Green Climate Fund (GCF)

Refilling the Green Climate Fund: Will rich countries’ pledges match expectations?

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Before the end of 2019, Green Climate Fund needs to be refilled, to continue funding climate action in poor nations. Will rich nations drag their feet or make fair pledges?

After a challenging year in 2018, the Green Climate Fund (GCF) seems to be back on track in allocating funding for climate action in developing countries to support them in implementing the Paris Agreement. Yet, more work needs to be done for the fund to become the central channel for climate finance. Strategic issues remain on the agenda, such as making the fund a real driver of transformational change, but also governance issues such as decision making on the board level.

To be sure, there is no shortage of funding needs. As financial resources of the GCF are set to run out soon, a central issue is now the fund’s replenishment. A process for this replenishment has started and will culminate in a pledging conference in autumn 2019, just in time so that wealthy countries can demonstrate, ahead of the next UN climate talks COP25 in December 2019, their ongoing commitment to the GCF as an important channel to deliver on their obligations and promises to support poorer countries.

It is now imperative that this leads to a substantial replenishment to unlock greater ambition in implementing the Paris Agreement. To break the silence, Germany helpfully pledged, ahead of the UN climate talks COP24 end of last year, 1.5 billion Euros for the next funding period, a doubling of Germany’s contribution over the past four years. Norway followed suit, doubled its first pledge too, and will now contribute 800 million Norwegian Crowns for the next round. This obviously sent a welcome political signal about confidence in the fund – and set expectations for others.

Policy reforms to make the GCF a success

Some countries had been hiding behind the need for governance reform, as an excuse to withhold early pledges. Happily, the sticky issue of voting procedures by the GCF board in the absence of consensus has now been resolved, at the recent meeting of the GCF board.

Other strategic issues remain on the agenda, such as making the fund a real driver of transformational change, and also ensuring funding prioritises frontline communities instead of padding the pockets of the international institutions, private banks, and government agencies that manage the climate funds. Large sums of money going through large implementing entities may be the quickest route to getting money out of the door, but prioritisation of funding proposals benefitting and empowering local vulnerable communities, perhaps including setting a dedicated target (e.g. at least 25 per cent of overall flows) would allow scarce public funds to reach those most in need.

The Green Climate Fund should also help Least Developed Countries and Small Island Developing States access the fund more directly, by enabling eg national ministries or NGOs to implement GCF projects themselves, rather than having to go through regional and international organisations. Also, more finance should be channelled directly to frontline communities and small-holder farmers, eg in the form of small grants, allowing them to decide on their own priorities.

On adaptation, more work needs to be done to achieve the agreed 50:50 balance between allocations for mitigation and for adaptation, especially given the woeful underfunding of adaptation at the global level. One pitfall the GCF should avoid is artificially distinguishing between what is development and what is adaptation – and thus risk excluding important programmes, particularly when they aim at strengthening the resilience of the poorest communities which are most vulnerable to any kind of risks (climate-related or otherwise).

What total level of pledges to expect?

Needs are rising. According to the UN Environment Programme, Adaptation costs in developing countries may soar to 300 billion US-Dollars per year by 2030, and already today, adaptation (and mitigation) needs remain unfunded all over the developing world. This means that the Green Climate Fund’s annual turnover will need to substantially increase in the future. The GCF secretariat assesses its current average programming capacity to be around 3 billion US-Dollars per year – with potential to grow. A modest 10 per cent annual growth rate of the current capacity would be comparable to the recent growth of the World Bank’s IDA that has grown, on average, by 10 per cent over the last five replenishments. Applying the same rate would lead to a GCF replenishment need of about 15 billion US-Dollars for the next four years and roughly constitute a doubling of contributions covering the past period (assuming the United States will not fulfil their pledge). A more ambitious growth rate of say 25 per cent would lead to about 22 billion US-Dollars as a replenishment target. The resulting range of 15-22 billion US-Dollars, if spread over four years, nicely fits the GCF secretariat’s estimate for its future programming capacity of 3.5-5 billion US-Dollars per year. Of course, the 15-22 billion US-Dollars range must only constitute an intermediate step to much greater GCF volumes in the mid- and longer-term future.

Table 1: Growth scenarios and resulting overall programming capacity 
10% growth
25% growth
Year 1 $3.3bn $3.8bn
Year 2 $3.6bn $4.7bn
Year 3 $4.0bn $5.9bn
Year 4 $4.4bn $7.3bn
Total $15.3bn  $21.7bn
The table shows two possible growth scenarios for annual approvals by the GCF and the overall resulting amounts that would be needed from the replenishment process. The underlying baseline is the GCF secretariat’s assessment of current average programming capacity at $3bn per year, see here.

Fair pledges to the GCF from all developed countries?

The Governing Instrument of the Green Climate Fund clarifies that the fund “will receive financial inputs from developed country Parties to the Convention”, i.e. all developed countries. Yet, it is only the countries that are listed in Annex 2 of the UN Framework Convention on Climate Change (UNFCCC), i.e. (in simpler terms) the rich Western countries that have a legal obligation to provide support.

