LCSV PhD candidate Jonas Amtoft Bruun attended the Meeting of the Green Climate Fund Board in Berlin on 3rd March 2013 as an accredited observer. Here is his report:
At the GCF Board meeting this March, a number of discussion-items marked the key differences between board members from developing and developed countries. The divergence of views on how the Business Model Framework should be drafted and what it should cover made these fundamental differences evident to this observer. The discussions revolved around the two main topics:
1. Resource mobilization (filling the fund)
2. Access Modalities (distributing the resources)
An inclusion of resource mobilization in the Business Model Framework would mean stronger obligations for the Annex 1 countries who pledged, at Cancun 2010, to fill the fund with $100 billion annually from 2020. The Green Climate Fund is projected to function as a legal entity in its own right and so, if resource mobilization were to be added to the Business Model Framework, could potentially leave developed countries unwilling to donate ‘out of the club’. This consequence would be even more probable if the vote weighting is to be proportionate to the actual cumulative contributions made by the developed countries they represent, as proposed at the meeting in Berlin. At the moment, the Green Climate Fund could go many ways and judging from the statements by the US and other board members from developed countries, it is clear that they are not yet willing to give up on the fund, possibly missing out on the potential future investment returns. However, their position was clear at the meeting that their participation should not be dependent on concrete contribution commitments written into the Business Model Framework: “Without first seeing the animal, it will be nearly impossible to mobilize substantial resources.” (Matt Kottchen, US board member, Berlin March 2013)
The discussion on access modalities included the more problematic and divisive issue of a “Retail vs. Wholesale” model, splitting board members down the line separating developed and developing countries. UK board member Nicholas Dyer outlined the difference between the two as the difference between funding a project directly by the GCF (retail) or via an intermediary (wholesale) being either Designated National Authorities or Multilateral Development Banks.
A retail model requires a different structure for the GCF than what is currently set up and would require a large staff in Songdo to manage project proposals. A wholesale model would mean that funds would be channelled largely through existing funding instruments. The choice between retail or wholesale has enormous implications for the size of GCF Secretariat and its administrative budget, which in turn will determine if the GCF will in fact represent a paradigm shift from past international climate finance regimes. Even though the mercantile distinction between retail and wholesale was rejected by most developing countries’ board members and was ultimately removed from the decision, it pinpoints the difficulties the GCF Board faces in the future in regards to the framework of the fund.
A cost/benefit analysis of the possible GCF Access Modalities model, with case studies of the Global Environment Facility model, concluded that the potential advantages from a wholesale model (intermediated access) included: using the expertise of implementing agencies; mainstreaming climate change work into the implementing agencies; and healthy competition between implementing agencies. Conversely, the challenges included: slow project cycles due to dual approval requirements; high administrative costs from fees and corporate budgets; and limited engagement of developing countries’ domestic entities (Tamura, 2011).
Since only a limited number of case studies on a retail model (Direct Access) have been performed, the cost/benefit analysis is more in line with preliminary interpretations (Tamura, 2011). Existing examples of the retail model include Global Fund to Fight AIDS, Tuberculosis and Malaria, the GEF for preparation of national communications and the Adaptation Fund. From studies of these funds, the advantages found were: enhanced country ownership, multiple domestic stakeholder engagement and the prioritization of country needs rather than donor priorities. The challenges were listed as: the possibility of weaker safeguard policies and monitoring systems, inequitable access for recipient countries and lack of readiness in recipient countries (Tamura, 2011).
The two forms of access modalities are not mutually exclusive and could potentially play complementary roles, varying from case to case and on the capacity level of a recipient country, by either implementing a combined approach or a phased approach (Tamura, 2011).
It will be very interesting to see which way the Board will go at the June and October meetings in Songdo and Paris, respectively, where further discussions on the Business Model Framework will commence. The mentioning of retail and wholesale approaches was left out of the decision that now reads: “The GCF will commence as a fund that operates through accredited national, regional and international intermediaries and implementing entities” (GCF/B.01-13/12, 2013).
(Photo: B. G. Johnson)