Climate change funds

Legal assistance paper

All reasonable efforts have been made to ensure the accuracy of this information at the time the advice was produced. However, the materials have been prepared for informational purposes only and may have been superseded by more recent developments. They do not constitute formal legal advice or create a lawyer- client relationship. To the extent permitted any liability is excluded. Those consulting the database may wish to contact LRI for clarifications and an updated analysis.

Print Friendly, PDF & Email

Date produced: 07/12/2009

1. Can the AF as it exists be used also for funds generated under the LCA track, or only for funds generated under the KP track? Alternatively, would a new fund need to be set up in order to deal with the LCA funds, or to deal with both LCA and KP funds? If a new fund is set up, how would this be done?

2. The UNFCCC currently has several funds, including the AF, the LDCF and the SCCF. How can these funds be brought together, so that the LDCF and the SCCF are subsumed under the AF?

3. If the adaptation funds are managed through a number of facilities – e.g. the AF, the Global Environmental Facility (GEF), the World Bank’s Climate Investment Funds (CIFs), the Least Developed Countries Fund (LDCF) of the UNFCCC, the Special Climate Change Fund (SCCF) of the UNFCCC, how would the relationship between the different facilities be governed? How can the non-UNFCCC facilities be brought within the UNFCCC governance structure? How would the UNFCCC/COP, possibly through a “high level body”, supervise these facilities? What would it mean for the funds to be under the “close guidance of the COP”? Is there a precedent where other international facilities are managed in this way?

4. Do the words “mutually accountable” have any particular legal meaning or precedent? How could the following sentences be interpreted in the context of adaptation funding: “Developed and developing countries are mutually accountable for finance and actions. New and additional financial contributions of individual countries are delivered via preferred channels and funds of the contributing and recipient country”?

Summary: The various questions here concern ways to assimilate various climate change related funds under an appropriate model, such as the Adaptation Fund which is thought to be fairer to developing countries than other models. There are practical and political difficulties in using the Adaptation Fund itself due to the interplay between its existing constitutional arrangements and membership with those of other funds. However, the parties to any protocol agreed at Copenhagen can choose any model they believe to be appropriate (whether the Adaptation Fund or any other) and, given sufficient political will, they can choose to assimilate all adaptation funding under such a new structure.

1. The issue of whether the AF can be used for funds under the LCA track is a recurring theme. The short answer is ‘yes’ but that there are considerable practical obstacles. Non-parties to the Kyoto Protocol, such as the US, currently have no status at the Kyoto Protocol CMP meetings. Article 13(2) of the Kyoto Protocol provides that such non-parties cannot participate in CMP decisions and Decision 5/CMP.2 provides that the Adaptation Fund should operate under the authority and guidance of the COP/MOP [CMP] . The US is unlikely to ratify the Kyoto Protocol and is also unlikely to submit to the authority of the Adaptation Fund Board without appropriate representation and influence. The Kyoto Protocol and relevant decisions would need to be scrutinised in order to identify the amendments which would be required to provide suitable representation to non-parties and these are likely to include more than merely Article 13(2) and Decision 5/CMP.2. Note that amendments to the Kyoto Protocol need to be notified and agreed by the Parties at least 6 months in advance of their taking effect. The proposal would require considerable political will and widespread support to overcome these obstacles.

The alternative of creating a new separate fund to deal with LCA funds avoids the above issues. The parties to any new protocol or treaty have the power to create a new fund based on the Adaptation Fund model or any other. The creation of a new fund based on the Adaptation Fund model does, of course, give rise to issues of duplication and efficiency.
A new fund to deal with both LCA and KP funds would effectively replace the Adaptation Fund. Again this raises issues of duplication and efficiency. Assuming sufficient political will and common agreement, the parties to the Kyoto Protocol can agree to wind up the Adaptation Fund in favour a new fund by means of a CMP decision.

2. Article 11(1) of the UNFCCC defined the financial mechanism for the Convention and provided that its operation should be entrusted to an ‘existing international entity’. This role is played by the GEF which administers the SCCF and LDCF pursuant to Decisions 7/CP.7 and 27/CP.7 respectively.
By contrast, Article 12(8) of the Kyoto Protocol did not define the Adaptation Fund. Instead it provided that the parties would ensure that a share of CDM projects revenue would be used to meet the costs of adaptation. It was left to the parties to the Kyoto Protocol to set up the fund and its operating entity (whether new or existing) which they did in Decision 5/CMP.2 and Decision 1/CMP.3.
It is clear that LDCF and SCCF have at least until now been regarded as part of the financial mechanism of the UNFCCC and their administration has been dealt with in accordance with Article 11(1). To assimilate them under the Adaptation Fund would require the parties to the UNFCCC to change this approach and agree that these funds are in fact part of adaptation funding under the Kyoto Protocol. Assuming the political will exists to do this, the proposal would raise the issues concerning, for example, the participation of the US and the need to identify necessary amendments to the Kyoto Protocol to deal with appropriate representation and influence which are raised under query 1 above.

