the global environment facility: funding for adaptation or ......the global environment facility...

The Global Environment Facility: Funding for Adaptation or Adapting to Funds?

Annett Möhner & Richard J.T. Klein

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THE GLOBAL ENVIRONMENT FACILITY: FUNDING FOR ADAPTATION OR ADAPTING TO FUNDS?

Annett MÖHNER1 and Richard J.T. KLEIN2

Climate & Energy Working Paper, Stockholm Environment Institute, June 2007

Abstract. International support for adaptation to climate change has evolved into an intricate system of financial instruments, including four global funds: the GEF Trust Fund, the Least Developed Countries Fund, the Special Climate Change Fund and the Adaptation Fund. Previous research on adaptation funding focused on the financial adequacy of these global funds, as well as on economic and ethical di-mensions of the funds’ technical adequacy, as reflected by their efficiency and fairness. This paper as-sesses the funds’ technical adequacy from a governance perspective, as revealed by their responsiveness to the needs of developing countries. These needs are expressed as various forms of guidance on the use of the funds. The paper analyses the adherence by the GEF to guidance from the UNFCCC Conference of the Parties, and the adherence by the Implementing Agencies of the GEF to guidance from the GEF. It concludes that the funds are not technically adequate for responding to developing countries’ needs, owing both to the complex design of the funds and to poor implementation of the guidance. This finding may be of relevance to the development of additional guidance on the Adaptation Fund, as well as con-tribute to discussions on the availability of adaptation funding under the GEF Trust Fund and on the role of the funds under a post-2012 international climate policy regime. Key words: climate change, adaptation, financial instruments, funding, technical adequacy, adherence, UNFCCC, GEF, Implementing Agencies, developing countries.

1. Introduction The United Nations Framework Convention on Climate Change (UNFCCC) commits developed countries to assist developing countries in meeting costs of adaptation to the adverse effects of climate change. The World Bank (2006a) concludes that the incre-mental costs to adapt to projected climate change in developing countries are likely to be of the order of USD 10–40 billion per year, whilst Oxfam International (2007) estimates this number to be over USD 50 billion per year. The Stern Review on the Economics of Climate Change estimates that if no action is taken to mitigate climate change, overall damage costs will be equivalent to losing at least 5% of global gross domestic product (GDP) each year, with higher losses in most developing countries (Stern, 2007). The Global Environment Facility (GEF) is currently the entity entrusted with the op-eration of the financial mechanism of the UNFCCC, and as such provides the instru-ments for the transfer of financial resources from developed to developing countries.

1 The author conducts PhD research whilst also being assigned to the UNFCCC Secretariat as an Associ-ate Expert. The views expressed in this paper are those of the author and do not necessarily reflect the views of the UNFCCC Secretariat and the United Nations. The e-mail address for correspondence is [email protected]. 2 Stockholm Environment Institute, Stockholm, Sweden.

2 ANNETT MÖHNER AND RICHARD J.T. KLEIN

The instruments for adaptation funding via the GEF are the GEF Trust Fund, the Least Developed Countries Fund and the Special Climate Change Fund. As of 30 April 2007 these three funds have received allocations and pledges of around USD 200 million in total (UNFCCC, 2006a; GEF, 2007a). In addition, the Adaptation Fund under the Kyoto Protocol of the UNFCCC receives a 2% share of proceeds from the Clean Development Mechanism (CDM). The actual amount of money that will be available from this fund is uncertain as it depends on the extent of use of the CDM and on the price of carbon. Ac-cording to the World Bank (2006b), it is likely to total USD 100–500 million by 2012. The World Bank (2006b) notes that the total amount of funding for adaptation pro-jected to be available by 2012 falls well short of the estimated amounts needed to cover the costs of adaptation, and considers this to be the major impediment to adaptation funding:

“An assessment of the current financial instruments shows that, while they are technically ade-quate to respond to the challenge of achieving climate-resilient development, the sums of money flowing through these instruments need to be substantially increased” (p. 40).

However, developing countries have expressed the additional concern that the com-plexity of current arrangements constrains their access to funds for adaptation project activities (UNFCCC Decision 3/CP.12). Without questioning the need for additional funding, this paper therefore takes a closer look at the purported technical adequacy of the financial instruments. It presents an assessment of technical adequacy from a gov-ernance perspective, based on the adherence by the GEF to guidance from the UNFCCC Conference of the Parties (COP), and on the adherence by GEF Implementing Agencies (IAs) to guidance from the GEF. An assessment of the governance aspect of the technical adequacy of current finan-cial instruments is particularly timely. The GEF is in the process of reviewing, revising and focusing its climate change strategy, whilst Parties to the Kyoto Protocol are consid-ering further guidance on the management of the Adaptation Fund. In addition, Parties to the UNFCCC are discussing financial support for adaptation as part of a post-2012 climate regime. Such support is seen as crucial if developing countries are to engage ac-tively in mitigation. The paper is structured as follows. The next section describes the development of fi-nancial instruments under the UNFCCC and the GEF response to the adaptation needs of developing countries. Section 3 presents a framework for assessing the technical ade-quacy of these instruments and develops criteria for conducting the assessment. Sections 4 and 5 then analyse the adherence by the GEF to COP guidance and the adherence by IAs to GEF guidance, respectively. Section 6 discusses the results and their implications for policy, whilst Section 7 presents conclusions, recommendations and priorities for future research.

