7 Finance |
Green Climate Fund
66. Established through the Cancun Agreements, the
Green Climate Fund (GCF) aims to deliver large scale financial
resources to developing countries for climate change adaptation
and mitigation. A key outcome of COP 17 in Durban was the decision
to adopt the governing instrument for the GCF.
Developed countries "committed to provide funds rising to
US$100 billion per year by 2020".
67. Given the severe fiscal constraints in most developed
countries, it is politically and economically unlikely that budgetary
contributions amounting to US$100 billion per annum by 2020 will
be reached unless an innovative mechanism is developed to deliver
them. The UN Secretary General's commission into finding a solution
to this problem suggested that for every dollar from international
development banks, three to four dollars could be raised from
the private sectorin this way the target could be reached.
68. It is important to encourage private funds to
assist with climate finance. Prof. Jouni Paavola said that "private
funding alone will not cater for all needs, and excessive reliance
on public, politically pledged funding has its own problems."
Sir David King stated that instead of public funds the EU should
"push for reliable and innovative sources of long-term climate
finance to be established."
He suggested these innovative sources could include "a price
on the emissions of aviation and/or maritime bunker fuels, a financial
transaction tax, and auctions of emission allowances in regional
trading schemes such as the EU-ETS."
69. Prof. Jacobs has emphasised the role of public
finance in leveraging private investment.
He elaborated in oral evidence, remarking that, for example, the
multilateral development banks could give a capital multiple,
allowing more to be borrowed and then lent. Financial instruments
could be designed to take some of the risk away from private investor,
using public finance to partially cover the risk. These investment
"risk-mitigation" measures could also include guarantees
and co-investments that could be used for both mitigation and
70. DECC noted that they plan to use public funding
to "add value, test out and demonstrate approaches that can
be scaled up and replicated by others, to enable longer term shifts
in low carbon investment to happen." In addition they reported
Where technologies are further along the innovation
chain, e.g. solar PV, or abatement costs are cheaper, e.g. energy
efficiency, we are supporting interventions that unlock private
capital and create market pull, by addressing non price barriers,
testing innovative business models and partnerships with the private
recommend that the United Kingdom exploit its expertise in financial
services to develop innovative mechanisms for levering in more
private investment to help achieve the US$100 billion target to
make up for the almost inevitable shortfall in public funds.
Balance with mitigation
72. In terms of risk management, the more mitigation
of emissions occurs now, the less adaptation will be required
later. Spending 50% of funds on mitigation and 50% on adaptation
has been working well up to this point, but we were warned that
if global mitigation efforts are insufficient, adaptation will
be very costly and this 50/50 split will have to be revisited.
73. However, we also heard from academics that there
is currently a shortfall in adaptation funding internationally.
Adaptation has only recently risen up the international agenda
as a deserving recipient of funding, so is not yet receiving enough
in this country, DECC stated that "the UK is committed already
to spending up to 50% of its climate fund on adaptation measures".
74. We applaud
DECC for pledging up to 50% of its climate fund on adaptation
and recommend this is maintained.
75. WWF-UK recommended that the UK and other EU member
states should "follow Germany's lead and allocate a minimum
of 50% of aviation ETS revenues for international climate finance.".
Sir David King added that it would create good-will with other
nations if the some of the funds generated from the auctioning
within the EU-ETS formed part of the Green Climate Fund.
76. When the Minister of State, Gregory Barker MP
was asked what DECC's view was on using EU ETS revenues for climate
finance, he responded "I think it is more the Treasury have
a view on that."
He then added that "when we came into power as a Coalition
the forecast revenues for the ETS were already spent.".
77. We note
that witnesses have argued that the revenues from EU ETS should
be allocated for climate finance and we recommend that the Government
consider matching these revenues by an increase in the budget
for the UK's International Climate Fund.
78. A multiple instrument bureaucracy with legally
binding agreements and various funds for adaptation and mitigation
is clumsy. A single cap-and-trade instrument could create the
cash flowsfrom the developed to the developing world that
are needed through the tradable commodity of carbon dioxide permits.
However the introduction of such an instrument is likely to be
a very long way into the future and Sir David King, a leading
proponent of this idea, also said that there is a need for other
funds "in the shorter term". 
79. We heard from other witnesses that especially
for small communities (when an economic case can be difficult
to make for adaptation), it is important that in the intervening
period until the adaptation funds (Green Climate Fund, Fast Start
Finance) are developed and put in place, some public money is
still available as it can be used to leverage additional funds
from the private sector.
80. Governments themselves are not going to adapt
even though they need to implement policies for adaptation. It
is businesses, communities, local authorities and households who
will be doing the adapting. They need access to money. An overarching
approach to climate finance (as suggested by Sir David) may be
attractive, but its bureaucracy may not guarantee that those in
most need are able to access the fund. Hence, having a set of
different sources and types of funding is important.
81. In his evidence
the Minister said that DECC are not in favour of "a complicated
institutional architecture". He added that "there is
scope within the UNFCCC framework to have a more streamlined approach."
We recommend that DECC clarify how the international finance architecture
could be streamlined.
91 UNFCCC, "Green Climate Fund-Report of the
Transitional Committee to COP 17", 18 November 2011 Back
"The Cancun Agreements: Financial, technology and capacity
building support", UNFCCC, April 2012 Back
Q 103 Back
Ev 91 Back
Ev 84 Back
Ev 86 Back
"Leveraging private investment: the role of public sector
climate finance", Overseas Development Institute, April
Q 153 Back
Ev 63 Back
Q 49 Back
Q 155 [Prof. Paavola, Dr. Falkner] Back
Q 211 Back
Ev 77 Back
Q 104 Back
Q 203 Back
Q 206 Back
Q 103 Back
Q 38 Back
Q 150 [Prof. Jouni Paavola] Back
Q 198 Back