Financial Mechanisms and existing international entities

Legal assistance paper

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Date produced: 25/11/2009

1. Would the proposal by G77/China to create an Executive Board (EB) under the authority of (rather than merely under the guidance of and accountable to) the COP require an amendment to Article 11 of the UNFCCC, which expressly states that the “[mechanism] shall be under the guidance of and accountable to the [COP]?”

2. What is considered an ‘existing international entity’? Does reference to the word ‘existing’ mean existing at the time the UNFCCC was adopted or existing at the time it becomes the operating entity of the financial mechanism? Could the UNFCCC secretariat (Secretariat) be considered an “existing international entity”?

3. Would it be possible for the proposed EB to be an executive organ of the UNFCCC (under the authority of the COP) entrusted with oversight over the operating entity of the financial mechanism (as opposed to being the operating entity itself)? Would such a structure be consistent with the Convention?  [Context of question: the structure envisaged is that the EB takes over from the COP the function of exercising accountability by operating entities. So the idea is that operating entities would either become accountable to the EB, or the COP would delegate the oversight entailed by the accountability to the EB.  Authority need not come into the picture. The intended Operating Entity would be the UNFCCC Secretariat.]

4. How is it that:

  • under the Kyoto Protocol a new Adaptation Fund was established (Dec 10/CP.7) which was to be operated and managed by an entity entrusted with the operation of the financial mechanism of the Convention under the guidance of the COP/MOP (para 4) – the entity referred to is the GEF (preamble to Dec 28/CMP.1);
  • the COP/MOP then decided that the Adaptation Fund should operate under the authority and guidance of and be accountable to the COP/MOP which shall decide on its overall policies (Dec 2/CMP.2); and
  • the COP/MOP later decided that the operating entity of the Adaptation Fund should be a newly established Adaptation Fund Board (AFB) (Dec 1/CMP.3 para 3 and 4)?

5. How is it that the establishment of the AFB does not violate the ‘existing international entity’ rule in Article 11.1 of the UNFCCC?

  • Is it because it is established under the KP rather than the Convention?
  • If so, could a similar ‘Board’ be set up under the LCA text to operate a new LCA Fund without contravening Art 11.1 UNFCCC (leaving aside issues of duplication of work and waste of resources and that this structure is not the same as that envisaged by the enquirer)?

6. How is it the Adaptation Fund is able to operate ‘under the authority’ of the COP/MOP despite the language of Article 11.1 UNFCCC? Could it be that one possible interpretation of Article 11.1 is that the financial mechanism has to at least be under the guidance of and accountable to the COP and that it would then be up to the State parties to decide if they wanted the mechanism to be under the authority of the COP/MOP as well?

 

1. “Under the authority of” versus “under the guidance of and accountable to”

This question assumes that there is a material difference between the phrases “under the authority of” and “under the guidance of and accountable to”.  A discussion about the difference between these two phrases within the context of Article 11 of the UNFCCC and the CoP, is provided in the answer to Query 13 (document 7.2.2.2).

In essence, if a fund is operated “under the guidance of and accountable to” the CoP it is not necessarily the same as if that fund was operated “under the authority of” the CoP.  As was highlighted in the answer to Query 13, the difference is the amount of control that can be exercised over fund which is operated under the guidance of and accountable to the CoP when compared to a fund which is operated under the authority of the CoP.  The author of the answer to Query 13 noted that the key in relation to the Global Environment Fund (GEF) is that as long as the GEF is following the guidance of the CoP (acknowledging that there is considerable debate as to the extent to which CoP guidance is being followed), it can act relatively independently.  Whereas if the fund were under the authority of the CoP, the CoP would have the power to directly control the fund through decisions of the Parties.

To quote the example provided by the author of the answer to Query 13:

“…the multilateral fund for implementation of the Montreal Protocol (MLF) is established by article 10(4) of the Montreal Protocol which states that the MLF ‘shall operate under the authority of the Parties which shall decide on its overall policies’.  Further, article 10(5) states that the Parties shall establish an executive committee (ExCom) to develop and monitor the specific operational policies, guidelines and administrative arrangements, including the disbursement of resources, for the purposes of achieving the objectives of the MLF.  The ExCom members are selected on the basis of a balanced representation of the Parties.”

In this example, it is not only the words “operate under the authority of the Parties” that are important – the words “which shall decide on its overall policies” provides additional weight to the role of the Parties, as do the words in article 10(5).

In our view, due to the fact that the two phrases can be readily interpreted so as to create two distinctly different outcomes, it would be prudent to amend Article 11 to replace “under the guidance of and accountable to” with “under the authority of” so as to leave no doubt as to the intention of the Parties (assuming that it is intended that the Parties have greater power to make decisions directly in relation to the fund than is currently the case).

We also note that in order to implement the G77/China proposal to create an Executive Board as the operating entity under Article 11, other amendments would need to be made with respect to the operating entity being an “existing international entity”.  We discuss this aspect in more detail in paragraph 2 below.

