Delivering Climate Finance Via National Climate Funds
By Rishikesh Bhandary
As the Glasgow summit approaches, the importance of improved governance of multinational climate finance will come into clear view. The huge disparity in vaccination rates between the developed and developing world has cast a dark shadow over the upcoming climate negotiations. The lack of equity when it comes to global vaccine distribution not only signals the analogous difficulty that might arise in getting wealthy countries to pony up sufficient climate finance contributions to help poor countries respond to climate change impacts as well as pay for efforts to decarbonize, but it also starkly threatens to hinder travel from the developing world to participate in the Glasgow session altogether, possibly stifling input to the deliberations.
Most of the political attention on climate finance has been fixed on the commitment made by developed countries to mobilize US $100 billion a year by 2020 at the Copenhagen climate summit in 2009. Both the UN Secretary-General Antonio Guterres and UK Prime Minister Boris Johnson, the host of the Glasgow summit, have described the $100 billion as crucial to maintain trust in the climate negotiations.
How exactly climate finance will be delivered is a question that closely follows. Governments have a number of delivery channels they can use to deploy climate finance. These channels range from major multilateral climate funds, such as the Green Climate Fund, to national and sub-national institutions. My research investigated the role of national institutions – national climate funds – and found that finance from these funds can be critical for “climate mainstreaming,” that is the integration of climate change into planning and implementation across an economy including infrastructure investment, implementation of low carbon fuels, and pursuit of badly needed adaptation strategies, among other elements. However, while lack of financial resources is a widely acknowledged barrier to climate action in the developing world, just adding more funding is by no means sufficient. Case study research on climate action in Bangladesh and Ethiopia reveals that incomplete planning thwarted the effectiveness of national climate funds to support implementation of climate policies. In some cases, stipulation that international funds be used within a tight time frame led to diversion to individual shovel ready projects where the connection between the projects and the national climate plans was not clear. At its worst, lack of coordination with how global climate funding is dispersed on the ground level created internal political conflicts within a country’s broader environmental policy apparatus and reduced performance.
In Ethiopia, for example, the government launched a highly ambitious Climate Resilient Green Economy Vision and Strategy. The financing arm of this plan, the Climate Resilient Green Economy Facility, relied on government agencies to implement projects. The CRGE Facility has been able to acquire a significant track record in supporting climate projects over the years. Encouraged by the fund’s track record, funders who were initially hesitant to pitch in, have made contributions. As the Facility started its operations, it faced challenges from two fronts.
On the one hand, donors had stipulated short time frames for the projects. This time frame constrained the Facility’s programming decisions, limiting the options for projects that could be considered. Second, incorporating climate change into sectoral plans and policies was slower than anticipated. Therefore, the Facility was in a position of having to fund projects from various agencies at the same time as the agencies were formulating their own sectoral climate strategies.
Bangladesh was successful in attracting contributions from seven donors for its Bangladesh Climate Change Resilience Fund. The initial enthusiasm did not prove to be sustainable, however, because the parties involved disagreed about how the fund truly added value. The fund’s grants were blended into shovel ready projects. While such a design helped to rapidly build a pipeline and reduced the size of the loan to the Bangladeshi government, donors expected the fund to come up with transformational projects. The problem of ascertaining the value addition of the fund became all the more challenging because Bangladesh did not have climate vulnerability maps in granular detail. Therefore, whether the fund was truly targeting communities most in need or not was not clear.
One key takeaway from this research is that capacity building continues to be critical for these funds to be successful. Both of the national climate funds examined here used government agencies to implement projects. Ministries submitted project proposals and articulated how their proposed projects tackled climate change within their respective domains. Evidence from the case studies indicates that having government agencies involved in implementation helped to pave the way for these agencies to incorporate climate change into their own planning exercises. The findings also point to two areas that need attention. First, capacity is not evenly spread out amongst public agencies. The case study of Bangladesh shows how some of the agencies with greater capacity were able to obtain a disproportionate share of the funds. Therefore, funds need to incorporate capacity building into their operations. Second, sustained engagement of the host governments and climate finance providers is required. The level of activity of climate change units within sectoral ministries was highly sensitive to the availability of external assistance.
In the run up to Glasgow, countries should consider not just meeting the $100 billion climate finance goal but also paying attention to the delivery channels that will be used to supply the funding. The case studies presented in this research provide a close look at the opportunities and challenges of using national financing vehicles. Click here to read the full report.
Rishikesh Bhandary is a postdoctoral scholar at The Fletcher School, Tufts University.