Operationalisation of the GCF and the legacy of institutional structures

Although the creation of the GCF was noted in the Copenhagen Accord, the lack of detail meant that there was significant room for subsequent proposals and debates about how it

would be structured and under what principles and rules it would operate. At AWG-LCA-10 in 2010 (before COP-16), the US indicated its desire to preserve the position of the GEF, stating that ‘the new fund and the GEF would each play an important and complementary role, with the green fund focusing on large-scale investments’ (ENB-464). However, the US added that the GCF ‘would have its own board composed of finance experts with equal representation of developing and developed countries and would be accountable to the COP’ (ENB-464), more in line with developing country perspectives on institutional design. Other developed countries supported these proposals, with Australia suggesting that the GCF board ‘decide on how thematic areas will be funded’ and Canada advocating ‘an accountable body making decisions on funding, well informed by expert-level decisions’ (both ENB-464). US references to making the new fund accountable to the COP were ‘cautiously welcomed by developing countries, who have long called for a financial mechanism under the authority of the COP. They commented, however, that “this still leaves unanswered the question of the level of accountability to the COP and the wider financial framework, which are key issues to be resolved”’ (ENB-472).

Developing countries demonstrated a continued push to shape the governance of the new fund and its board, even suggesting a “forum of entities” to perform key oversight and coordination functions for funds across the financial mechanism (FCCC/AWGLCA/2010/8, chap. III, paragraph 14). This was clearly beyond the tolerance of developed countries, though: ‘the EU, US and other developed countries tended to favor [sic] the use of existing institutions to perform these functions’ (ENB-478). Nevertheless, developing countries continued to push for a new board to oversee the GCF in submissions to the AWG-LCA (FCCC/AWGLCA/2010/MISC.6/Add.1) and in negotiating statements (e.g. ENB-480, 488), with disagreement ensuing about how many members of the GCF board should come from developed and developing countries (ENB-478, 495). The details were finalised at COP-16 in Cancún, where the Cancún Agreements (decision 1/CP.16) decided ‘that the Fund shall be governed by a Board of 24 members, comprising an equal number of members from developing and developed country Parties’ (paragraph 103) and invited the World Bank to serve as the trustee of the GCF’s assets (paragraph 107), an administrative rather than operational role and the same given to the World Bank for the Adaptation Fund. A Transitional Committee was also created to design the operational aspects of the GCF, with mixed membership of developed and developing countries (paragraph 109).

There are two themes from the negotiations that can offer insight into why developed countries became active participants in overturning the path dependence centred upon the role of the GEF, adding additional nuance to our understanding of how creation of the GCF reflected and affected North-South relations. The first theme is the move to connect

institutional change and the prospect of a new fund with the trend towards private and other sources of climate finance. Developed countries sought to ensure that private sources of finance were at the core of the new fund’s functioning, in contrast to the GEF’s public financing. For example, at AWG-LCA-4/COP-14, ‘the US, Norway and Canada highlighted the importance of the private sector’ in relation to the future of the financial mechanism (ENB-390). The EU contributed to discussion of Mexico’s proposal for a new fund by emphasising ‘that the “core” of the negotiation is how to mobilize effective financing and that parties need to discuss linkages between sources of funding to create a coherent system’ (ENB-434), and as the US’ influential proposal was taking shape, it explained that ‘the fund would utilize a variety of financial products’ (ENB-437). The GCF’s engagement with private investors and corporations was a key demand of developed countries, and its potential for mobilising private funding is seen by donors as a key benefit of the GCF in the context of constrained public budgets (de Sépibus 2015, pp. 310–311, Bowman and Minas 2019, p. 351); as discussed in Chapter 6, increasing the prominence of private finance will advantage developed countries by reducing the focus on public finance and its connection to normative arguments about their obligations to compensate developing countries.

The second theme is the connection between institutional change the continued effort by the US and other developed countries to move beyond the Convention and Kyoto Protocol’s sharp divide in responsibility between developed and developing countries. As Mexico explained,

participation in the fund would be voluntary, but that once parties had opted in, their contributions would be based on assessment criteria related to emissions, population and economy. Saying that developing countries’ contributions would be “much smaller but not zero,” he expressed concern that, without developing countries taking any responsibility to act, “the victims of today may become the culprits of tomorrow.” He highlighted, inter alia, that: the LDCs would be the only “accepted free-riders;” developing countries would get more than they contribute; and the green fund would not eliminate obligations under other elements of the financial architecture (ENB-434).

With this proposal, Mexico positioned itself between developed and developing countries, and indeed ‘the G-77/China, Pakistan, the African Group, Saudi Arabia, China and India expressed reservations with the Mexican proposal’ (ENB-434). The wider participation of the Mexican proposal was echoed by the US when explaining its proposal for a new fund: the US ‘indicated that all parties, except the LDCs, would contribute to the fund in line with capabilities but that contributions would not be mandatory’ (ENB-435). Thus, while the centrality of the GEF may have been successfully overcome by developing countries, the GCF

offered a means to institutionalise the new regime’s dilution of differentiation between developed and developing countries (Brunnée and Streck 2013) and therefore a potential advantage to developed countries over the GEF.