2. The Development of Financial Instruments for Adaptation Financial instruments for adaptation are developed, designed and implemented through a governance system depicted in Figure 1. It aims at meeting developing countries’ needs

THE GLOBAL ENVIRONMENT FACILITY: FUNDING FOR ADAPTATION OR ADAPTING TO FUNDS? 3

Providing guidance on adaptation funding through

programming papers Disbursing adaptation funding

for approved projects

Providing guidance on adaptation funding through

decisions

Expressing needs and negotiating modalities for adaptation funding

Elaborating on needs and modalities for adaptation funding

Developing countries

UNFCCC Conference of the

Parties

GEF Implementing and

Executing Agencies

Implementing projects that respond to adaptation needs

Proposing projects based on adaptation needs

GEF Council,

Assembly and Secretariat

Figure 1. Development of financial instruments for adaptation under the UNFCCC and the GEF.

for adaptation by providing funding for actual adaptation projects in accordance with guidance developed for the respective instruments. In accordance with Article 4.8 of the UNFCCC, the Parties shall give full considera-tion to funding to meet the specific needs and concerns of developing country Parties arising from the adverse effects of climate change. During negotiations at the annual Conference of the Parties (COP) – the supreme decision-making body of the UNFCCC – developing countries express their needs and concerns and pursue their interest in adap-tation funding. The UNFCCC has a number of provisions for financial support for ad-aptation.3 For example, Article 4.4 commits developed country Parties and other devel-oped Parties included in Annex II to assist the developing country Parties that are par-ticularly vulnerable to the adverse effects of climate change in meeting costs of adapta-tion to those adverse effects. Financial resources are provided on a grant or concessional basis by a financial mechanism that, in accordance with Article 11, functions under the guidance of and is accountable to the COP. Guidance is received in the form of COP de-cisions. The COP thus establishes financial instruments with specific priorities (i.e., which activities are to be funded), eligibility criteria (i.e., who can receive funding) and policies, including disbursement criteria (i.e., what share of a project can be funded). Article 21.3 entrusted the GEF, on an interim basis, with the operation of the finan-cial mechanism of the UNFCCC. The status of the GEF was upgraded from an “interim” to a formalised entity operating the financial mechanism at COP-4 in 1998 (UNFCCC Decision 3/CP.4). The GEF provides new and additional funding to meet the agreed in-cremental costs of projects to generate global environmental benefits in climate change

3 See Verheyen (2002) for a comprehensive overview of these provisions.


and other areas (GEF, 1994). The remaining costs of projects are to be borne either by the recipient country and/or by other bilateral or multilateral donors. The GEF is funded by donor countries, some of which are also recipients, who commit resources every four years through a replenishment process. During the fourth GEF Replenishment in 2006, 32 donor countries pledged USD 1 billion to support activities in the area of climate change between 2007 and 2010 (GEF, 2006a). In addition to climate change, the GEF supports projects related to biodiversity, international waters, land degradation, the ozone layer and persistent organic pollutants. The GEF implements COP decisions: it operates the financial instruments by estab-lishing operational programmes, providing programming documents and allocating re-sources. Developing countries can further pursue their interest in adaptation funding and further negotiate operational modalities at meetings of the GEF Council, which take place twice a year to decide on the operation of the financial instruments. Once a finan-cial instrument is operational, eligible countries can propose projects based on their ad-aptation needs through one of the three IAs of the GEF: the United Nations Develop-ment Programme (UNDP), the United Nations Environment Programme (UNEP) and the World Bank. Seven additional Executing Agencies, including regional development banks, contribute to the implementation of GEF projects.

3. Analytical Framework In its comment on current financial instruments for adaptation (cited verbatim in Section 1), the World Bank (2006b) distinguishes between the technical adequacy of the finan-cial instruments and the sums of money flowing through these instruments (the latter may be considered non-technical or financial adequacy). It mentions an assessment that concludes that the current financial instruments to support adaptation in developing countries are technically adequate. However, developing countries do not subscribe to this conclusion (e.g., UNFCCC, 2006b, 2007a,b). The World Bank (2006b) does not provide a definition of “technical adequacy” or a reference to the assessment, which hampers a verification of the details of the assessment, including the criteria used to evaluate technical adequacy. This section therefore presents an alternative framework for analysing the technical adequacy of the current financial instruments for adaptation. Sagasti et al. (2005) list “adequacy” as the first of eight key attributes of effective in-ternational development financing systems (see Figure 2). They state that it refers both to the total amount of development financing and to the match between financial instru-ments and the needs of developing countries. It can thus be inferred that adequacy as de-fined by Sagasti et al. (2005) combines technical adequacy and financial adequacy as distinguished by the World Bank (2006b). The needs of developing countries as relevant to adaptation funding include both the need to be able to access funds and the need to be able to use these funds in line with the country’s adaptation requirements. Sagasti et al. (2005), who do not address the par-ticularities of GEF funding, consider only the latter type of needs in their definition of adequacy. However, when considering the adequacy of financial instruments for adapta-


