Climate funds: Too much World Bank, too little money

Between droughts, hurricanes and coastal flooding, the developing countries are suffering much more from global warming than its originators, the industrialised countries. In the case of Bangladesh, for example, the International Panel on Climate Change (IPCC) has calculated that by 2050 the expected rise in the sea level will cover more than one-tenth of the country's surface area, forcing more than 5 million people to flee. The United Nations Development Programme (UNDP) estimates that the country's harvests will decline some 40 per cent by that time. Drinking water will be in short supply before 2050 – and all this, despite the fact that Bangladesh's own per capita CO2 emission (0.25 tonnes in 2004) is less than one-twentieth of Switzerland's (5.47 tonnes in 2004).

The changed climatic conditions are posing enormous adaptation problems for poor countries. They now have to reorient food cultivation radically, open up new areas for settlement, build dams and install early warning systems. The Secretariat of the United Nations Framework Convention on Climate Change (UNFCCC) estimates that these adaptation measures will cost developing countries between 28 and 67 billion dollars per year. The NGO Oxfam makes a minimum estimate of 50 billion dollars, and the United Nations Development Programme (UNDP) 86 billion.

Where are these funds to come from and who should distribute them? For some time now these issues have been the subject of heated political debate. The developing world is not prepared to subscribe to a climate agreement that fails to regulate the funding of adaptation costs in a fair and binding manner. There has been no such regulation to date. Numerous multilateral climate funds do already exist, but voluntary contributions from industrialised countries are thin on the ground. Besides, there is considerable competition between the funds: industrialised countries prefer those in which developing countries have little or no say.

Numerous funds, little money

The Climate Convention's funding programme, the Global Environment Facility (GEF), set up two multilateral funds in 2001, namely the Special Climate Change Fund (SCCF) and the Least Developed Countries Fund (LDCF). Their purpose is to help developing countries cope with costly adaptation. Both funds were placed under the World Bank, a move that developing countries criticised as undemocratic, given their very limited scope for co-determination. After tough negotiations they managed to convince the Board to accept a double majority voting system for donor countries and recipient countries. Yet both funds cover only a fraction of actual funding needs. Between 2001 and early March 2008, the SCCF received payments of no more than 74 million US dollars, and the LDCF 92 million.

One major reason for the paucity of contributions to the GEF funds lies with the World Bank itself. Since developing countries secured a greater say there, it has created a series of special funds that are competing with the GEF. Cases in point are the Strategic Climate Fund (SCF) created in 2008 and the Pilot Program for Climate Resilience being financed by it. The fund and programme are steered by bodies in which developing and industrial countries are equally represented. But developing countries and civil society organisations have voiced the criticism that the statutes of these World Bank funds treat the hard-won provisions of the Framework Convention on Climate Change as mere guidelines, not as binding undertakings, and that the funds disregard important aspects of them. For example, fund resources are being partly disbursed in the form of interest-bearing loans, and donor countries are at liberty to charge non-reimbursable funding to existing development aid budgets.

The Bali Fund

Given developing countries' discontent with the World Bank funds, it was decided at the 2007 UN Climate Conference in Bali to set up another multilateral fund, the Kyoto Protocol Adaptation Fund. Unlike the funds existing hitherto, this new adaptation fund can count on relatively certain income, which is expected to come from a tax on emissions trading. Latest calculations are, however, that this will enable the fund to cover just about 1 per cent of actual needs. Many developing countries have therefore been pressing for additional funding sources – so far unsuccessfully. Contrastingly, the developing countries were successful in negotiating the composition of the board: they make up the majority.

The Swiss suggestion

For once, Switzerland put forward one of the most sensible suggestions regarding possible ways of replenishing the adaptation fund. In 2006 it tabled the idea of a global CO2 tax, which could bring in as much as 50 billion dollars in the coming year alone. Yet Switzerland has still made no firm commitment that the entire CO2 tax take should go to the Bali Fund. At the climate talks in Bonn in early April, Switzerland announced that all existing options were being studied and that the distribution centre could even be a World Bank fund.

Developing countries and non-governmental organisations take a different view on this point. They are in no doubt that the World Bank is unsuited for the role of global climate bank. That would be like setting a fox to keep the geese. After all, the World Bank is using its regular budget to bankroll a growing number of coal-fired power station projects detrimental to the climate, and to fund oil production. The criticism levelled at the GEF Fund is that so far it has financed a markedly smaller number of projects in countries with high poverty levels than in countries with less poverty. This is why only the Bali Fund or a new institution under the UNFCCC Secretariat should be entrusted with climate adaptation funding.

Alliance Sud demands

For decades the industrialised countries have been warming up the atmosphere, giving rise to climate change. They should therefore also pay for the consequences and extend financial and technical support to developing countries for adaptation purposes. The funding must be continuous and predictable and must not come at the expense of development cooperation or poverty reduction.

Alliance Sud therefore endorses the Swiss suggestion of a global CO2 tax. Implementing this suggestion will be no easy matter, however. It is facing political resistance, and counter-proposals have been formulated. Switzerland must now resolutely and skilfully counter the resistance to its cause. In addition, it must state clearly that the monies should be channelled through the «Bali Fund» (Kyoto Protocol Adaptation Fund) and not through World Bank funds. Developmentally meaningful adaptation projects call for significant co-determination by developing countries and their people as well as possibilities for independent monitoring and evaluation.

Ways and means should be found at the domestic policy level to finance Switzerland's contribution to the Bali Fund.

Mark Herkenrath and Rosmarie Bär, Alliance Sud