Climate Change Information Sheet 28
Financing action under the Convention
- Developing countries need financial resources so that they can address the causes and consequences of climate change. The Climate Change Convention therefore states that developed countries should provide "new and additional" funds to help developing countries meet their treaty commitments. Support can come from bilateral donors, multilateral sources, or the private sector.
- The Convention's financial "mechanism" is a major source of funding. Its role is to transfer funds and technology to developing countries on a grant or concessional basis; countries with economies in transition (Central and Eastern Europe and the former Soviet Union) are eligible for technology only. The mechanism must be guided by, and accountable to, the Conference of the Parties (COP) to the Convention, which decides on policies, programme priorities, and eligibility criteria. The Convention states that the operation of the financial mechanism can be entrusted to one or more international entities with "an equitable and balanced representation of all Parties within a transparent system of governance"; it gives this responsibility to the Global Environment Facility (GEF) on an interim basis and calls for this arrangement is to be reviewed at the first session of the COP (held in 1995).
- The Global Environment Facility was established in 1990, before the start of the Convention negotiations. The idea of an international mechanism to support projects benefiting the global environment was first discussed in 1987 by the Brundtland Commission. The GEF was launched several years later with the World Bank, the United Nations Development Programme (UNDP), and the United Nations Environment Programme (UNEP) as the implementing agencies. By the time the Earth Summit was held in 1992, the GEF was considered a possible source of funds for the implementation of the biodiversity and climate change conventions.
- The GEF pays the "agreed full incremental costs" of projects to protect the global environment. GEF funds complement regular development assistance, offering developing countries the opportunity to incorporate environmentally friendly features that address global environmental concerns. For example, if a country invests in a new power plant to promote economic development, the GEF may provide the additional, or incremental, funds needed to buy equipment for reducing the emissions of greenhouse gases. In this way, GEF funds normally cover only a portion of a project's entire costs.
- The available funds are based on voluntary contributions from governments. During the "pilot phase" of 199194, the GEF trust fund contained some $800 million from participating governments. When the GEF was later restructured to make it more universal, democratic, and transparent, it was replenished with $2 billion. The next infusion of funds is scheduled to begin in March 1997.
- Projects must be country-driven and based on national priorities that support sustainable development. The GEF covers four focal areas: climate change, biological diversity, international waters, and protection of the ozone layer. The agreed incremental costs of activities to combat land degradation (primarily desertification and deforestation) as they relate to the four focal areas may also be eligible for funding. So too are the agreed incremental costs of other activities under Agenda 21, insofar as they achieve global environmental benefits in the focal areas. At the end of 1996, climate change activities accounted for about 38% of the gross funds allocated in the GEF portfolio.
- In addition to technical assistance and investment projects, the GEF supports various "enabling activities". These activities help countries to develop the necessary institutional capacity for developing and carrying out strategies and projects; they can also involve the development of information and plans that are required by the Convention. Projects relating to grassroots action sponsored by non-governmental organizations are supported through a Small Grants Programme managed by UNDP. Besides directly providing grants, the GEF facilitates other bilateral, co-financing, and parallel financing arrangements. It also promotes the leveraging of private-sector participation and resources.
- Funding proposals are submitted to the GEF through one of the three implementing agencies. UNDP, UNEP, and the World Bank each has its own special role to play in promoting projects and supporting the GEF process. The GEF Secretariat oversees the work programme and helps to ensure that projects comply with GEF programming strategies and policies. Once approved, projects are carried out by a wide range of executing agencies, such as government ministries, non-governmental organizations (NGOs), UN bodies, regional multilateral institutions, and private firms. The final authority for all funding decisions and operational, programmatic, and strategic issues is vested in the GEF Council. The Council consists of 32 of the GEF's 157 members and meets semi-annually, while the Assembly of all participating countries meets every three years.
- In 1995 the Conference of the Parties to the Convention reviewed the interim arrangements with the GEF. The COP decided to extend the interim arrangements whereby the GEF operates the financial mechanism and to review the situation again within four years. It also decided that a Memorandum of Understanding was needed to further elaborate the relationship between the COP and the GEF. As required by the Convention, the COP provided guidance on the GEF's policies, programme priorities, and eligibility criteria relating to climate change projects. It emphasized that projects funded by the GEF should be cost-effective and supportive of national development priorities; they should focus, at least initially, on enabling activities that help developing countries prepare and submit information about their implementation of the Convention.
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