Responsiveness

Adequacy

Financial adequacy

Technical adequacy Fairness

Efficiency

Priorities

Eligibility

Disbursement

Sagasti et al., 2005 World Bank, 2006 This paper UNFCCC Article 11

Predictability

Responsiveness

Diversity and choice

Capacity toabsorb shocks

Complementarity todomestic resource

mobilisation

Voice, representationand accountability

Flexibility, efficiencyand learning

Effectiveness

Responsiveness

Adequacy

Financial adequacy

Technical adequacy Fairness

Efficiency

Priorities

Eligibility

Disbursement

Sagasti et al., 2005 World Bank, 2006 This paper UNFCCC Article 11

Predictability

Responsiveness

Diversity and choice

Capacity toabsorb shocks

Complementarity todomestic resource

mobilisation

Voice, representationand accountability

Flexibility, efficiencyand learning

Effectiveness

Figure 2. Analytical framework for assessing the technical adequacy of global financial instruments for adaptation to climate change.

tion, the former type of needs is equally relevant: developing countries have expressed concerns about the difficulties they encounter in accessing funds for adaptation on a number of occasions (e.g., UNFCCC Decision 3/CP.12; UNFCCC, 2007a). From the point of view of Sagasti et al. (2005) these concerns would refer to other key attributes of effective international development financing systems, namely responsiveness; voice, representation and accountability; and flexibility, efficiency and learning.4 Elements of these three attributes are considered part of technical adequacy for the purpose of this paper, as they relate to the accessibility of funds. Expanding on Sagasti et al. (2005), technical adequacy thus reflects the match be-tween financial instruments for adaptation and the dual needs of developing countries to be able to access funds and to be able to use them in line with their adaptation require-ments.5 To enable an assessment of technical adequacy it is considered that a match be-tween financial instruments and the two needs exists if: • The application and approval process is efficient; • Decision-making procedures are fair;

4 Predictability and complementarity to domestic resource mobilisation are also contentious issues with respect to adaptation funding, but they are related to financial adequacy (i.e., sufficiency of funds) more than to technical adequacy and therefore not considered here. 5 Whether or not this interpretation of technical adequacy corresponds to that of the World Bank (2006b) remains unclear until the original assessment is available for further analysis.


• The financial instruments respond to developing countries’ needs. A full evaluation of the technical adequacy of financial instruments for adaptation then requires considering three aspects: efficiency, fairness and responsiveness. The GEF Evaluation Office (EO) has assessed efficiency as part of its third overall perform-ance study of the GEF (GEF EO, 2005) and as part of its evaluation of the GEF activity cycle and modalities (GEF EO, 2006). Qualitative analyses of the fairness of decision-making on GEF funding for adaptation have been conducted by Mace (2005), Paavola and Adger (2006) and Müller (2007). This paper presents an assessment of the respon-siveness of the existing financial instruments to developing countries’ adaptation needs. It is based on an analysis of, first, the adherence by the GEF to guidance from the COP (as COP decisions) and, second, the adherence by IAs to guidance from the GEF (in the form of programming papers; see Figure 1). Full adherence to guidance would mean that adaptation projects respond to developing countries’ needs. The analysis assumes that COP decisions do reflect developing countries’ adaptation needs, even though they are the result of negotiations in which the interests of develop-ing countries compete with those of developed countries. The assumption is considered valid in view of the collective bargaining power of the developing countries, the impor-tance attached to country-driven priority setting (taking into account policy documents such as National Communications, National Adaptation Programmes of Action and Pov-erty Reduction Strategy Papers) and the fact that the COPs provide the only global fo-rum for developing countries to pursue their interest in adaptation funding. In the next two sections adherence is analysed using the three aforementioned ele-ments of funding guidance as indicators: priorities, eligibility and disbursement. The analysis is based on a review of publicly available documents, including COP decisions, documents from the GEF and its IAs, as well as project documents.

4. GEF Adherence to COP Guidance At its first session in 1995 the COP laid out the initial guidance for the provision of fi-nancial support for adaptation from the GEF Trust Fund. Parties agreed that adaptation should comprise short, medium and long-term strategies, and set up a three-stage ap-proach to adaptation funding in developing countries. Stage I and II encompass plan-ning, developing policy options and capacity building for adaptation, whilst Stage III envisions actual measures to facilitate adequate adaptation (UNFCCC Decision 11/CP.1). The COP requested the GEF to provide full-cost funding for adaptation ac-tivities in the context of formulating National Communications, including studies of the possible impacts of climate change.6

As regards Stage I and II adaptation funding, the GEF has so far adhered to COP guidance in terms of priorities, eligibility and disbursement. The GEF has provided full-

6 Article 12 of the UNFCCC requires all Parties to prepare National Communications, which include a national inventory of greenhouse gas emissions, an overview of steps taken to implement the UNFCCC, and other information Parties consider relevant to the achievement of the objective of the UNFCCC.