3. There are 5 questions here. It is not entirely clear to us how these (wide) questions relate to the (narrow) objective of the query, so for now our responses are rather general.

How would the relationship between the different facilities be governed? Generally, the relationship between the different funds would need to be governed by one or more additional instruments – such as a treaty or protocol, or a decision of a COP/MOP. A treaty or protocol obligation would maximise legal certainty – including certainty of legal obligations of payment/right of receipt, and of accountability for how funds received have been spent.

The (currently) different constitutional bases for these facilities – under the World Bank/UNFCCC/KP – would make it extremely complicated legally, or at least messy – but not impossible – in the absence of a strong political steer.

How can the non-UNFCCC facilities be brought within the UNFCCC governance structure? A new instrument would be needed.

All States are Parties to the UNFCCC, and they are legally free in this context to agree what they wish – i.e., to agree a new UNFCCC obligation or, less ideally, a new COP decision. In the case of the GEF, it is already within the UNFCCC by virtue of Article 11(1) of the Convention, but is not within its governance structure.

If they wished, however, to bring World Bank funds into the UNFCCC governance structure, it would be at least advisable, and probably (at least to a certain extent) necessary, to dovetail-in with the relevant procedures and instruments covering the Bank’s Clean technology Fund and the Strategic Climate Fund (which we understand to be the two WB funds constituting its Climate Investments Fund). Whilst dovetailing-in might require amendments to World Bank instruments, the point of principle is that as ‘the UNFCCC States’ are the same as ‘the World Bank States’, there is no legal prohibition on the States agreeing what they wish at Copenhagen (or elsewhere).

Quite what ‘brought within’ means is a vague term. For example, a new UNFCCC obligation could either impose legal obligations to pay and account for how the money was spent, with such obligations being fulfilled via the already-exisiting funds (which might be thought of as a ‘substantive bringing within’), or not; or could simply set out the procedures for oversight (which might be thought of as a ‘procedural bringing within’).

How would the UNFCCC/COP, possibly through a “high level body”, supervise these facilities?
What would it mean for the funds to be under the “close guidance of the COP”?
Is there a precedent where other international facilities are managed in this way?”

We respond to these 3 questions together. To be answered fully, these questions need a lot of consideration, detailed analysis of the constitutional bases, and of the similarities and differences in the procedures, of the various funds, and reflection. This could be done, but not by tomorrow – though whether such a significant (but do-able) effort should be undertaken over the next week or so given the objective of the query (only!) to eliminate/minimise the SCCF is unclear to us – so we would be grateful if you could give us more guidance on how you would like us to proceed in this respect.

Meanwhile, the following observations might be of some value:

a. There are several international legal precedents for regulating activities that create a risk of transboundary pollution, or regulate the safe handling of pollutants, and then creating mechanisms for compensating for pollution damage, such as nuclear damage, oil spills, transport of hazardous goods, and pollution of watercourses from industrial accidents. There are many options possible, and the most important of these have been recently identified in the WWF ‘Beyond Adaptation’ paper available here (page 25, et seq): http://assets.wwf.org.uk/downloads/beyond_adaptation_lowres.pdf

b. The oil spill regime, for example, gives the Fund legal status (so it can sue and be sued), a Director and staff, and legal obligations concerning payments, and allows individuals to receive payment. It has an Assembly composed of all Member States and an Executive Committee of 15 Member States elected by the Assembly – see more here: http://www.iopcfund.org/govbodies.htm

c. One of the features of these regimes (which can be considered as an advantage or disadvantage) is that there will be a cap on the amount of money recoverable – in a sense, the quid pro quo for the certainty/clarity of payment.

d. Generally, language such as ‘under the guidance of’ is considered weaker than ‘under the authority of’. The GEF, for example, acts under the guidance of the UNFCCC COP and has a degree of independence concerning how goals will be achieved. By contrast, the relevant fund under the Montreal Protocol operates ‘under the authority of the Parties which shall decide on its overall policies’. The Parties under the MP are thought to have more direct engagement with and influence over that fund than is the case with the GEF. We also attach the advice in response to query 13 which provides more information on this.

4. The phrase should be given its ordinary meaning , i.e. (i) that developed countries should be accountable to developing countries for the finance they provide and (ii) that developing countries should be accountable to developed countries for the way in which the finance is used. A reference to ‘mutual accountability’ as a general principle gives an indication of what is expected but should be supplemented with detail on the practicalities of ensuring accountability. This might include systems for quantifying and identifying relevant funding, ensuring its payment, and further ensuring that it is used for and/or contributes to the intended goals. The second sentence quoted suggests possible channels for the money but does not give detail on how the mechanisms would be used to achieve the above.