2. Existing international entity

We will address the three questions relating to the phrase “existing international entity” together because they are interconnected.  This commentary in relation to the phrase “existing international entity” follows on from the previous commentary in our response to query number 19.

International entity

As noted in the response to Query 19, we consider that the CoP has an international legal personality distinct from its members (i.e. it is an international entity). It seems to us that the CoP is an international entity because the CoP is:

  • constituted under the UNFCCC;
  • has specified functions set out in Article 7;
  • its own secretariat established under Article 8.

Arguably, the states party to the UNFCCC intended the CoP to have a separate legal entity by requiring the Secretariat to “enter, under the overall guidance of the CoP, into such administrative and contractual arrangements as may be required for the effective discharge of its functions” (Article 8(2)(f)).

The term “international entity” as it used in Article 11 seems to be synonymous with an organisation that has international legal personality.  This is supported by general usage and also by implication in Articles 11.1 and 11.3 which contemplate agreements between the CoP and the international entity.[1]

According to Ian Brownlie[2], the criteria of legal personality in organisations may be summarised as follows:

  •  a permanent association of states, with lawful objects, equipped with organs;
  • a distinction, in terms of legal powers and purposes, between the organisation and its member states; and
  • the existence of legal powers exercisable on the international plane and not solely within the national systems of one or more states.

Applying the Brownlie criteria to the CoP it seems to us that the CoP is most likely an international legal personality.[3]  What is less clear, is the status of the Secretariat.  The Secretariat is established under Article 8 of the UNFCCC to provide administrative support to the CoP.  An opinion by the UN’s Office of Legal Affairs in 2006 dealing with the issue of ensuring necessary privileges and immunities for individuals serving on the constituted bodies established under the Kyoto Protocol, noted that:

…the secretariat of the CoP/MoP[4] should be requested to enter into ad hoc agreements, legally binding on the international plane, with individual Parties to the Kyoto Protocol and other States, to provide such privileges and immunities to the individuals serving on the constituted bodies. It should be noted that in order for the secretariat of the CoP/MoP to possess the capacity to enter into agreements, there must be a decision of the CoP/MoP to this effect.” (underline emphasis added)

The fact that the Secretariat needs a decision of the CoP/MoP in order to undertake an action on “the international plane” seems to support an argument that the Secretariat is not an autonomous entity distinct from the CoP (or the CoP/MoP in the case of the Kyoto Protocol).

If, as Brownlie argues[5], agencies and subsidiary organs of international organisations may be imbued with separate legal personality to the extent required by their functions, then any legal capacity of the Secretariat would appear to be limited to the administrative type functions it performs.

So, whilst it is expressly envisaged in Article 8.2(f) of the UNFCCC that the Secretariat will “enter, under the overall guidance of the Conference of the Parties, into such administrative and contractual arrangements as may be required for the effective discharge of its function”, it is arguable that this may not satisfy the third criterion identified by Brownlie (e.g. that capacity may only be required at a domestic level, for such things as leasing premises at the Secretariat’s headquarters in Bonn, Germany).

Accordingly, whilst the CoP seems to be an international entity, the evidence seems to favour an argument that the Secretariat does not constitute an international entity.

“Existing”

In our response to Question 19, we noted that the “existence” of CoP as an international entity (as established under Article 7.1 of the UNFCCC) coincides with the operation of Article 11.1.  In this situation, was the CoP “existing” when Article 11.1 came into force?

We consider that the meaning of “existing” is sufficiently ambiguous or obscure (to adopt the terms in Article 32(a) of the Vienna Convention on the Law of Treaties) to warrant recourse to supplementary material to answer this question.

The following passage from a Report of the Intergovernmental Negotiating Committee for a Framework Convention on Climate Change[6] provides insight into the preparatory works for Article 11:

“54. In discussing financial resources and technology transfer, there was general acceptance that all developing countries which became parties to the convention would need additional financial resources and transfer of technology to enable them to meet their obligations under the convention. The close relationship between commitments in these areas and those concerning emissions and sinks was recognized.

Several delegations were of the view that:

(a) A new fund should be established by the parties under the convention to compensate the developing countries for the incremental costs they would incur through the adoption of appropriate measures under the convention to meet their obligations and alleviate poverty;

(b) The fund should be administered by the parties and contributions should come from the industrialized countries;

(c) The financial resources to be allocated should be new, additional and adequate and should not be diverted from existing bilateral or multilateral financial arrangements.

55. A number of delegations felt that there was no need to establish a new institution, which would be expensive to operate. They stressed that existing financial mechanisms should be used, notably the Global Environment Facility to which some countries had already contributed. They stressed the importance of co-ordinating the Committee’s discussions on funding mechanisms with those in the Preparatory Committee for UNCED and in the negotiations on a convention on biological diversity.”

(underline emphasis added)

In Geneva, December 1991, Working Group II (a group of developing countries) of the Intergovernmental Negotiating Committee for a Framework Convention on Climate Change [7] submitted an alternative proposal for the article dealing with the “administrative mechanism for financial resources and technology transfer” which sought to establish a new “International Climate Fund under the authority of the Conference of the Parties” which was to be “distinct and independent from other funds and international financial institutions”.  This proposal was rejected in favour of the current model in Article 11.

