Finance registry for adaptation funding

Legal assistance paper

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Date produced: 03/06/2010

1. A finance registry was proposed in Annex V of the draft LCA text (FCCC/AWGLCA/2010/6). What is the implication of having the registry part of or inside the broader financial mechanism/institutional architecture or outside as an independent entity?

2. Given the four proposed functions of a registry, what are the different advantages and disadvantages for these functions for being inside or outside the broader finance mechanism? 

3. If adaptation funding flows through the registry what are the implications for adaptation funding if the registry is outside the finance mechanism?

Summary: Paragraph 5 of Annex V of the FCCC/AWGLCA/2010/6 (the LCA text) envisages the Registry operating under guidelines produced by COP. Oversight of an institution operating under COP guidelines is likely to be easier if that institution is also part of the UNFCCC architecture, for example with oversight and supervision being undertaken by the finance board of the UNFCCC finance mechanism.  Some commentary favours establishment of the Registry within the structure of the UNFCCC financial mechanism (currently the Global Environment Facility) on the basis that it will promote better legitimacy, accountability and credibility for actions and support. Some commentary acknowledges both donor and developing country dissatisfaction with the GEF. Doubts regarding GEF notwithstanding, many view the role of the UNFCCC in financing as of critical importance.  It is a political not legal judgment, but it is not immediately clear why the arguments favouring an independent Registry on the basis of optimising the technical and recognition function would be more important than the legitimacy and credibility points made above.

In addition, the exact role of the Registry remains to be clarified, but the language of Annex V suggests that the Registry will not itself receive and distribute funds but will record the actions and support undertaken or provided by others, which will be important for transparency and MRV.

1. This is a political and practical question rather than a legal one, but we note that paragraph 5 of Annex V of the LCA text (FCCC/AWGLCA/2010/6) envisages the Registry operating under guidelines issued by the COP. COP oversight of an institution operating under COP guidelines is likely to be easier if that institution is part of the UNFCCC architecture, for example with oversight and supervision being undertaken by the finance board of the UNFCCC finance mechanism.

The civil society commentary that we have seen acknowledges the potentially important role of the Registry in implementing transparent, comparable, verifiable and measurable accounting of mitigation actions and support.  Some such commentary favours establishment of the Registry within the structure of the UNFCCC financial mechanism (currently the Global Environment Facility (“GEF”)) on the basis that it will promote better accountability and credibility for actions and support. Some commentary acknowledges both donor and developing country dissatisfaction with the GEF.  We also note that during the Copenhagen summit, we received a number of questions concerning whether the Adaptation Fund (“AF”) under the Kyoto Protocol could replace the GEF as the UNFCCC financial mechanism.

Doubts about the GEF notwithstanding, many view the role of the UNFCCC in climate change financing as of critical importance.  In his written comments of 25 March 2010 following the first meeting of the High-Level Advisory Group on Climate Change Funding (“AGF”), Lord Stern says “A system for monitoring, reporting and verifying of flows of climate change financing will be fundamental to their credibility…”  and that …“we should not underestimate the importance of involving the UNFCCC if these resources [climate change finance] are to be recognised as part of an international agreement on climate change.

The extent to which any party accepts that climate change finance needs to be bound into the UNFCCC process for legitimacy, oversight and integration purposes, will influence that party’s views on whether the Registry should be part of the UNFCCC architecture or independent of it.  It is a political not legal judgment, but it is not immediately clear why the arguments favouring an independent Registry on the basis of optimising the technical and recognition function would be more important than the legitimacy and credibility points made above. It is not clear on what basis an independent Registry would be better equipped to deal with such technical and recognition issues. It is a question of fact and institutional practice, but inclusion of the Registry within an appropriate UNFCCC architecture may offer the potential for more coherent management of both fund flows under the finance mechanism and their recording on the Registry along with associated mitigation actions.  Again, it is a judgment call but any dissatisfaction with the GEF might be addressed by institutional reform rather than exclusion of the Registry from its ambit.

2. Again, this is a practical rather than a legal issue and turns on the capacities of the institutions being compared.  There is no legal obstacle to a Registry within the UNFCCC finance mechanism acquiring the necessary capacity to fulfil the four proposed functions. Equally, one may take the view that existing non-UNFCCC institutions already have such capacities and should, as a result, assume the Registry role. The answer to which view is correct for any particular function depends on the facts relating to institutional capacity and is outside the scope of this answer. However, parties arguing that the role should be given to an independent body should demonstrate that any capacity advantages outweigh the potential loss of legitimacy , oversight and integration that may arise as a result

3. The question above refers to ‘funding flows through’ the Registry suggesting that the Registry is seen as a vehicle for allocating and distributing funds. Its exact role remains to be clarified, but the language of Annex V suggests that the Registry will not itself receive and distribute funds but will record the actions and support undertaken or provided by others, which will be important for transparency and MRV. Lord Stern, for example, envisages climate change funding flowing through regional development banks but with the amounts being tracked by the UNFCCC.

Annex V currently covers recording of nationally appropriate mitigation actions for which developing countries are seeking support rather than adaptation. This may change in the future and there are many sources of climate change funding that might potentially be recorded in the Registry which come from the AF, the GEF and the Copenhagen Green Climate Fund to name just a few.

The practical and political considerations referred to in the answers above will also be relevant for adaptation funding if and when it comes to be recorded in the Registry. In addition, institutional architecture issues may need to be overcome at the relevant time because, for example, the AF was created under the Kyoto Protocol and is arguably not part of the UNFCCC finance mechanism. If the GEF remains the UNFCCC mechanism (and many delegates at Copenhagen were interested in whether the AF might replace it) and the Registry is part of the UNFCCC structure, the recording of adaptation funding under the AF in the Registry would require a degree of co-operation and management between the AF and GEF. It is suggested that co-operation between the AF and the GEF is no more likely to be problematic than co-operation with non-UNFCCC or Kyoto institutions.