All about the money in Cancun

Money to help countries adapt to climate change could be a key deal breaker when the two-week UN conference gets underway on 29 November in Cancun, Mexico, say climate policy experts.

"The Adaptation Track text [at the UN climate change negotiations] is very near agreement and is likely to be approved in Cancun, provided the financing is also agreed," said Saleemul Huq, lead author of the chapter on adaptation in the fourth assessment report by the Intergovernmental Panel on Climate Change.

Some of stumbling blocks in funding an adaptation package - designed to help developing countries cope with the impact of climate change such as high level sea rise and more intense and frequent cyclones - are transparency in the delivery of funds, balancing the money allocated for adaptation, mitigation and accountability, and deciding who gets how much.

Countries have only another two years to draw up a deal, as the first commitment phase of the Kyoto Protocol to the UN Framework Convention on Climate Change (UNFCCC) addressing global warming, expires in 2012.

The flashpoint in the previous round of informal climate change negotiations in Tianjin, China, in October 2010, was clarity and transparency on the amounts of money already pledged for adaptation by developed countries, said Robert Bailey, senior policy advisor to the aid agency, Oxfam.

Balance in allocation

All countries and aid agencies agree that climate finance should be equally disbursed between actions on mitigation which help developing countries reduce their greenhouse gas emissions, and adaptation, but Oxfam said its recent research showed that less than 10 percent of overall climate finance was flowing into adaptation.

At the last formal UNFCCC meeting of countries in Copenhagen, Denmark, in 2009, developed countries announced fast-start short-term financing of US$30 billion for adaptation and mitigation from 2010 to 2012, and in the long term promised to "mobilize" $100 billion a year by 2020.

The financial assistance package was part of a deal called the Copenhagen Accord, which also promised that funding would be balanced between mitigation and adaptation actions.

Photo: IRIN
IRIN has compiled some of its recent reports on climate change policy in the run-up to the talks in Cancun. Download here

Huq, a Senior Fellow at the International Institute for Environment and Development (IIED), said their research indicated that only 10 percent of the promised $30 billion in short-term finance was "clearly earmarked for adaptation, which is far from the 'balanced' allocation promised" in the Accord.

Who decides?

Another sticking point was "the channels through which the adaptation finance is delivered to the developing countries," Huq said. "Here the developed countries who are pledging contributions are clearly preferring either their own bilateral aid agencies, or multilateral agencies such as the World Bank."

The position of developed countries is largely informed by the question of accountability, because using their own aid organizations and multilateral agencies would allow them to monitor and exercise control over the disbursal of funds.

An Oxfam paper released on 29 November pointed out that this would make most of "these funds conform to a donor-dominated aid paradigm", and said a fund set up under the UN would be "fair" and acceptable.

Huq said developing countries were "demanding that the funds be channelled through funds under the UNFCCC, such as the Adaptation Fund and the Least Developed Countries Fund."

A proposal for a new "Green Fund', as suggested in the Copenhagen Accord, will come under the spotlight in Cancun; climate policy experts have noted that the host country, Mexico, which has proposed a Green Fund, would want to see this actualized.

However, some developed countries are opposed to the idea of a Green Fund operating under the UN.

Building trust between developed and developing countries could help defuse the situation, said Richard Weaver, senior climate change policy advisor to Tearfund, a development agency.

Germany and Spain had recently announced contributions to the Adaptation Fund, which became operational in 2010. "If other developed countries were also to make contributions to the Adaptation Fund, it could help," he commented. Germany also hosts the board of the fund in Bonn.

IIED researchers Achala Chandani and Linda Siegele pointed out that who decides who gets how much has been a hotly contested issue.

The current negotiating text says adaptation money should go to the most vulnerable countries, but "There are deep divisions between developed and developing countries — as well as among developing countries — over how ‘vulnerability’ should be defined," the researchers noted.

Least developed countries and small island developing states say they are the most vulnerable, while others think the term should cover all developing countries.

New and additional money

Another bone of contention has been whether adaptation finance is "new and additional" to overseas development assistance (ODA), "as was promised under the Copenhagen Accord," said Huq. "So far it is clear that the developed countries who have pledged finance have all double counted climate finance and ODA, although to different extents."

''The information on the US website covers ongoing efforts such as assistance to the Famine Early Warning Systems Network (FEWS-NET), which now counts toward "climate change adaptation planning"''

Weaver said greater transparency and communication about commitments by developed countries would help, and efforts to that end have been made.

In 2010 the Dutch government launched a special website providing information on the climate finance pledged by some developed countries.

Todd Stern, the US Special Envoy for climate change, told a press briefing on 22 November that the US was committed to transparency in the disbursement of funds, and posted a detailed summary of its fast-start financing efforts, including country fact sheets, on the US State Department website.

The information on the US website covers ongoing efforts such as assistance to the Famine Early Warning Systems Network (FEWS-NET), which now counts toward "climate change adaptation planning" because it identifies "potential threats to food security, using meteorological data for monthly food security updates, regular food security outlooks and alerts, and response planning efforts".

Tearfund’s Weaver said all contributing countries should draw up a common position on what should qualify as a clear and transparent baseline from which to count new funding.

Some details

Analysis of the pledges shows that some countries are counting existing ODA allocations as part of their climate change funding.

Norway indicated that as part of its fast-start contribution, the "national official development assistance" budget for 2010 had earmarked around $560 million for climate finance. About $70 million will go to adaptation efforts, $110 million to mitigation, and $360 million to REDD + (Reducing Emissions from Deforestation and Forest Degradation), a UN scheme that also provides incentives to developing countries to conserve their forests.

Spain states on the website that it will devote at least 45 percent of its fast-start climate finance to adaptation efforts in developing countries.

The Netherlands, among other countries, states that its climate contribution is over and above ODA, but resources are limited and it has chosen to devote the available funds to mitigation-related projects in developing countries.

The economic slowdown has left many developed countries with smaller pockets. Aware of donors’ budgetary constraints, UN Secretary-General Ban Ki-moon set up a UN High Level Advisory Group to come up with innovative sources of finance for climate actions from 2020 onwards. The group has suggested raising money through carbon markets, domestic carbon taxes, and various international transport taxes.

Industrialised countries can earn credits under the Clean Development Mechanism - one of three options offered by the Kyoto Protocol to meet emission reduction targets - which can be sold on the carbon markets.

Developing countries and aid experts said raising money in the private sector was problematic. "It is not predictable funding, which countries need," said Oxfam’s Bailey. However, generating revenue by instituting levies on the aviation industry was a feasible option.

Huq said the UN Group’s report "has come up with some interesting options for raising $100 billion a year from 2020. This should certainly be taken note of in Cancun and taken forward." 

IRIN has compiled some of its recent reports on climate change policy in the run-up to the talks in Cancun. Download here.