Furthermore, at its fourth session in Nairobi in September 1991, the Intergovernmental Negotiating Committee for a Convention on Biological Diversity[8] (which was being negotiated during the same period as the UNFCCC) considered the issue of “adequate, new and additional” financial support and noted the overall consensus towards promoting established institutions and reading terms such as “new” and “additional” financial resources narrowly in the context of that convention.

The background material presented above, together with the logic that CoP came into existence concurrently with Article 11, seems to support a view that the term “existing” means existing at the time the UNFCCC came into force.  Therefore, in these circumstances it is strongly arguable that the CoP could not be regarded as an “existing” international entity for the purposes of Article 11.

As noted in our answer to Query 19, it is open to the Parties to amend Article 11 to remove, at the very least, reference to “existing” but that such an amendment cannot occur at Copenhagen because of the six month notice rule in Article 15(2) of the UNFCCC.

3. Proposed restructure of governance architecture

We note the proposed amendments to the oversight and governance of the fund and the operating entity as set out in question 3 above.  However, for the reasons provided above, we consider that whilst theoretically possible, the proposal would likely not be capable of implementation without the requisite amendments to Article 11.

4. Additional queries on the Adaptation Fund

The Adaptation Fund was created in accordance with Article 12.8 of the Kyoto Protocol which states that:

The Conference of the Parties serving as the Meeting of the Parties to this Protocol shall ensure that a share of the proceeds from certified project activities is used to cover administrative expenses as well as to assist developing country Parties that are particularly vulnerable to the adverse effects of climate change to meet the costs of adaptation.”

Accordingly, unlike Article 11.1 of the UNFCCC, Article 12.8 of the Kyoto Protocol does not establish the Adaptation Fund (it merely states that certain proceeds are to be distributed) nor does it prescribe how the fund is to be governed or operationalized.  The details about these aspects of the fund were left to decisions of the CoP/MoP.  Because the decisions around the structure and governance of the fund were made as CoP/MoP decisions (rather than enshrined in the Protocol), earlier decisions were capable of amendment by subsequent decisions (i.e. moving from the GEF to the Adaptation Fund Board structure).

5. As referred above, the Adaptation Fund was created under Article 12.8 of the Kyoto Protocol.  As such, Article 11.1 of the UNFCCC is not applicable.  Article 11.1 is only applicable to the fund which is established in accordance with Article 11.1.

In our view, it is possible for a new fund to be created, either under amendments to the existing treaty or in a new Protocol (as contemplated by the “Copenhagen Fund” model in the NGO treaty text discussed in the answer to query 30 – document 7.2.2.3).  But as noted in the question above, there would be significant issues around duplication which would need to be addressed.

6. The Adaptation Fund must operate in accordance with the relevant decisions of the CoP/MoP.  The language used in the CoP/MoP decision is “under the authority and guidance of”.  As noted above, Article 11.1 is not applicable to the Adaptation Fund.

In relation to whether Article 11.1 could be interpreted to mean that it must be “at least” under the guidance of and accountable to the CoP, in our view, such an interpretation would be difficult to maintain particularly when the parties could have used the words “under the authority”  of the CoP/MoP but did not, in fact, use those words.


[1] Note that the GEF (which is currently entrusted with the operation of the financial mechanism under Article 11.1 of the UNFCCC) is not an independent legal entity, but rather a creature of arrangements between other international entities (see analysis at Part D in www.adaptation-fund.org/…/AFB.B.3.6_Legal_Issues_Pertaining_to_the_Operationalization_of_the_Adaptation_Fund.pdf).  This appears to still satisfy Article 11.1.

[2] Principles of Public International Law, 7th ed, 2008, p 677.  Brownlie’s criteria are derived from the analysis of the International Court of Justice in its advisory opinion in the Reparation Case (ICJ Reports (1949))

[3]  See also support for this view in a range of authorities cited by Camenzuli in The development of international environmental law at the Multilateral Environmental Agreements’ Conference of the Parties and its validity: cmsdata.iucn.org/downloads/cel10_camenzuli.pdf, p 20)

[4] In accordance with Article 14 of the Kyoto Protocol, the secretariat to the CoP also serves as the secretariat for the Kyoto Protocol.  Article 14(2) of the Kyoto Protocol provides that Article 8(2) of the UNFCCC on the functions of the secretariat, and Article 8(3) of the UNFCCC on arrangements made for the functioning of the secretariat, shall apply mutatis mutandis to the Kyoto Protocol.

[5] Principles of Public International Law, 7th ed, 2008, p 678

[6] http://unfccc.int/resource/docs/a/09.pdf

[7] http://unfccc.int/resource/docs/a/wg2crp09.pdf

[8] http://www.cbd.int/doc/meetings/iccbd/bdn-04-inc-02/official/bdn-04-inc-02-04-en.pdf