipulations are essential to the success of the GCF, with the model combining global procurement with local allocation having the potential to lead to highly effective climate aid. The ingenuity of local innovators combined with the collective experience of the global community could generate novel solutions that can be replicated throughout the world. Of course, local control requires strong local institutions with the ability to effectively deploy resources. Some countries still lack these mechanisms. To fill this organizational gap, the GCF launched a “project preparation facility” and allocated $30 million to assist countries in building up such entities.

Another important component of the GCF's rules is the requirement that all projects supported by loans must be fiscally sound and revenue-generating. This stipulation, along with the emphasis on small and micro-scale projects, helps to ensure that the main beneficiaries are local communities. GCF projects are meant to lay the foundations for self-sustaining economies capable of employing local solutions.

One of several new proposals approved in December is a climate adaptation and flood management program near the Vaisigano River in Samoa, an island group in the Pacific neighboring American Samoa. A recent series of extreme weather events has inflicted hundreds of millions in damages (about $200 million worth per event), reinforcing the need to build up resilience to these threats. The Green Climate Fund has committed over $65 million to the project and the Samoan government has pledged $8 million in co-financing. These resources will be used to upgrade downstream areas and develop an integrated flood management system.

For this ambitious global initiative to be successful, the GCF must balance reaching its fundraising targets with adhering to its guiding principles of local control. Developing nations and climate experts worry that this tension may cause the fund to favor big banks that have experience managing major projects over NIEs and regional non-profits. But if the balance is achieved, the Green Climate Fund could protect livelihoods and save thousands of lives across the world.

Author: Ben Topiel