What are the legal or institutional hurdles/challenges for having the Adaptation Fund serve the Paris Agreement, and what options exist to overcome these hurdles/challenges?

Advice:

The Adaptation Fund (AF) operates under the Kyoto Protocol and is not part of the Financial Mechanism defined under the UNFCCC. For the time being, it does not serve the Paris Agreement.

COP decision 1/CP.21 (adopting the Paris Agreement) states that the AF may serve the Agreement, subject to relevant decisions by the CMP and the CMA, and further invites the CMP to consider the issue and make a recommendation to the CMA.[1] In Paris, the CMP already considered the issue and recommended that the CMA, at its first session, considers that the AF may serve the Paris Agreement, and invited the COP at its 22nd session (in Marrakesh) to request the Ad hoc Working Group on the Paris Agreement (APA) to undertake the necessary preparatory work and to forward a recommendation to the CMP for its consideration and adoption no later than at CMP15 (in 2019).[2]

Subsequently, in Marrakesh, the COP further requested the APA in its consideration of the necessary preparatory work on the AF to address the governance and institutional arrangements, safeguards and operating modalities for the AF to serve the Paris Agreement and invited parties to submit their views.[3] The  CMA decided that the AF should serve the Paris Agreement, following and consistent with decisions to be taken at the third part of the first session of the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement, to be convened in conjunction with the twenty-fourth session of the Conference of the Parties, and by the Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol that address the governance and institutional arrangements, safeguards and operating modalities of the AF.[4]

Although the Kyoto Protocol and the Paris Agreement have been adopted under the UNFCCC, they are legally autonomous treaty regimes. Integrating the AF into the Paris Agreement would, therefore, at least require a set of additional CMP and CMA decisions to create and/or transfer organisational structures and assets.

Possible scenarios for the integration into the financial governance structure of the Paris Agreement and the Financial Mechanism under Art.11 UNFCCC include, for example, the AF serving as an adaptation window of the GCF, a specialised instrument, or a dedicated mechanism based on innovative sources.  COP/CMP could issue guidance to the GCF about how to structure its relationship with the AF and/or the AF could become an accredited legal institution or entity of the GCF.

A decision that the AF shall effectively serve the Paris Agreement is still pending. Developed country Parties state that there are complicated legal and institutional hurdles that need to be resolved before such a decision could be taken. This includes the following issues:

• There needs to be mirroring decisions issued by both the CMP and the CMA to enable the AF to serve the Paris Agreement. The CMP cannot unilaterally decide that the AF serves the Paris Agreement. This is a procedural step that needs to be taken and requires clear cross referencing. A “mutatis mutandis” approach in relation to the AF’s Board membership may not suffice.
• If the AF serves simultaneously the KP and PA, an AF Board member may be a party to the Kyoto Protocol but not the Paris Agreement and vice versa. If so, there is a question whether that Board member can make a decision in relation to the Kyoto Protocol.
• Where the AF serves the PA alone, the CMP will have no competence of matters serving the PA (and responsibility needs to be delegated to the CMA).
• The continuity of the clean development mechanism (CDM) and its linkages with the Sustainable development mechanism (SDM) in Article 6 of the Paris Agreement;
• What states are eligible to receive funding if states are not parties to both KP and PA –  for example, if the CDM funds the AF, and a state is not party to the KP.

1. Legal and Institutional Challenges

There may be some merit in the (developed country) argument that there are hurdles to redeploying the fund. In essence, the Fund’s modalities and procedures would need to be transposed or translated to align with the Paris Agreement. One example is that the legal basis for the Fund—in Article 12.8 of the Kyoto Protocol (‘KP’)—originates from a link to a share of proceeds from CDM and JI projects. These are obviously unique features of the KP, which are replaced by the Paris Agreement’s sustainable development mechanism.

By way of another example, the fund’s modalities and procedures refer solely to the UNFCCC and Kyoto Protocol. As such, at a minimum, a new set of decisions would be needed to achieve its redeployment.

In this sense, I consider that this might involve some complexity. However, I do not regard these as terminal constraints to redeploying the fund to serve the Paris Agreement (a contrary argument to what I understand developed countries are claiming). My view is that the developing country argument takes an excessively doctrinal view toward the fund. The consequence is that those making the argument fail to recognise that the parties to the agreement could resolve whatever is necessary to redeploy the fund, as long as there is political consent (i.e. mutual agreement) between them. In other words, the fund was created through a political agreement between the parties; and thus, can also be amended, altered, or extended by another such political agreement.

To my mind, and from what I understand about the present situation, there is simply no legal or institutional basis for claiming (as I understand some representatives are) that the original KP arrangements are somehow intrinsically fixed or unalterable.

It may also be noted, in this connection, that the Adaptation Fund Board was granted legal capacity in Germany (to enter into contracts, acquire and dispose assets and to be party to legal proceedings) by German Federal Law of 1 February 2011.  It appears that unless, as a result of the Adaption Fund’s integration into the Financial Mechanism of the Convention and/or the Paris Agreement, the AFB’s name or its character (as operating entity of the Adaptation Fund established under the Kyoto Protocol) change fundamentally, an amendment of the law or a new act are not required. However, this assessment also depends on the future of the Kyoto Protocol.

2. Options Available to Overcome These Challenges

The Parties could decide, under the KP, to extend the fund’s existing functions, modalities, and procedures to serve the Paris Agreement.

In a separate decision (this time agreed under the Paris Agreement) Parties could agree the following: firstly, that the fund will be financed from a share of proceeds under the new sustainable development mechanism. Secondly, that all existing modalities and procedures, and institutional arrangements (including governance regimes) are applicable to the fund’s deployment under the Paris Agreement. Third, that future decisions to amend the aforementioned rules or arrangements under either the KP or Paris Agreement will effectively amend them for both instruments.

Another alternative approach could simply be to draft a ‘carbon copy’ of the fund’s existing modalities and procedures, but to replace references to the KP with references to the Paris Agreement.

A number of other subsidiary decisions or implementing agreements might also be required, depending on the precise objectives that Parties wish to achieve.

Ultimately, there are innumerable ways in which Parties could achieve the discussed redeployment of the fund. In the time available, I have not been able to canvass all these options. Much depends on what exactly the Parties seek to achieve; namely, the exact role that Parties want the fund to play in the Paris Agreement. Regardless, in my view, any redeployment (as a broad objective) is eminently achievable, in legal and institutional terms, as long as there is political agreement by the Parties.

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[1] Decision 1/CP.21, Adoption of the Paris Agreement, paras.59 and 60.
[2] Decision 1/CMP.11, Report of the Adaptation Fund Board, paras.8 and 9, in: Report of the CMP on its eleventh session, held in Paris from 30 November to 13 December 2015, Addendum, Part two: Action taken by the CMP, FCCC/KP/CMP/2015/8/Add.1, 29 January 2016.
[3] Decision 1/CP.22, paras,14-15 (FCCC/CP/2016/10/Add.1)
[4] Decision 1/CMA 1 paragraph 11