cost funding for all eligible 139 developing countries7 and twelve countries with econo-mies in transition to develop their initial and in some cases second and even third Na-tional Communications. In response to guidance from 1998 on Stage II activities (UNFCCC Decision 2/CP.4), projects funded by the GEF include “Capacity Building for Stage II Adaptation to Climate Change in Central America, Mexico and Cuba”, “Mainstreaming Adaptation to Climate Change in the Caribbean” and “Assessments of Impacts of and Adaptation to Climate Change in Multiple Regions and Sectors”. The revised Climate Change Strategy discussed at the GEF Council meeting in De-cember 2006 (GEF, 2006b) makes no mention of support for Stage I and II adaptation activities. The GEF (2006a) argues that Stage I activities have been supported through initial National Communications, and that support for Stage II activities is available as part of funding for the second National Communications. Funding for countries’ second and subsequent National Communications is secured only until 2009 under an umbrella project approved during the third replenishment period of the GEF; it is unclear how funding for National Communications would be provided after 2009. Moreover, by lim-iting Stage II activities to preparing National Communications the GEF narrows the fo-cus for adaptation funding. It excludes activities such as co-operation in preparing for adaptation to the impacts of climate change and elaboration of appropriate and inte-grated plans for coastal zone management, water resources and agriculture, which have been part of COP guidance (UNFCCC Decisions 11/CP.1 and 2/CP.4). Hence adherence to COP guidance on funding priorities is doubtful. The COP has never provided explicit guidance for Stage III adaptation funding. However, in 2001 the COP identified fourteen adaptation-related activities to be sup-ported under the GEF Trust Fund, including enhancing technical training for integrated climate change impact, vulnerability and adaptation assessments, promoting the transfer of adaptation technologies, establishing adaptation pilot projects and supporting system-atic observation and monitoring networks and early warning systems in developing countries (UNFCCC Decision 5/CP.7). In UNFCCC Decision 6/CP.7 the COP decided that the GEF should provide financial resources to developing country Parties, in par-ticular the least developed countries (LDCs) and the small island developing states (SIDS), for activities identified in UNFCCC Decision 5/CP.7. The GEF has thus far made operational one of the fourteen activities: it has set up the strategic priority “Piloting an Operational Approach to Adaptation” (SPA) to provide support for the establishment of adaptation pilot projects. In November 2003 the GEF Council earmarked USD 50 million for the SPA. The GEF programming papers on the SPA (GEF, 2004a and 2005) provide no details on eligibility criteria, although UNFCCC Decision 1/CP.10 explicitly invites developing country Parties to make use of the SPA. GEF adherence on the priorities for funding is only partial, despite the fact that the COP restated its 2001 guidance in 2004 (in UNFCCC Decisions 1/CP.10 and 8/CP.10 the COP requested the GEF to make available further financial and technical re-sources to implement the actions identified in UNFCCC Decision 5/CP.7). As for guid-ance on disbursement, the COP has not expressed whether the full or partial costs of ad-

7 The GEF considers as developing countries all countries not included in Annex I to the UNFCCC.


aptation projects are to be covered. However, the GEF Council has requested the GEF Secretariat and the IAs to ensure that projects under the GEF Trust Fund are consistent with the principles of the Trust Fund, including criteria concerning incremental costs and global environmental benefits (GEF, 2004b). Global environmental benefits in the area of climate change are reductions in green-house gas emissions or the uptake of greenhouse gases by sinks, which do not necessar-ily occur in an adaptation project. According to its initial operational guidelines (GEF, 2004a), the SPA funds activities within a natural resources management context that generate global environmental benefits, and adaptation measures that provide other ma-jor development benefits (e.g., WEHAB: water, energy, health, agriculture, biodiver-sity). The updated programming paper of 2005 states that the SPA supports pilot and demonstration projects that address local adaptation needs and generate global environ-mental benefits, which can include reducing the risk of biodiversity loss, accelerating sustainable land management and integrated coastal zone management (GEF, 2005). Criteria for the disbursement of funding under the SPA thus differ from the provision in the Instrument of Establishment of the GEF (1994), which is to fund only the incre-mental costs associated with transforming a project that has national benefits into one that generate global environmental benefits.8

To determine the amount of GEF funding available for projects under the SPA, the GEF requires project proponents to outline a series of scenarios. Countries first have to outline a baseline scenario, which includes activities that countries are undertaking as part of their ongoing development efforts. Second, countries need to construct an alter-native GEF scenario that includes activities that would generate global environmental benefits in the absence of climate change. Third, activities need to be added to the alter-native GEF scenario that will ensure the robustness of the global environmental benefits by improving the resilience of the systems concerned. The difference between the costs associated with the baseline scenario and the alternative GEF scenario are considered the incremental costs of the proposed project. Those incremental costs associated with in-creasing resilience are to receive funding from the SPA, whilst those associated with generating global environmental benefits are to be funded from other programmes under the GEF climate change focal area or from other focal areas (e.g., biodiversity and land degradation). Projects under the SPA thus receive GEF funding in the form of a “double increment”: one for adaptation and one for generating global environmental benefits (GEF, 2005). The remaining costs of a project need to be co-financed by either the re-cipient country and/or other bilateral or multilateral donors. In addition to the support available from the GEF Trust Fund, three distinct funds to provide new and additional funding for adaptation were established by the COP in 2001: the Least Developed Countries Fund (LDCF) and the Special Climate Change Fund (SCCF) under the UNFCCC, and the Adaptation Fund under the Kyoto Protocol.9 Both the LDCF and the SCCF are operational and managed by the GEF.

