Commissioning the Climate Finance Castle

4 November 2009

When constructing a solid building, starting from scratch is often more efficient and cheaper than to trying to retrofit an existing building for a new, much larger purpose.  In the same way, developing countries argue that when it the design of the financial mechanism, a new architectural approach is needed.

ECO observes that over the last two years the construction of a modern home for climate finance has progressed significantly, with one particular building block providing an increasingly solid foundation from which the rest of the design can benefit: the Adaptation Fund under the Kyoto Protocol.

This result has come about because of solid guidance from the commissioning body (the Kyoto Parties) combined with the time and attention of the architects (the Adaptation Fund Board) to carefully lay out the necessary details of both form and function.

First, developing countries will soon be able to use their keys to access the front doors (direct access through national implementing entities), or enter through the side (multilateral implementing entities) if their personal keys do not yet fit.
Second, house rules are crucial for the successful long-term maintenance of the castle. The condition for obtaining a key will be agreeing to the house rules (that is, special attention to particularly vulnerable communities and sound fiduciary management standards).

The crux of the matter in this construction project is that all those who commissioned the Adaptation Fund (the Kyoto Parties) had equal influence and represented a balance of interests in guiding the architects. Clear instructions from the commissioners to the architects were a crucial precondition for a solid and successful construction, while the architects had to work out the operational details. In the event, the architects did good work last year before Poznan, where about 99% of their proposals satisfied the Parties without major controversy, with significant additional progress over the last months.

The same principles applied successfully to the Adaptation Fund ‘building’ also will apply to the climate finance ‘castle.’  The heading for the instructions for the climate finance blueprint (‘guidance’/’authority’) is not sufficient by itself. The climate finance architects must also be clearly accountable to those who have secured their services. Furthermore, the architects must adhere to their original instructions rather than project plans other clients propose.

There is no complete agreement yet on what the final climate finance castle will look like. But ECO has checked the plans and is pleased to see that many proposals reflect elements of the Adaptation Fund blueprint.

The Japanese finance proposal published on Monday contains an explicit reference ‘to take into account the current practices of the Adaptation Fund.’  The US finance proposal also outlines support activities administered by domestic institutions in host countries. This sounds quite compatible with the way the Adaptation Fund architects designed the direct access modalities.

The Group of 77 and China are reasonably demanding their own keys (direct access), but also a balanced representation of all Parties in the group of architects. So there are positive signs that the blueprint of the Adaptation Fund is now providing a useful model for constructing the climate finance castle, extending well beyond just adaptation finance.

Now that one building block of the climate finance castle is laid, it is crucial that the necessary investments are made, since this part of the castle is much smaller than what is needed to fulfill the requirements of climate finance.  Putting in additional resources to the Adaptation Fund would consolidate and accelerate the castle construction work immediately.