Towards a Green Climate Finance Framework

Published 31 Aug 2011


COP 16 in Cancun saw agreement on the creation of a Green Climate Fund to manage ‘a significant portion’ of the annual $100bn of funding committed to the developing world in Copenhagen. However, it did not clarify how such a fund might operate. In this white paper, I explain that the model which is emerging during subsequent negotiations will not work. I lay out my alternative proposal for an integrated Green Climate Finance Framework which could deliver the required $100bn per annum investment. Despite the fact that many negotiators read this paper, I was never invited to explain it in person.

COP-16-cancunThe current [as at 31 August 2011] workings of the Transitional Committee may appear to represent an unfolding triumph for the developing world, with the emphasis on the creation of a single monolithic Green Climate Fund, institutionally ready to receive the dominant share of $100bn of public money from the developed world. Such an outcome would, however, represent a purely pyrrhic victory. There will never be a $100bn, government-to-government funds transfer, nor anything approaching it. There is therefore no point in creating an institution to manage the mirage of funds which will never materialise.

What is needed instead, in order to drive flows of $100bn per annum in climate-related investment from the developed world to the developing world by 2020, is the creation of an integrated Green Climate Finance Framework. This would be made up of a full set of instruments, which can be deployed flexibly and efficiently on a blended basis, and which between them could manage large-scale funding flows. Wherever possible, funds would be provided by the private sector, with public money or guarantees deployed in a surgical way only to deal with specific risks and viability gaps which the private sector cannot take on. Critically, each instrument should be designed in such a way as to allow competition between different providers, so that price discovery, efficiency and the elimination of rent-seeking are built into the system from the very start.

In such a Green Climate Finance Framework, the role of the Green Climate Fund would be to administer the smallest possible subset of grants, investments or guarantees which are required in order to enable private finance to flow.