8 Enabling activities such as National Communications are exempt from the requirement to generate global environmental benefits. 9 See Dessai (2003) and Schipper (2005) for an overview and background on the establishment of these


In line with COP guidance (UNFCCC Decisions 5/CP.7 and 7/CP.7) the LDCF is mandated to finance the preparation and implementation of National Adaptation Pro-grammes of Action (NAPAs) and other elements of the LDC work programme, such as the provision of training and strengthening the capacity of meteorological and hydro-logical services. NAPAs present an opportunity for LDCs to identify priority activities that respond to their urgent and immediate adaptation needs. In UNFCCC Decision 27/CP.7 the COP requested the GEF to provide the LDCs with funding from the LDCF to meet the agreed full cost of preparing the NAPAs. Two years later the COP requested the GEF to take into account criteria for supporting the implementation of NAPAs on an agreed full-cost basis (UNFCCC Decision 6/CP.9). This guidance was updated in 2005 with the COP requesting the GEF to provide full-cost funding to meet the additional costs of activities, which are the costs imposed on vulnerable countries to meet their immediate adaptation needs as identified and prioritised in the NAPAs (UNFCCC Deci-sion 3/CP.11). In UNFCCC Decisions 5/CP.7 and 7/CP.7 the COP mandated the SCCF to finance activities, programmes and measures relating to climate change, including for adapta-tion. The COP specifically mandated support for adaptation in the areas of water re-sources management, land management, agriculture, health, infrastructure development, fragile ecosystems, including mountainous ecosystems, and integrated coastal zone management, as well as support for monitoring of diseases and vectors, capacity build-ing for disaster risk management and information networks for rapid response to ex-treme weather events (UNFCCC Decision 5/CP.7). As for eligibility, UNFCCC Deci-sion 7/CP.7 states that the SCCF should provide funding to developing country Parties. Two years later Parties agreed that the SCCF should serve as a catalyst to leverage addi-tional resources from bilateral and other multilateral sources, without providing detail on the share of GEF support available for projects (UNFCCC Decision 5/CP.9). Article 12.8 of the Kyoto Protocol established the Adaptation Fund, which is to fi-nance concrete adaptation projects and programmes in developing countries that are Parties to the Protocol (UNFCCC Decision 10/CP.7). The COP serving as the Meeting of the Parties to the Kyoto Protocol (CMP) has provided guidance on the managing principles of the Adaptation Fund (UNFCCC/KP Decisions 28/CMP.1 and 5/CMP.2), but it has not yet decided on priorities, eligibility criteria and disbursement criteria.10 A decision on the financial institution to operate the fund has not yet been made either but is expected at CMP-3. Adherence to CMP guidance therefore cannot yet be analysed. The GEF provided operational guidance to IAs and developing countries in program-ming papers on the LDCF and SCCF in 2004 (GEF, 2004c,d). The guidance on the LDCF was updated in 2006 (GEF, 2006c). With regard to eligibility the programming papers adhere to COP guidance. Only LDC Parties are eligible under the LDCF, whilst all non-Annex I Parties are considered eligible developing country Parties for funding

additional financial instruments. 10 For the Kyoto Protocol the CMP assumes the role of the COP in providing guidance to the entity or entities entrusted with the operation of the financial mechanism of the UNFCCC, in line with Article 11 of the Kyoto Protocol.


Size of project GEF funding under the LDCF

Size of project GEF funding under the SCCF

in USD million portion in % in USD million portion in % up to 0.3 up to 100 0.3 to 0.5 up to 75 0.5 to 6.0 up to 50 up to 1.0 up to 50 6.0 to 18.0 up to 33 1.0 to 5.0 up to 33 above 18.0 up to 25 above 5.0 up to 25

Table 1. Sliding scale for GEF adaptation funding under the LDCF and SCCF (GEF, 2004d, 2006c).

under the SCCF (GEF, 2004). As for priorities, the GEF programming paper on the SCCF includes all activities included in the COP guidance. However, adherence is in-complete in the case of the LDCF. In 2005 the COP decided that the operation of the LDCF should be consistent with supporting the implementation of activities of the LDC work programme (UNFCCC Decision 3/CP.11). In spite of this guidance, the GEF pro-vides programming for the preparation and implementation of NAPAs but not for the other elements of the LDC work programme. In terms of adherence to disbursement guidance, the GEF takes the view that the LDCF and the SCCF are independent from the GEF Trust Fund, which means that pro-visions of funding the incremental costs do not apply. Hence projects under the LDCF and the SCCF do not have to generate global environmental benefits. The GEF has in-stead created the concept of additional costs in its programming papers for the SCCF and the LDCF. Additional costs are imposed by climate change to make development climate-resilient. In contrast to the SPA, funding under the LDCF and the SCCF there-fore comes in only one increment, which is the difference between a baseline (i.e., de-velopment activities that would be pursued in the absence of climate change) and an al-ternative GEF adaptation scenario (i.e., activities that respond to the adverse impacts of climate change) (GEF, 2006c). Recognising that an ex-ante calculation of the additional cost of adaptation is com-plex, the GEF has developed a sliding scale for LDCF and SCCF funding, which serves as a proxy for estimating the additional costs (Table 1). Under the sliding scale smaller projects receive proportionally more GEF funding than bigger projects since they are as-sumed to have a higher adaptation component (GEF, 2006c). Table 1 also shows that GEF funding under the LDCF is more favourable than under the SCCF. This responds to guidance from the COP, which requested the GEF to take into account the circum-stances of LDCs when developing the co-financing scale (UNFCCC Decision 3/CP.11). The sliding scale provides an indication of the possible maximum amount of GEF funding for any given project size, but the relevant programming papers do not specify how the actual amount is determined, leaving it instead to the discretion of the IAs and the developing countries proposing the projects. The use of the sliding scale is optional, but countries opting to request a higher proportion of adaptation funding than foreseen under the sliding scale need to use the baseline and the alternative GEF adaptation sce-narios to justify the costs (GEF, 2006c).


