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 both bilateral and multilateral sources.
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. The
mechanism is 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". The COP has given this responsibility to the Global Environment Facility (GEF).
The Global Environment Facility was established in 1991, 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 implementing agencies. By the time the Earth Summit was held
in 1992, the GEF was considered a possible source of funds for 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 GEF also funds enabling activities, including the "agreed full
costs" of preparing national communications.
The available funds are based on voluntary contributions from governments. During the
"pilot phase" of 1991-94, the GEF trust fund contained $800 million from participating
governments. When the GEF was later restructured to make it more universal, democratic, and
transparent, it was replenished from July 1994 through June 1998 with $2 billion. The second
replenishment for the four-year period ending June 2002 was based on pledges totaling $2.75 billion.
Pledges for the four-year period starting July 2002 total $2.92 billion from 32 donor countries.
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 (for East European and Central Asian countries only) protection of the ozone layer. In
addition, activities to combat land degradation (primarily desertification and deforestation) have
been approved for funding since they are relevant to some focal areas. (The GEF Council agreed in
2001 to consider setting up new focal areas for the Convention to Combat Desertification as well as
the Stockholm Convention on Persistent Organic Pollutants.) Also eligible are the agreed incremental
costs of other activities under Agenda 21, insofar as they achieve global environmental benefits in
the focal areas. Since 1991, the GEF has allocated some US$1.5 billion in grants to climate change
projects and activities; this funding has leveraged an additional $5 billion in co-financing
contributions. Climate change now represents about a third of the GEF’s 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. In particular, the
GEF pays the full costs of preparing the national communications that are required by the Climate
Change Convention. Projects relating to grassroots action sponsored by non-governmental organizations
are supported through a Small Grants Programme managed by UNDP, while medium-sized projects (under $1
million) can be financed through UNDP, UNEP, or the World Bank. 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 COP decisions and with GEF programming strategies and policies. Once approved,
projects are carried out by a wide range of 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 166 members and meets semi-annually,
while the Assembly of all participating countries meets every three years.
In 1998, the Parties to the Convention asked the GEF to continue operating the financial
mechanism. They decided to review the financial mechanism’s effectiveness again within four
years; this second review is expected to conclude by November 2002. As required by the Convention,
the Conference of the Parties continues to provide guidance on the GEF’s policies, programme
priorities, and eligibility criteria relating to climate change projects. It has emphasized that
projects funded by the GEF should be cost-effective and supportive of national development
priorities, and that they should focus, at least initially, on enabling activities that help
developing countries prepare and submit information about their implementation of the Convention.
In July 2001, the COP created three new funds to further assist developing countries. A
Special Climate Change Fund and a least developed countries fund are being established under the
Convention to help developing countries adapt to climate change impacts, obtain clean technologies,
and limit the growth in their emissions. In addition, an Adaptation Fund is being set up under the
Kyoto Protocol to finance concrete adaptation projects and programmes (The COP will guide the Fund
until the Protocol enters into force). Many developed countries also pledged a combined contribution
of €450 million per year by 2005 through these funds plus existing avenues to help developing
countries manage their emissions and adapt to climate change.