Commitments under Art.4 UNFCCC & integrating Adaptation Fund into financial mechanism

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Date produced: 19/12/2014

If the Adaptation Fund established under the Kyoto Protocol is subsequently integrated into the financial mechanism of the UNFCCC how will this affect the implementation of commitments under Art.4, para.1 (a) ? I.e. do developed country parties listed in Annex II have to provide the “full” or “incremental” costs?

Summary:

The difference established in both the UNFCCC and the KP between ‘agreed full incremental costs’ and ‘full agreed costs’ works as follows:

  • a limited (set of) obligations of the developing countries is financed in full by the Annex II Countries, such as the preparation of the national communications (Article 11(2)(a) KP, relating to the obligations of Article 10(a) KP);
  • a large set of other obligations of the developing countries is financed (only) to the extent the costs made to fulfill the obligations are incremental (additional to business as usual) (Article 11(2)(b) KP, relating to all obligations of Article 10 KP)

As far as the scope of this advice is concerned, it seems that moving the Adaptation Fund to the Convention would not make a difference to developed parties’ obligations under Article 4.

Advice:

According to the UNFCCC, the developed country Parties included in Annex II to the Convention shall provide financial resources needed by the developing country Parties to meet the “agreed full incremental costs” of implementing measures covered by Article 4, para.1. Article 11 para.2 (a) of the Kyoto Protocol, in comparison, states that the developed country Parties included in Annex II to the Convention shall provide new and additional financial resources to meet the “agreed full costs” incurred by developing country Parties in advancing the implementation of commitments under Art.4, para.1 (a) of the Convention.

Like Article 4(3) UNFCCC, Article 11(2)(b) KP states that developed country parties and other developed parties included in annex II shall “provide such financial resources, including for the transfer of technology, needed by the developing country Parties to meet the agreed full incremental costs of advancing the implementation of existing commitments under Article 4(1) UNFCC (…) and that are agreed between a developing country Party and the international entity or entities referred to in Article 11 of the Convention (…).” This provision also refers to ‘agreed full incremental costs’, just like the second sentence of Article 4(3) UNFCCC. This concerns all the obligations listed under Article 4.1 UNFCCC and Article 10 KP.

The reliance on ‘full agreed costs’, by contrast, is conceived in a more restricted manner, both in the UNFCCC and in the KP. Indeed, Article 4(3) UNFCCC refers to ‘full agreed costs’ only in connection with developing country Parties obligations under Article 12(1) UNFCCC, concerning the preparation of national communications. Article 11(2)(a) KP refers to ‘full agreed costs’, only in relation to the implementation of commitments under Article 4(1) UNFCCC that are covered by Article 10(a) KP (not the whole of Article 10KP), i.e., obligations regarding the formulation of “cost-effective national and, where appropriate, regional programmes to improve the quality of local emission factors, activity data and/or models (…) for the preparation and periodic updating of national inventories of anthropogenic emissions (…) consistent with the guidelines for the preparation of national communications adopted by the Conference of the Parties”. The latter concerns an ‘administrative’ obligation.

Put differently: the query seems to exaggerate the difference in approach between the UNFCCC and the KP inasmuch as Article 11(2) KP refers mostly to reliance on ‘agreed full incremental costs’ and only in a limited manner to reliance on ‘full agreed costs’.

The GEF, as the financial entity of the Convention, agrees on “full incremental costs” with its developing country partners. The GEF (2011) defines incremental costs as:

the additional costs associated with transforming a project with national benefits into one with global environmental benefits”.[1]

In the Climate Change Information Sheet 28 on Financing action under the Convention, the following is clarified:[2]

“The GEF pays the “agreed full incremental costs” of projects to protect the global environment. GEF funds complement regular development assistance, offering developing countries the opportunity to incorporate environmentally-friendly features that address global environmental concerns. For example, if a country invests in a new power plant to promote economic development, the GEF may provide the additional, or incremental, funds needed to buy equipment for reducing the emissions of greenhouse gases. In this way, GEF funds normally cover only a portion of a project’s entire costs. The GEF also funds enabling activities, including the “agreed full costs” of preparing national communications. (…) In addition to technical assistance and investment projects, the GEF supports various “enabling activities.” These activities help countries to develop the necessary institutional capacity for developing and carrying out strategies and projects. In particular, the GEF pays the full costs of preparing the national communications that are required by the Climate Change Convention.”

It is, however, doubted whether, in respect of the obligations covered by Article 10(a) KP there is in the end any difference between the notion of ‘agreed full costs’ and ‘agreed full incremental costs’ (See e.g.,  Farhana Yamin and Joanna Depledge, The international climate change regime: a guide to rules, institutions and procedures (Cambridge: CUP)(2004), at 278-281). Also, it has been submitted that “for NAMAs, the wording in the latest UNFCCC documents is less clear with respect to incremental costs, also referring to “agreed full costs”.”[3]

Nevertheless, one may defend that the difference established in both the UNFCCC and the KP works as follows: the preparation of the national communications (an ‘administrative’ obligation) of a developing country is financed in full by the Annex II Countries, whereas the other obligations, such as implementation of mitigation or adaptation programmes, are (only) financed to the extent they are incremental (additional).

Finally, it is noted that the impact of the integration of the Adaptation Fund in the UNFCCC Financial Mechanism depends on the terms and conditions agreed upon by the COP/CMP.

We conclude that, as far as the scope of this advice is concerned, it seems that moving the Adaptation Fund to the Convention would not make a difference to developed parties’ obligations under Article 4.

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[1] http://www.thegef.org/gef/policy/incremental_costs; See Laura Würtenberger, ECN Policy Studies, Financing Supported NAMAs (Nationally Appropriate Mitigation Actions), Discussion paper, August 2012, http://mitigationmomentum.org/downloads/Financing_Supported_NAMAs.pdf, 16. In the same document, however, it is noted that “according to a slightly different view, incremental costs can be defined as the difference in Net Present Value between a mitigation option and a baseline technology. The CDM does not refer explicitly to incremental costs, but in the investment analysis of the CDM additionality test, a project developer needs to prove that the NPV of the project would not be positive without the expected CER revenues (or, alternatively, that there are other barriers that hinder the low-carbon option).”

[2] https://unfccc.int/essential_background/background_publications_htmlpdf/climate_change_information_kit/items/280txt.php

[3] See Laura Würtenberger, ECN Policy Studies, Financing Supported NAMAs (Nationally Appropriate Mitigation Actions), Discussion paper, August 2012, http://mitigationmomentum.org/downloads/Financing_Supported_NAMAs.pdf, 15 and 16. There a footnote states: “The Durban Outcomes on the Green Climate Fund, which is expected to provide funding for supported NAMAs in the future, state that “The Fund will finance agreed full and agreed incremental costs for activities to enable and support enhanced action on adaptation, mitigation (including REDD-plus), technology development and transfer (including carbon capture and storage), capacity building and the preparation of national reports by developing countries” (FCCC/CP/2011/9/Add.1). According to the latest draft AWG-LCA text, the COP “Invites developing country Parties to submit, as appropriate, to the secretariat the following information on individual nationally appropriate mitigation actions seeking international support: […] The estimated full cost and/or incremental cost of the implementation of the mitigation action” (FCCC/AWGLCA/2011/L.4).