5. Implementing-Agency Adherence to GEF Guidance As of May 2007 a total of 34 adaptation projects are either in “the pipeline” (i.e., listed to be reviewed and approved), approved or under implementation under the SPA, the LDCF and the SCCF (UNFCCC, 2006a; GEF, 2007b).11 Figure 3 depicts how the IAs submitting or implementing these projects have adhered to GEF guidance as far as the disbursement of funds is concerned. It shows that projects under the SPA receive a higher portion of GEF funding than projects financed under the SCCF or the LDCF. For the SPA there is no GEF guidance similar to the sliding scales of the SCCF and the LDCF; the relevant programming paper gives no indication of the expected GEF portion for adaptation projects under the SPA (GEF, 2005). UNDP has interpreted the SPA’s double increment as a 50:50 funding ratio12 between GEF funding and other project funding. Such a high GEF portion seems reasonable in view of the fact that the SPA funds both the adaptation costs and the costs of generating global environmental bene-fits. However, only two projects (one from Mozambique and one from Sri Lanka) feature such a double increment, whereby GEF funding is provided through the SPA and the Land Degradation focal area (see Figure 3). The other projects only receive funding un-der the SPA. This would suggest that either these projects do not generate global envi-ronmental benefits or the costs for generating global environmental benefits are funded by the SPA. The former is the case in the Colombian project “Integrated National Ad-aptation Plan: High Mountain Ecosystems, Colombia’s Caribbean Insular Areas and Human Health”. The project document refers only to adaptation benefits, not to global environmental benefits (Government of Colombia and World Bank, 2005). The latter is the case for the West African project “Adaptation to Climate Change: Responding to Coastline Change and its Human Dimensions in West Africa through Integrated Coastal Area Management”. The project document includes a baseline and an alternative GEF scenario generating global environmental benefits. These benefits are generated by in-creasing the capacity of participating countries to design and implement sustainable strategies, and to contribute to the conservation and sustainable use of biological diver-sity of coastal and marine resources (Government of Senegal et al., 2006). However, the costs for generating global environmental benefits are not financed via the Biodiversity focal area but by the SPA. In both the Colombian and the West African case, the respec-tive IAs have not adhered to GEF guidance. IAs have so far adhered to GEF guidance with respect to disbursement under the LDCF. As of May 2007, 44 of the 49 eligible LDCs have received full-cost funding for preparing their NAPAs13 (UNFCCC, 2006a); seventeen NAPAs have been completed. Six NAPA projects (from Bangladesh, Bhutan, Malawi, Mauritania, Niger and Samoa) have been approved for LDCF pipeline entry, meaning that they have been identified to

11 An overview of all GEF adaptation projects is provided in Annexes 1–3. 12 http://www.undp.org/gef/adaptation/funds/04c_i.htm. Website accessed on 9 June 2007. 13 All 44 LDCs opted for expedited access to funding under the LDCF and in line with the GEF pro-gramming for NAPA preparation received the maximum amount of USD 200,000.


Sri Lanka (with funding from Land Degradation)

Mozambique (with funding

from Land Degradation)

ColombiaCBA

West Africa

Caribbean

Kiribati

Hungary

SE Africa

ALM

NigerSamoa

Bangladesh

MalawiBhutan

Mauritania

Sri LankaMozambique

Zimbabwe

Regional Andes

Global Health

India

Guyana

Mexico

Egypt

Ecuador

Chile, FijiMaldives

Mozambique

TanzaniaEthiopia

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Size of Adaptation Project (in USD million)

Shar

e of

GEF

Fun

ding

(in

USD

mill

ion)

Figure 3. Adaptation projects and their share of GEF funding. Projects funded under the SPA are de-picted as circles, under the SCCF as squares and under the LDCF as triangles. The sliding scales of the LDCF and SCCF are shown as a solid line and a dashed line, respectively (cf. Table 1). They feature plateaus so as to avoid punitive conditions for projects near the lower boundary of each step on the two sliding scales. Such projects may request the maximum total grant size available to projects in the step below (GEF, 2006c). For reasons of clarity the project “Kenya Adaptation to Climate Change in Arid Lands” (USD 51.63 million), the Chinese project “Mainstreaming Adaptation to Climate Change into Water Resources Management and Rural Development” (USD 55 million), the “Climate Change Adap-tation Project” of the Philippines (USD 55 million) and the “Pacific Islands Adaptation to Climate Change Project” (USD 82.4 million) are not shown.

