Financial mechanisms

Financial mechanism

Introduction

The contribution of countries to climate change and their capacity to prevent and cope with its consequences vary enormously. The Convention and the Protocol therefore foresee financial assistance from Parties with more resources to those less endowed and more vulnerable. Developed country Parties (Annex II Parties) shall provide financial resources to assist developing country Parties implement the Convention. To facilitate this, the Convention established a financial mechanism to provide funds to developing country Parties.

The Parties to the Convention assigned operation of the financial mechanism to theGlobal Environment Facility (GEF) on an on-going basis, subject to review every four years. The financial mechanism is accountable to the COP, which decides on its climate change policies, programme priorities and eligibility criteria for funding, based on advice from the SBI.

The Kyoto Protocol also recognizes, under its Article 11, the need for the financial mechanism to fund activities by developing country Parties.

In addition to providing guidance to the GEF, Parties have established three special funds: the Special Climate Change Fund (SCCF) and Least Developed Countries Fund (LDCF), under the Convention; and the Adaptation Fund (AF), under the Kyoto Protocol.

Funding to climate change actvities is also available through bilateral, regional and multilateral channels.

More information on funding

Recent developments

Financial needs assessments

Ten countries have availed of technical assistance from the secretariat to conduct financial needs assessments as part of the National Economic, Environment and Development Study (NEEDS) for Climate Change Project that the secretariat launched early this year. The NEEDS for climate change project is in response to SBI 28 mandate for the secretariat, to provide, upon request, information to non-Annex I Parties on the assessment of financing needs to implement mitigation and adaptation measures. The main objectives of the NEEDS project are to support the countries:

           1.    To select key sectors for climate change mitigation and adaptation measures based on priorities identified in
                   the second national communications and the country’s national development plan(s) to serve as basis for the financial
                   needs assessments.

           2.    To assess financing needs required to address mitigation and adaptation measures in selected key sectors and to
                   identify appropriate financial and regulatory instruments to support them.

           3.    To raise awareness and facilitate informed consensus among government agencies on policy actions required to
                   mobilize finance and investment.

Ten countries have joined the project. Egypt, Ghana, Indonesia and the Philippines have organized inception workshops to launch the project. The remaining countries, Costa Rica, Lebanon, Maldives, Mali, Nigeria and Pakistan are expected to launch the project soon. It is expected that countries will complete the assessments five months after the project is launched.

Investment and financial flows to address climate change: An update

The AWG-LCA 2 has requested the UNFCCC secretariat o prepare an update of the technical paper on investment and financial flows to address climate change, taking into account paragraph 1 of the Bali Action Plan. The objective is to present analysis that would move forward the discussion on financing from broad investment and financial needs to options, tools and mechanisms for enhancing funding for mitigation, adaptation and technology cooperation for an effective response to climate change.

Investment and financial flows to address climate change: An update (FCCC/TP/2008/7)

Updated 21 April 2009