As I said yesterday, even though some media outlets have connected the Green Climate Fund and the $100 billion pledge, the two are only very, very loosely connected. The Green Climate Fund is an actual financial mechanism, while the $100 billion pledge is something more akin to an accounting standard. Now that I have established the differences, what does this mean in terms of the size of The Green Fund?
An initial estimate of the size of the Green Climate Fund can be made by drawing on the informal linkage between the two pledges implied by the text of the Cancun Agreements, and analysis of what other types of funding will channel through the Green Climate Fund and count towards the $100 billion pledge.
First, based on the report of the United Nations High-Level Advisory Group on Climate Change Financing (AGF), climate finance can be divided into four broad categories: public funding, carbon markets, development bank lending and private investment. As it stands currently, only public funding is expected to go towards the Green Climate Fund, while all four sources would count toward the $100 billion annual pledge. The AGF estimated that countries could mobilize $50 billion in public funding, $30-50 billion in carbon market offsets, $30-40 billion in development bank lending and $100-200 billion in private investment by 2020.
This was an initial estimate, and public funding, of course, could be higher or lower than $50 billion per year. Funding could be lower because private investment can conceivably be counted, is likely easier to mobilize, and will likely be greater than $100 billion on its own. In addition, a substantial share of the $50 billion in public funding is assumed to come from carbon pricing, which has not yet gained political traction in most developed countries. Financing could be higher, though, if countries decide to limit the scope of private financing that will count or if political will substantially increases to mobilize development assistance.
The $50 billion estimate, however, is not a bad starting point for analysis. To drill down on the Green Climate Fund size, it is important to note that public funding will be divided between mitigation and adaptation, between bilateral and multilateral channels, and within multilateral channels between the Green Climate Fund and other mechanisms. According to Project Catalyst, climate finance is currently divided about 60/40 between bilateral and multilateral channels. Assuming this share is maintained, this would leave about $20 billion in public funding available for multilateral mechanisms such as the Green Climate Fund.
Also according to Project Catalyst, historically climate finance has been about 80 percent for mitigation and 20 percent for adaptation, but has been trending towards 50/50 in recent years for some countries. Assuming a 60/40 split between bilateral and multilateral and a 50/50 split between mitigation and adaptation, this leaves about $10 billion in new multilateral funding for adaptation. Although “significant share” is not defined in the text of the Cancun Agreements, a rough estimate could be greater than 50 percent, or about $5 billion. Even if $100 billion is used as a starting point – thus assuming the pledge will be met completely with public funding – and the 60/40 and 50/50 splits are applied, this leaves a total of at least $10 billion, to be supplemented by some mitigation funding.
One important caveat is the difficulty in estimating the “size” of the Green Climate Fund based solely on annual revenue estimates or annual accounting standards such as the $100 billion pledge. After the modalities and guidelines for a multilateral fund are established, countries typically negotiate contribution levels and then appropriate those contributions through national budget processes over a period of several years. Funds are then spent over a subsequent period of several years as appropriate projects and programs are identified, and renewed pledges are made once the fund is running low. Funds would typically be “counted” against a pledge when they are appropriate nationally and not when they are spent, and this is also the easiest way to compare with funding estimates.
Unless a truly international mechanism is established that bypasses national coffers, which is possible although seems unlikely at the moment, this introduces a “timing” complication in determining the size of the Green Climate Fund. Using the rough estimates above, it is plausible that between $5 billion and $20 billion per year could be available for the Green Climate Fund, given sufficient political will. The first pledging period is unlikely to start for several years because of the slow negotiations around this type of fund and the lag for national contributions. For a notional three-year pledging period that lasts from 2019-2021, however, the size of the fund seems likely to range from $15 to $60 billion (of which only the annual average would be comparable to the $100 billion pledge).
Overall, therefore, a rough estimate is that at least $15 billion and upwards of $60 billion could flow through the Green Climate Fund during a notional pledging period that coincides with the time period of the $100 billion pledge. There is little basis in current negotiating texts, analyses or historical data to suggest the Fund will be substantially larger. Of course, shifts could happen away from mitigation funding and towards adaptation (which in the current text seems more likely to flow through the Green Climate Fund), or away from bilateral and towards multilateral for both mitigation and adaptation, although if they occur, these are likely to be modest shifts. Even in those cases, however, the size will ultimately be limited by the scarce public funds countries can raise, which in the foreseeable political context seem unlikely to significantly surpass $50 billion per year by 2020.
Andrew Stevenson is a Research Assistant at Resources for the Future.