be consistent with the LDCF eligibility criteria (GEF, 2007b). Of these projects, only the one from Bhutan (“Reducing Climate Change Induced Risks and Vulnerabilities from Glacial Lake Outbursts Floods (GLOFs) in Punakha-Wangdi and Chamkhar Valleys”) applies for a substantially higher proportion of GEF adaptation funding than envisaged under the sliding scale. However, in line with GEF guidance the project document justi-fies this higher GEF proportion by providing a baseline and an alternative adaptation scenario for each of the three envisaged outcomes of the project (capacity-building for disaster risk management, artificial lowering of lake levels and installation of an early-warning system) (Government of Bhutan and UNDP, 2006). As for the SCCF, four of the six projects approved by May 2007 either receive or are expected to receive more GEF funding than envisaged under the sliding scale. These four projects (proposed by Ethiopia, Mozambique, Tanzania and Zimbabwe) all have provided information on the adaptation costs as stipulated by GEF guidance. For exam-ple, Mozambique, which receives the highest share of GEF funding of the three “Coping with Drought and Climate Change” projects, elaborates on the reasoning of the adapta-tion costs as follows (Government of Mozambique and UNDP, 2006):


“The baseline scenario for this project represents a “business-as-usual” wherein Mozambique undertakes only those activities in its baseline development planning. This envisages a situation in which rural communities continue to use their current coping strategies, which will become inadequate as drought increases in frequency and intensity. The project will improve the resil-ience of the social systems to cope with drought. SCCF funding will cover the difference be-tween relative costs associated with the baseline scenario and the alternative scenario.”

In its project document “Incorporating Climate Change in Integrated Water Re-sources Management in Pangani River Basin” Tanzania also elaborates on costs associ-ated with a baseline and an alternative adaptation scenario. However, it also includes in an annex details of the incremental costs associated with global benefits in the area of biodiversity (Government of Tanzania and UNDP, 2005). Specifics on the global envi-ronmental benefits are required under the SPA but not under the SCCF. Such mistaken adherence might suggest that the GEF guidance was not well understood by the IA pro-posing the project. As far as eligibility is concerned, the use of the LDCF shows adherence to GEF guidance since only LDCs have received support. However, projects receiving funding under the SPA or the SCCF show incomplete adherence to GEF guidance. For example, Hungary, an EU member state with an economy in transition, has received support under the SPA for its project “Lake Balaton Integrated Vulnerability Assessment, Early Warn-ing and Adaptation Strategies.” To date the SCCF has funded projects from developing countries only, but the UNDP website14 refers to a project in another EU member state with an economy in transition: “Building National and Local Adaptation Capacity to Extreme Water Events in Bulgaria.” Regardless of the definition of “developing coun-tries” (i.e., whether or not they are synonymous with non-Annex I countries), support for Hungary and Bulgaria diverges from COP or GEF guidance: both are Annex-I countries and therefore not eligible for funding under the SPA or the SCCF. As regards funding priorities, the use of the LDCF has adhered to GEF guidance as funded projects encompass only the preparation and implementation of NAPAs. Adher-ence under the SPA and the SCCF is less complete. The GEF programming paper on the SPA (GEF, 2005) states that the SPA will support projects that address local adaptation needs and generate global environmental benefits. However, a number of funded pro-jects directly benefit development sectors. For example, the Colombian project supports adaptation in the health sector (Government of Colombia and World Bank, 2005). GEF guidance on the SCCF includes all priority activities included in the COP guidance, but it prioritises development projects over projects that generate global environmental benefits (GEF, 2004d, 2005):

“Projects that generate both local (development-focused) and global benefits will be eligible under the SPA if their benefits are considered to be primarily global in nature. If the project’s focus is primarily on benefits in development sectors—such as health, agriculture, water or in-frastructure—the proposed projects will have to access GEF funding through the new funds15.”

14 http://www.undp.org/gef/adaptation/projects/06c.htm. Website accessed on 9 June 2007. 15 The LDCF and the SCCF.


On its website UNDP sharpens this distinction by stating that the SPA is an ecosys-tem-focused fund whilst the SCCF focuses on development16. At the same time, how-ever, IAs and developing countries recognise the impossibility of separating between ecosystem benefits and development benefits. For example, the “Community Based Ad-aptation” project document emphasises the need for integration as follows (Government of Bangladesh et al., 2006):

“In general, community based adaptation projects will fall into two broad categories aimed pri-marily at: increasing the adaptive capacity of a community or communities, often through eco-system and natural resource management activities; and increasing the resilience of an ecosys-tem or natural resource, often involving measures to engage surrounding communities, and of-ten indirectly building the coping capacity of dependent communities.”

Many projects proposed or approved under the SCCF have a primary focus on eco-systems, which does not correspond with GEF guidance or its interpretation by UNDP. For example, the project in Guyana focuses on the management of coastal zones, whilst Bolivia, Peru and Venezuela focus on piloting adaptation measures in the mountainous ecosystems of the Andean Region.

