World Bank and IMF enter debate on sources of climate finance

16 April 2010

As experts in the United Nations Advisory Group on Finance (AGF) start to scope innovative sources of climate finance, the IMF issued its own proposal, while questions loom over the governance of climate funds. Meanwhile, the Climate Investment Funds’ (CIFs) Partnership Forum exposed the limitations of the World Bank’s engagement with civil society in developing the funds thus far.

The AGF, set up by UN Secretary General Ban Ki Moon in February to jumpstart the process of securing the funds committed in the Copenhagen Accord (see Update 69), met in London at the end of March. The group is co-chaired by UK prime minister Gordon Brown and Ethiopian prime minister Meles Zenawi.

The Copenhagen Accord pledged $30 billion in “new and additional” resources for poor countries up to 2012 (see Update 69), and $100 billion in public and private finance annually by 2020. The lack of a definition or baseline to measure whether climate finance is additional to existing aid has so far allowed donors to fudge this commitment and repackage funds pledged to the CIFs before the Copenhagen summit (see Update 66) as part of their fast-start funds.

IMF green fund: dead on arrival?

At end March the IMF released a proposal for a financing mechanism for climate change, undermining hopes for more ambitious use of special drawing rights (SDRs, see Update 65), and again raising concerns about governance of climate funds. The staff proposal, which has caused controversy among IMF board directors according to media reports, would involve rich countries contributing the SDRs they received during the financial crisis to a ‘green fund’ in exchange for an equity stake. The green fund would use these SDRs as collateral for issuing bonds on international financial markets to borrow money, and then lend the money to developing countries as climate finance. This is similar to the way the World Bank conducts its normal operations.

NGOs such as ActionAid International had been interested in more regular issuance of SDRs to be directly channelled into climate finance, arguing that this would also begin to transform the international monetary system by making SDRs more available and important as a reserve currency (see page 9). The IMF proposal however envisions that donors would continue to contribute large sums of money annually, as much as 60 per cent of the green fund’s disbursement, in order to cover the grant element of the green fund.

IMF staff made it clear that they were “not proposing that the IMF itself would create, finance, or manage the green fund”, but aimed to “make a contribution to the global debate” before the first meeting of the AGF. Although the paper does not discuss whether the disbursing agency would be governed by those contributing the money, the suggestion that equity stakes would be based on IMF quotas implies strong donor influence.

Antonio Tricarico of Italian NGO CRBM warns that “the IMF proposal would basically set up another donor driven fund, possibly heavily conditional, and far away from a true concept of climate finance that is easily accessible by beneficiaries and serves to repay the rich world’s carbon debt to the South.”

Partnership Forum debates

Meanwhile, the second Partnership Forum was held in Manila in mid March. The forum was designed to bring together all stakeholders of the CIFs, including civil society and the private sector, to discuss and learn lessons from the design and early implementation of the climate funds. NGOs found that while the meetings were more participatory than previously (see Update 61), there were still considerable obstacles to constructive and open discussion. A major problem was that the forum was held after the meetings of the CIF committees – the governing bodies of the different funds that are responsible for operational decisions. This means that civil society comments and recommendations at the forum will not influence decisions until the next committee meetings in six months, if at all.

The committee meetings announced new funding plans by the various CIFs. The Clean Technology Fund (CTF) endorsed country investment plans for Colombia, Indonesia, Kazakhstan and Ukraine, bringing the total number of endorsed plans to 13. The Pilot Programme for Climate Resilience (PPCR) approved adaptation grants for Zambia and Nepal, and the Forest Investment Program (FIP) selected its first pilot countries: Burkina Faso, Ghana, Indonesia, Lao PDR and Peru.

One set of concerns raised in the CTF session was the lack of engagement with stakeholders beyond government in developing country investment plans. These plans highlight the opportunities for mitigation in the particular country and propose priority areas for CTF support. Red Constantino, of the Filipino NGO Institute for Climate and Sustainable Cities argues that, “the quality of the investment plans is dependent on a robust conversation between government and broad sections of society in each CTF country, including civil society and local communities. This simply has not happened in the majority of cases.” The same problem may apply to the other funds as they approach implementation.

In the PPCR session there was criticism of the use of loans for adaptation in vulnerable countries such as the small island states, where finance should be compensatory. In an indictment of the process’ transparency and engagement, government delegates from Niger and Zambia also said that they wanted to see their countries’ PPCR agreements because they were unaware of the nature of the funds they received and whether these were loans or grants.