These two key shifts in the negotiating landscape are examples of developed countries accumulating sufficient advantage from institutional change to outweigh the losses associated with giving up the prior institutional structure, a threshold that historical institutionalists argue is required for change to occur (Fioretos 2011, p. 375). These calculations and choice points are shaped by the institutional context in which the relevant actors are operating and ‘the feedback effects that have defined the conditions within which specific policy and institutional choices are being made’ are a key driver of preference formation amongst actors within the institution (Thelen 2004, p. 288). Developed countries’ increasing prioritisation of private sources and their push to reduce differentiation between developed and developing countries as donors of climate finance resulted in a different calculation to in previous policy rounds such as creation of the SCCF and LDC Fund, meaning developed country preferences shifted away from preserving the status quo and towards facilitating institutional change. The structure of the GCF with its separate board represents an example of policy “layering”, where new institutional rules are added on top of existing ones to, in this case, solidify institutional change initiated with the Adaptation Fund’s design (Mahoney and Thelen 2009, p. 16).

While these developments were significant for North-South relations within the UNFCCC, initial operationalisation of the GCF at the Cancún COP is not the end of the story. A Transitional Committee was initiated in Cancún, which would be responsible for designing the operational procedures and other details for the GCF (Müller 2011) and ultimately for determining the extent to which the new fund improved on the existing financial mechanism (Drummond 2011). The Transitional Committee was the site of significant North-South battles (Bracking 2015) and resulted in a more donor-dominated governance process, rather than consensus-based, and cemented the role of private finance in fulfilling the voluntary pledges that now underpin the UNFCCC regime, reinforcing the prominence of private finance as a key objective of developed countries (Vanderheiden 2015). Although the GCF retains a balance between adaptation and mitigation funding (Fridahl and Linnér 2016), its operationalisation means that the GCF has ended up firmly rooted in the new bottom-up, pledge-based regime and its governance has not embedded the independence and North-South balance that developing countries have fought consistently to achieve. The circumstances of the GCF’s creation and the move by developed countries to participate in rather than continue obstructing the creation of a new, more comprehensive fund under the UNFCCC suggests that while creation of the GCF

constitutions an instance of institutional change, the advantages it brought to developed countries mean that it continues the pattern of greater influence over institutional structure that developed countries have derived from the prior evolution of financial mechanism policy.

7.10 Conclusion

The financial mechanism is central to developing countries’ involvement in the UNFCCC regime and shapes the reality of how recipients of finance obtain and use the money that they have consistently argued is a right, rather than an option (Müller 2008a). As the process of creating the UNFCCC began, the GEF, a creation of developed countries as a donor-led vehicle for environmental funding, was in a prominent position. Developed countries and the GEF itself sought to ensure that the institution would be brought into the environmental governance regime created at the UNCED, and their success replicated the broader North- South power inequalities associated with the development assistance system. Developing countries were unable to secure a new fund that would be under their influence to a greater extent (via COP oversight), and this outcome set the stage for an ongoing struggle to shape governance arrangements to increase their influence over the functioning of the financial mechanism. This struggle initially focused on the role of the GEF, but other elements of the financial mechanism’s operations, such as access to funding and the weight given to adaptation funding have remained issues of concern as the institutional structure of the financial mechanism has evolved, demonstrating how difficult it has been for developing countries to achieve policy outcomes they have sought.

There is substantial evidence that the initial selection of the GEF conferred an advantage that developed countries capitalised on when the institutional linkage between the COP and the GEF was articulated in the MOU and the GEF was subsequently made a permanent operating entity of the financial mechanism. Developing countries consistently raised concerns about how the GEF functioned and was governed, and the three new funds created at COP-7 in Marrakesh presented a significant opportunity for the financial mechanism to better reflect the needs and priorities of developing countries. However, this was in line with the increasing prominence and understanding of climate change adaptation both within and outside the UNFCCC, and developed countries were successful in ensuring the SCCF and LDC Fund were placed under the management of the GEF, leaving developing countries to face familiar inequalities of influence over their operationalisation. A delay in operationalising the Adaptation Fund created an opportunity for an emboldened G77/China, capitalising on the outcome of SCCF and LDC Fund negotiations and the absence of the USA, to build a coalition in support of deviating from existing

institutional structures to the extent that the new fund would feature an independent governance arrangement that would finally bring about institutional separation from the GEF. The Adaptation Fund Board was created and its positioning directly under the Kyoto Protocol’s COP/MOP signified a notable break from the path dependence that had hitherto constrained policy choices to those involving the GEF. Developing countries also achieved a new policy of direct access to the Adaptation Fund, notable since access to funding was a key theme of frustration with their experiences of GEF funding over the life of the financial mechanism and would go on to become an influential feature of the financial mechanism.

The pivot in the trajectory of the financial mechanism, and the potential break of the path dependence centred on the GEF, coincided with the development process for a potential post-2012 climate governance regime, due to be agreed at COP-15 in Copenhagen. With all elements of climate policy covered within the AWG-LCA process, developing countries had an unprecedented forum in which to argue for creation of a new, much larger fund that would feature institutional independence under the authority of the COP, equitable representation in its governance structures, direct access and a balance between funding mitigation and adaptation. While developed countries initially focused on reform of the GEF and using existing institutions to meet the demands of developing countries, the numerous proposals for a new fund gained enough momentum within the negotiations that eventually developed countries, in particular the US, joined in with their own proposals. The GCF represents the end of the prominence of the GEF within the financial mechanism and the path dependence that constrained policy making for the first 10-15 years of UNFCCC operation. However, while in time the GEF may be replaced altogether by the GCF (Vanderheiden 2015), developed countries ensured that the new fund was consistent with their broader push to erode the previous distinction between developed and developing countries and include as much private climate finance as possible. This facilitated institutionalisation of the expectation that, eventually, most countries would be expected to contribute to the GCF and the fund had little formal connection to normative arguments about historical responsibility. The financial mechanism thus remains, as it has been since its creation, based on an institutional structure that gives considerable advantage to developed countries and is largely in line with their preferences.

Part III:

RESEARCH FINDINGS, DISCUSSION,