Climate Fund Info

International Climate Finance – A New Proposal

The current discussion on climate finance is polarized, which is very unfortunate. There are basically two sides, the donors and the recipients, and their views seem to be drifting further apart. In our view, both sides are suffering from a serious lack of political realism. Here is our view of the situation:

The recipients, i.e. the developing countries take the developed countries responsibility for global warming as the starting point and use it to make demands for financing that would equal several percentages of the developed countries’ GDP annually. They fail to see that the atmosphere on climate finance has changed considerably after the global financial crisis started in 2008 and especially after Copenhagen’s COP15, which was generally considered a failure. Today, there is simply no way that the politicians of the developed countries could suddenly decide on a massive new transfer of their taxpayers’ money to the developing world and still stay elected. The demands to place all climate financing under the UN as opposed to the World Bank, for example, are also counterproductive especially as regards the public opinion of such countries as the United States, which views the UN with great suspicion.

In a nutshell, the electorate of the developed countries see the debate in the following way: first we are given a long lecture about how climate change is all our fault, then we are asked to give billions of dollars of our money to unspecified causes overseas and finally we are told that all this must take place through the UN, which has just failed to come up with any real agreement on climate change and which is legendary for its inefficiency! No way is the natural answer of most people to this, and the politicians know it.

The donors, i.e. the developed countries are not doing any better. They seem to think that you can make pledges of large volumes of financing to fighting climate change and then do either nothing or, when pushed, agree only on measures that are little more than greenwashing, i.e. labeling existing development aid as climate finance instead. The developed countries have failed to produce any evidence of a real increase in the overall volume of financial transfers to the developing countries - some of them seem even proud, when they announce to their own electorate that no new money is involved. All calls for clarity and evidence on a real effort to increase these financial volumes overall all silently ignored.

Another way of looking at this is to note that no matter what the actual financial contribution of the developed nations is now and in the coming years, they will fail to gain any political goodwill and leverage from it vis-à-vis the developing countries, if is organized in such an obscure and impenetrable way as currently seems likely.

From the developing countries’ viewpoint, this looks very straightforward: first, the developed countries fail to acknowledge their responsibility for global warming and its dire consequences to the developing world. Then, after years of negotiations, they agree to give only meager sums of assistance. Finally, they reduce development aid elsewhere to neutralize the effect on their budgets, thus leaving the developing countries possibly worse off than at the start!

No wonder the situation is getting polarized.

What follows is pragmatic proposal to end this deadlocked situation in a rational way. It is not optimal for any side of the argument, but it has the one feature that all other proposals so far have lacked: it could perhaps be accepted by the politicians and the electorate of both the developed and developing countries.

We propose to establish two new institutions that should have a very high and easy-to-understand public profile on the global level:

1.  MITIGA – The Global Fund for Mitigation of Climate Change

This would be a donors' fund, where the participant’s voice is directly proportional to its contribution. The fund would be open to any kinds of participants, public or private. These could include governments, companies and even wealthy individuals. All donors would be treated equally with the only limit being that a single donors’ voice could not exceed 33 % of the total, i.e. no single donor could have more than 1/3 of the votes in the deciding bodies of the fund so as to avoid domination by a single participant.

The sole purpose of the Fund would be to finance large-scale mitigation projects in the developing world. The recipients would only have an observer status in the deciding bodies of the fund. They would be allowed to comment, but not to vote on how the money should be spent.

This structure is sure to create controversy. However, it is such for a simple reason: we need to have a structure that creates incentives to contribute and which we can ‘sell’ to the developed countries electorate. This is such a structure, because it can be sold to them with the following arguments:

- All of the money goes directly to mitigation of climate change, which benefits us all

- The more we contribute, the more power we have inside the Fund

- Only those who contribute get to decide how the money should be used

- The Fund is started from scratch, so no money will go to financing some already existing bureaucracy

- MITIGA - making a real effort to stop climate change

As to the developing countries, selling MITIGA is more or less a case of choosing between having this Fund, or having no mitigation fund at all. From the developing countries' perspective, MITIGA is not an optimal solution - but it is still a lot better than having nothing at all. 

2.  OBLIGA - The Global Fund for Financing Adaptation to Climate Change

While MITIGA is a necessary part of the equation, it is not sufficient to solve the climate finance impasse. The people of the developed world care about mitigation, but the primary issue for the developing countries is adaptation. We therefore need a second Fund with the sole purpose of financing projects, both big and small, that help in adapting to climate change in the developing countries.

The structure of this Fund should be such that regardless of contributors, the donors and the beneficiaries would have equal voice inside the Fund. The donors’ participation would, however,  influence its voice inside the group of donors, i.e. inside their 50 % share.

While MITIGA should be completely independent, this is not the case for OBLIGA. The UN and other global institutions could and should feature strongly in operational structure of OBLIGA so as to avoid overlaps with existing development aid mechanisms.

OBLIGA would basically be a Fund for development aid -type of financing, which is just directed exclusively to climate change adaptation. This could be sold to both the developed and developing countries' electorate with the following arguments:

- We, the developed countries, are mainly responsible for global warming, so it is our duty and obligation to help those that suffer because of it

- We have promised to keep our development aid intact, so it makes sense to create a new structure for aid to climate change adaptation

- A new structure is the only secure way of keeping this financing clearly separate and additional to traditional development aid

- The recipients will have equal power inside the Fund and also the UNFCCC will feature strongly in it, which makes this Fund democratic and transparent 

- OBLIGA - helping those most in need to adapt to climate change

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Creating completely new institutions is, in our view, the only practical and straightforward way of fighting the rapidly increasing tendency of developed countries' governments to greenwash existing development aid. It will be very easy to follow the development of contributions to both of these funds, and whether they result in a decrease in expenditure elsewhere. This is certainly not the case today, when climate finance is tied up inside existing organizations and national arrangements.

By opening up both funds to contributions from both public and private entities (mainly governments and large companies), a new level of synergy is created – new opportunities for exchanging knowledge of best practices, diffusion of technology etc. will be created in an unforced way through mutual participation in these Funds.

Both of these Funds should be based solely on grants. No loans should be involved in order to make it clear to everyone involved that these Funds are about aid and assistance, where the donors do not expect to be paid back sometime in the future. This makes it easy to measure the absolute aid element, which is currently not the case with the loans provided by the World Bank climate funds, for example.

Selling this structure of two new Funds to the developing countries will not be easy, but it is at least straightforward: this is the best that they can hope to achieve, if they wish to receive significant climate change aid without risking the continuation of traditional development aid.

Both of these Funds should aim to contribute several billion euros worth of financing annually, once they are fully operational. The aim should be set high.

As to the Copenhagen Green Climate Fund, we propose that MITIGA ands OBLIGA should be established either in addition to or even instead of the Green Fund, which seems to have major problems in just getting off the ground.

Finally, one of the main reasons for such a simple proposal is that we believe that what is needed is an easy-to-understand, instantly memorable structure for providing completely new climate financing. After all, climate finance is not simply a question of doing the right thing; it is also a question of ‘marketing’ it in such a way that it will bring about the desired effects, both from the environmental and the political point of view. This is why we should be critical of any proposals that seem to be bureaucratic and difficult to understand - it is only realistic to assume that (too) few people will have to energy to sort them out, even if they should.

We would highly appreciate any comments or questions you might have on our views and these proposals – all feedback is welcome!

The Climatefund.info team

(Melbourne, Australia)