At the UN Framework Convention on Climate Change (UNFCCC) Conference of the Parties in Copenhagen in 2009, developed countries agreed to mobilize from public and private sources a combined $100 billion annually by 2020 to help poor countries reduce emissions and cope with climate change. The Copenhagen Accord, the result of that conference, enshrined the $100 billion goal, stating that the funding would be raised from “a wide variety of sources, public and private, bilateral and multilateral, including alternative sources of finance.” Separately, the Copenhagen Accord also called for the formation of the Green Climate Fund (GCF) as a new channel for disbursement of climate finance. The Green Climate Fund was formally established at the following year’s UNFCCC meeting.
The GCF is used to help developing countries reduce emissions and adapt to the impacts of climate change. Developing countries are those that are likely to be hurt the worst by a changing climate, and will need the most help making a technological shift to a clean energy economy.
The Costs of Climate Change
Climate change is exacting an ever greater toll on people around the world. Natural disasters alone are now costing the world nearly $200 billion annually, and that cost is likely to continue to rise with a changing climate. If climate change continues unmitigated, 77 percent of nations would see a decrease in per capita incomes, and global incomes could drop 23 percent by 2100.
Furthermore, “the International Energy Agency (IEA) found that global investments in clean energy technologies and energy efficiency must double to nearly $790 billion per year by 2020 — and increase to $2.3 trillion per year by 2035 — in order to avoid dangerous levels of warming. In addition, the World Bank determined that the cost for developing countries to adapt to even moderate warming will be at least $70 billion to $100 billion per year through 2050, which is over three times the current estimate of global adaptation investment.” While $2.3 trillion per year sounds like a lot, the IEA also estimates that consumers would save an estimated $115 trillion in total fuel costs by 2050. Fighting climate change makes good economic sense, but poorer countries need help covering the up-front costs. That is the role of the Green Climate Fund.
In order to help meet this challenge and protect the most vulnerable, the GCF will provide a new instrument to help countries in need better prepare for the impacts of climate change that they are already experiencing and will support the highest return strategies for reducing emissions in the future. In adapting to and mitigating the impacts of climate change, as in public health, the old adage holds true: an ounce of prevention is worth a pound of cure.
GCF Funding Goals and Progress
Shortly before leaving office in January 2017, President Obama deposited $500 million into the Green Climate Fund, bringing the total US contribution to $1 billion. (The US has pledged a total of $3 billion to the fund.) The contribution is equivalent to 0.012% of the federal budget each year, or $1.53 per American, according to Oxfam America.
As of December 2016, 43 governments have made pledges to the GCF.
GCF pledges as of December 2016. Source: GCF Portfolio
GCF funding amounts by target. Source: GCF portfolio
Developed countries also released a climate finance roadmap in 2016, showing that public climate finance will reach $67 billion by 2020. Billions of dollars in private financing has also been pledged through initiatives like Bill Gates’s Breakthrough Energy Ventures Fund. According to WRI, “Including both public and private finance, developed countries estimate they will mobilize between $77 billion and $133 billion total by 2020.”
Green Climate Fund Structure
Since the announcement of the creation of the GCF, countries have worked to make sure the GCF is structured to run as transparently and fairly as possible. The fund is overseen by a board composed of an equal number of representatives from developing and developed countries. Despite being an outcome of the UNFCCC process, the GCF is run independently from the UN.
The construction of the GCF incorporates lessons learned from operating the Climate Investment Funds (CIF). CIF was designed in 2008 as new multilateral funds that would work through the World Bank and regional development banks to pilot new methods for delivering climate finance to low-carbon and resilience projects at scale. Like the CIF, the World Bank is also the trustee of the Green Climate Fund. The GCF will also partner with established regional development banks to inform its funding, but the GCF also includes many design improvements that will increase its efficiency and versatility. For instance, GCF financing has increased flexibility over that of the CIF, which means investors can take a wider-range of investment risk and channel funds towards higher reward investments than was possible under the CIF. The GCF also incorporates a private sector facility to oversee investments in climate finance that many businesses have already expressed an interest in making. Specifically, the private sector facility of the GCF is constructed to support businesses to do more to address climate change and to help them tap new markets in developing countries. The business community has enthusiastically welcomed the support the GCF can offer in accessing potential new investments.
From its inception, the CIF was approved with the understanding that it would function as a transitional mechanism, which would eventually be succeeded by a larger multilateral and UN-supervised climate fund. Baked into the founding documents of the CIF is a sunset clause requiring the CIF to cease operations once a new climate fund under the oversight of the UNFCCC is fully stood up and made operational. The CIF is expected to sunset at the end of 2016. At its recent November 2014 board meeting, members agreed to continue operating the CIF until the close of the 2016 calendar year, by which time the GCF is expected to fully take over, having had time to become fully functional and to demonstrate its effectiveness.
U.S. Climate Funding History
The Green Climate Fund continues an established history of US leadership and support on climate finance extending across both Republican and Democratic administrations.
