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Future of public climate finance: What should happen to the Climate Investment Funds?

26 November 2013 | Blog

As storms like Typhoon Haiyan shockingly reminded us, developing countries urgently need climate finance. As defined by the UN, this is the transfer of public funds from developed to developing countries to support them in reducing greenhouse gas emissions and adapt to the impact of climate change. But much of this money does not look like it is going to arrive anytime soon because the main global mechanism to manage and transfer climate finance, the Green Climate Fund (GCF), only has $7.5 million deposited in its accounts. Established at the 2010 Cancun climate change summit, the GCF is supposed to be operational from 2014 and could channel $100 billion a year from 2020. To the dismay of developing countries no major new pledges (unless you count $45 million from Sweden) were made by developed countries to the GCF at the UN climate change negotiations that ended in Poland last week.

In the GCF’s absence, one of the main mechanisms to distribute public climate finance continues to be the Climate Investment Funds (CIFs), which has deposits of $6 billion. This is for investment plans in 48 developing countries, including up to 100 projects with a focus on clean technology, resilience to climate change, reducing deforestation, and renewable energy. Housed at the World Bank, the CIFs transfer public climate finance from 14 developed countries through multilateral development banks, such as the Inter-American Development Bank and the Asian Development Bank.

The longer the GCF is not operational, the more consolidated the CIFs become. After several years of developing investment plans, projects are now entering their implementation phase and, as the recent Bretton Woods Project’s Climate Investment Funds Monitor shows, there are moves to potentially expand the number of CIF countries. It’s still unclear what will happen to the CIFs in the future because they have “specific sunset clauses linked to agreement on the future of the climate change regime,” which is generally interpreted to mean once the GCF is operational. Some developed countries that fund them are strongly pushing for the CIFs to be a model for the GCF. This explains why the GCFs has a very strong private-sector focus that explicitly aims to use public climate finance to ‘leverage’ private sector investment similar to the CIFs. As ActionAid climate finance specialist Brandon Wu points out, developed countries are pushing the private-sector role as a means of escaping their historical obligations under the climate change convention (UNFCCC), which are to transfer “new and additional financial resources to meet the agreed full costs incurred by developing country Parties” to mitigate and adapt to climate change. The convention is underpinned by the principle of ‘common but differentiated responsibilities,’ where developed countries recognise they have more historical responsibility for causing climate change. This is why GCF, and not the CIFs, should manage and transfer climate finance, because it is accountable to the UNFCCC where all developed and developing countries have an equal voice.

We still don’t know exactly what the GCF will look like, including the degree of private-sector involvement through mechanisms such as the Private Sector Facility, which is under development. That’s why nearly 200 civil society organisations published a letter in early October highlighting the many issues still to be resolved regarding how the GCF will work, such as respect for human rights and reduction of private-sector influence to ensure the GCF is truly democratic, accountable, and benefits the most vulnerable.

Another worry about the CIFs serving as a model for the future distribution of public climate finance is the role of the World Bank, which hosts and manages them. Many civil society groups say the Bank has no place in influencing how public climate finance is spent because it has a long history of funding fossil fuel projects and is still supporting new investments such as coal power plants in Indonesia. Despite its track record, the World Bank is controversially the interim trustee of the GCF, something which has been repeatedly criticised by civil society groups.

The institutions that allocate climate finance will have a huge influence on whose needs are met. To ensure climate finance reaches the most vulnerable in developing countries, like the Philippines, these institutions need to reflect their needs. The developed countries that give money to the CIFs clearly prefer it as a model because as donors they have more power than the poorest countries that are impacted by climate change. This is why the GCF, if it stays under the oversight of the UN climate change convention and if donors allow developing countries to full take part in decision-making, should be the main channel to distribute climate finance rather than the CIFs.