There are many ways for defining what would constitute a country’s fair share to the forthcoming GCF replenishment. Assuming that governments care for their countries’ contributions to be fair, below is one of such possible ways, taking into account both countries’ relative responsibility for causing the climate crisis as well as their relative economic capability to pay. These two principles are enshrined in the UNFCCC’s principles to differentiate between countries and hence seem natural to apply. A third criterion is added below, to reflect countries’ willingness to contribute to global needs, expressed in relative shares of Official Development Assistance (ODA). Looking at ‘willingness’ may seem strange when defining fairness in what countries should contribute. It’s a bit of pragmatism, true, but it may give an indication what a country’s society is ready to do, based on past experience in related fields (here: ODA). Anyway, averaging these three indicators then gives an idea of what may constitute a country’s fair share.

The results can then be applied to the possible replenishment target range of 15.3-21.7 billion US-Dollars to find out what may be expected from each Annex 2 country (second-to-last column in the table below). Alas, we are not done yet. Since the US, given the irresponsible stance of its current administration on the climate crisis, will not contribute to the GCF in this replenishment round, other Annex 2 countries will have to step up – the needs for mitigation and adaptation in developing countries remain unchanged, and action must not be delayed. Hence, one needs to adjust the averages from above to exclude the US. The results are shown in the last column of table 2.

Table 2: Potential distribution key for countries’ 2019 GCF pledges
Responsibility Capability Willingness Averages Adjusted averages
CO2 1990-2016 GDP 2018 ODA 2014-2017 US on board US drags feet
Australia 3.2% 3.0% 2.7% 3.0% / $460-650m 5.0% / $0.8-1.1bn
Belgium 1.1% 1.1% 1.7% 1.3% / $200-280m 2.2% / $330-470m
Canada 4.9% 3.6% 3.2% 3.9% / $590-840m 6.5% / $1.0-1.4bn
Denmark 0.5% 0.7% 2.0% 1.1% / $160-230m 1.8% / $270-390m
France 3.5% 5.9% 7.7% 5.7% / $0.9-1.2bn 9.5% / $1.5-2.1bn
Germany 7.9% 8.5% 16.3% 10.9% / $1.7-2.4bn 18.2% / $2.8-3.9bn
Italy 3.9% 4.4% 3.6% 4.0% / $610-860m 6.6% / $1.1-1.4bn
Japan 11.1% 10.6% 7.9% 9.9% / $1.5-2.1bn 16.5% / $2.5-3.6bn
Netherlands 1.5% 1.9% 4.0% 2.5% / $380-540m 4.2% / $640-910m
New Zealand 0.3% 0.4% 0.4% 0.4% / $60-80m 0.6% / $90-130m
Norway 0.4% 0.9% 3.3% 1.5% / $230-330m 2.5% / $390-550m
Spain 2.6% 3.0% 1.9% 2.5% / $390-550m 4.2% / $650-920m
Switzerland 0.4% 1.5% 2.6% 1.5% / $230-320m 2.5% / $380-540m
United Kingdom 4.7% 6.0% 13.1% 7.9% / $1.2-1.7bn 13.3% / $2.0-2.9bn
United States 50.5% 43.6% 26.3% 40.1% / $6.1-8.7bn N/A
Other Annex 2 3.5% 4.7% 3.5% 3.9% / $590-840m 6.5% / $1.0-1.4bn
Totals 100% 100% 100% $15.3-21.7bn $15.3-21.7bn
The percentages show a country’s relative share in the respective totals of all Annex 2 countries. 1990-2016 cumulative CO2 emissions are used to reflect responsibility, nominal GDP in 2018 reflect capability and official development assistance (ODA) over 2014-2017 is used as a proxy for willingness. Sources: GCP 2017, IMF 2019 and OECD 2019


What about non-Annex 2 countries?

As explained, the above calculations are assuming that only countries listed in Annex 2 of the UNFCCC would be expected to contribute. While this is based on the financial obligation that those countries have under the UNFCCC, it was all developed countries that set themselves the goal to ramp up climate finance to 100 billion US-Dollars a year by 2020 – with the GCF now to become a main channel for delivering on this promise. One could therefore argue that other developed countries have a responsibility to contribute to the GCF replenishment, too. Also, the Paris Agreement’s Article 9 could be seen to set a new obligation for all developed countries. That article has it that developed countries shall provide financial resources in continuation of their existing obligations. That qualification can directly be applied for Annex 2 countries that have such existing obligations. In contrast, those developed countries that are not in Annex 2 of the UNFCCC would not fulfill a new obligation (Paris Agreement) in continuation of an old one (UNFCCC), but nonetheless have one to fulfill – including through contributing to the GCF replenishment.

And, obviously, all countries that have responsibility (for causing the climate crisis) and capability (to pay) on levels comparable to Annex 2 countries should contribute likewise, albeit on a voluntary basis. Finally, all countries in a position to do are highly welcome to contribute in the same manner.

What next?

There is no need to wait for the official pledging conference later this year. There are other key events in 2019, such as the G7 summit in France (President Macron my want to book this opportunity) or the UN Climate Action Summit in New York, where would-be contributors could indicate their intentions, thereby building additional momentum. To allow this to happen, it is important that the replenishment process is not held hostage to the governance issues mentioned above, for instance by making pledges conditional on voting reforms on the board level of the Green Climate Fund. Such a situation would create a problematic signal that could negatively impact trust in the international climate regime at large.

The race is on!

Jan Kowalzig, Oxfam