The United States has supported developing countries’ climate change efforts for many years. In 2008, George W. Bush made a $2 billion commitment to the World Bank’s Climate Investment Funds (CIF) to address climate change. The US has disbursed those funds to the CIF on an annual basis since that pledge. During the Bush Administration, the US also committed $430 million to the Global Environment Facility, which provided financial support to projects with environmental foci, including climate change.
The climate funds committed under the Bush presidency were engineered by the U.S. Treasury and former Treasury Secretary Hank Paulson in conjunction with two U.S. allies: Japan and the United Kingdom. Paulson continues to support the logic and efficacy of climate finance today.
Secretary Paulson led on the design of the CIF with his British and Japanese counterparts and staunchly supported US contributions to both the CIF and GCF. In an op-ed in the Financial Times, Secretary Paulson argued in tandem with the Finance Ministers of both the UK and Japan that, “supporting developing countries that undertake energy sector and climate related policy actions consistent with a low carbon growth trajectory will have a multiplier effect on reducing emissions,” concluding that, “the fund will be an important step towards meeting the challenge of creating an environmentally sustainable path to prosperity.”
Community Support for the Green Climate Fund
The private sector sees climate finance as an excellent investment opportunity, not as international aid.
The private sector facility is central to the fund’s design. Managing Director at Bank of America/Merrill Lynch, Abyd Karmali, a private sector observer who participates in GCF decision makings, calls the GCF’s rules “as friendly to private finance as possible” and highlights that the fund is positioned to leverage private capital seven times over its public resources. Outside of the fund, the private sector has already recognized the economic sense and potential high returns of climate finance projects. Currently they are seeking channels that can manage risk and support large sums through which to direct their climate finance investments.
Several banks have committed billions over multiple-year time spans: in 2012, both Bank of America and Goldman Sachs allocated large amounts over ten years of $50 billion and $40 billion respectively; Citigroup just announced a commitment of $100 billion over the next decade doubling the amount they had originally set as their target in 2007. Because the GCF is set up to accept and manage private money in order to tap into private sector innovation, a growing amount of money in the fund is likely to be private in coming years. The initial $10 billion that international governments invested in the fund was always intended to mobilize $100 billion of largely private money, along with some additional public contributions.
Climate finance has been identified as critical to long-term national security.
In the 2015 U.S. National Security Strategy, climate change is specifically mentioned as a top threat to security and stability and US participation in the Green Climate Fund is explicitly endorsed as a key strategy to safeguard against future instability that would necessitate a military response. National security leaders in the United States have identified climate change as a threat multiplier and called on US policymakers to act to manage the climate crisis, including through the allocation of sufficient funding. Rear Admiral David W. Titley, a retired member of the U.S. Navy and a member of the Advisory Board for the Center for Climate and Security, said, “I am very encouraged to see that the administration continues to recognize climate change as an accelerating risk to our national security. Highlighting this reality is critical; now is the time for all policy-makers to respond to this reality by further developing and adequately funding the comprehensive set of measures required to successfully manage this accelerating risk.”
Senator Patrick Leahy of Vermont said of the latest US GCF contribution, “The human causes of climate change, which 11 national academies of science and the vast majority of the world’s scientists have recognized, pose as grave a threat to world peace and security as anything in human history. These funds will help countries mitigate their climate change impacts and adapt to the devastating droughts, floods, and other weather extremes we are already experiencing. In helping to advance this global effort, it will serve our own national security interests. ”
The faith community has identified climate finance as a moral imperative.
People of faith are increasingly vocal in expressing their alarm over the reality that climate change disproportionately affects the poorest and risks reversing the development gains made in poor countries over the last half-century. They are concerned that climate change will put an unjust burden on future generations and many are calling for major climate actions, including climate finance. The Evangelical Environmental Network and other faith organizations have specifically advocated for the United States to lead on contributing to the Green Climate Fund as part of taking responsibility for its role as a major carbon emitter and acting as a responsible leader of the international community.
Climate finance is a proactive, cost-efficient way to prepare for future challenges.
The countries that invested in the Green Climate Fund realized that evidence points to the merits of preventative spending. For instance, the United Kingdom’s former Secretary of State for Energy and Climate Change, Ed Davey, vocally supported the UK’s pledge to the GCF as both necessary and smart, calling it a ‘proud’ moment for Britain. At the Berlin pledging conference for the GCF, Sweden’s Minister for International Development Cooperation stated her government’s position that the GCF would “deliver security, for the world, for investors and businesses, for developing nations and future generations…contributing money to the Green Climate Fund is nothing less than investing in a more secure world for our children and grandchildren.” Sweden reinforced this statement by pledging $550 million to the fund (4.5 times as much as would be mathematically expected). Like these leaders, past and current leadership in the United States has also acknowledged the economic logic, security rationale and moral imperative for upholding climate finance as a critical mechanism for preventing and counteracting the worst impacts of climate change.
Of the most recent US contribution to the GCF, Senator Jeff Merkley of Oregon said, “Climate change is a global problem, and the United States must pursue global solutions. The Green Climate Fund is exactly the kind of international partnership we need to tackle this major challenge.”