6. Discussion As argued in Section 2, developing countries can express their needs and concerns and pursue their interest in adaptation funding at UNFCCC COPs and elaborate them to the GEF, thus influencing the guidance provided by the COP and the GEF on the use of ex-isting global funds for adaptation. The analysis in Sections 4 and 5 has shown that over-all adherence to this guidance (i.e., GEF adherence to COP guidance and IAs’ adherence to GEF guidance) is incomplete. This then raises the question as to whether or not the observed lack of adherence has diminished the ability of developing countries to meet their adaptation needs. The analysis presented in this paper assumes that COP decisions do reflect developing countries’ adaptation needs. The financial instruments established by the COP have specific priorities, eligibility criteria and disbursement criteria, each of which should be subject to COP and GEF guidance. Non-adherence concerning priorities constrains developing countries in un-dertaking certain adaptation activities. For example, the GEF has yet to develop opera-tional guidance (in the form of programming papers) to be able to make available further financial and technical resources for the activities mentioned in paragraph 7 of UNFCCC Decision 5/CP.7 as requested in Decision 8/CP.10). Without such guidance developing countries cannot apply for funding for these activities. Non-adherence on eligibility reduces the availability of funding to those countries that are eligible for ad-aptation support. Non-adherence with respect to the disbursement of funds either in-creases the cost of adaptation projects for recipient countries or reduces the availability of funding to other eligible countries.

16 http://www.undp.org/gef/adaptation/funds/04_1.htm. Website accessed on 9 June 2007.


It is important to understand the nature and reasons for non-adherence to guidance if the situation is to be improved. The analysis in Sections 4 and 5 suggests that non-adher-ence relates to both the design and the implementation of guidance. The design of guid-ance can lead to non-adherence if guidance is unspecific or ambiguous. For example, the COP has not defined adaptation costs in a way that allows the GEF to make a clear dis-tinction between adaptation and development. As a result, the GEF has developed and applied the concepts of additional and incremental costs to determine its share of project funding. Calculations using these concepts invariably raise the question as to which part of a project concerns adaptation, to be funded by the GEF, and which part concerns de-velopment, which is the recipient country’s responsibility. The introduction of the slid-ing scales for the LDCF and the SCCF have simplified the process of determining the GEF share of funding, but they have been designed in a way as to lead to different mar-ginal values of GEF funding depending on the size of a project (see Figure 3). This could lead to strategic behaviour by developing countries seeking to maximise GEF funding for their projects. Even if guidance is relatively unambiguous, implementation of the guidance can still contradict the design intent. For example, COP guidance stipulates that funding under the SPA and the SCCF be available only to developing countries, yet countries with economies in transition have received or are about to receive funding as well. In other cases non-adherence to guidance results from a mix of design and implementation is-sues. For example, the COP requests complementarity between the different funds (UNFCCC Decision 7/CP.7), yet the same adaptation activities are supported by more than one fund. To avoid confusion and facilitate implementation, the GEF and its IAs distinguish between the development-focused SCCF and the ecosystem-focused SPA. However, the “Coping with Drought and Climate Change” projects received funding for project preparation under the SPA (UNFCCC, 2006a), whilst project implementation is now funded under the SCCF (GEF, 2007b). Such shifting of projects between funds could lead to confusion amongst developing countries and create another incentive for strategic behaviour: to apply to those funds that have the most resources available. In-stead of being provided with straightforward opportunities for adaptation funding, de-veloping countries need to adapt their projects so as to secure support for their proposed adaptation activities. As outlined in Section 3, the technical adequacy of financial instruments is deter-mined by efficiency and fairness as well as adherence to guidance (i.e., responsiveness to developing countries’ needs). As far as efficiency is concerned, GEF EO (2006) con-cluded that the GEF activity cycle is not efficient, that the situation has grown worse over time and that GEF modalities have not made full use of trends towards new forms of collaboration that serve to promote efficiency. According to GEF EO (2006), the cy-cle management of the GEF lags behind international good practice in terms of effi-ciency. Mace (2005), Paavola and Adger (2006) and Müller (2007) conclude that there is also room for improvement when it comes to the fairness of GEF decision-making. In view of the fact that the current global funds for adaptation are not only techni-cally but also financially inadequate (World Bank, 2006b; Bouwer and Aerts, 2006; Ox-fam International, 2007), the question arises as to whether or not alternative arrange-


ments for adaptation funding, such as bilateral and multilateral official development as-sistance (ODA), could address the concerns of developing countries and better meet their needs. On the one hand the amount of money provided by ODA is much larger than what is available under the global funds; on the other hand adaptation would have to compete with other, more immediate development priorities. In addition, ODA has its own set of eligibility and disbursement criteria, on which developing countries have limited influence. Moreover, support for adaptation is a commitment under the UNFCCC, whereas ODA is voluntary. Financially and technically adequate global funds for adaptation are crucial if international climate policy after 2012 is to be a truly global endeavour, whereby global funds serve as a catalyst for providing additional resources from bilateral and multilateral sources.

7. Conclusions, Recommendations and Priorities for Future Research This paper has assessed the technical adequacy of global adaptation funds from a gov-ernance perspective. It has developed an analytical framework in which technical ade-quacy is defined along three dimensions: efficiency, fairness and responsiveness to de-veloping countries’ needs. The framework has been applied by taking adherence to guid-ance as a measure for responsiveness, using priority activities, eligibility criteria and dis-bursement criteria as indicators. Previous research has shown that the current global funds are technically inadequate with respect to their efficiency and fairness. This paper concludes that the funds are also technically inadequate when it comes to responding to developing countries’ needs. Both the complex design of the funds and poor implemen-tation of the guidance are to blame. Improvements are necessary at all levels to enhance the funds’ responsiveness to de-veloping countries’ needs. The COP could provide more explicit guidance in terms of priority activities and eligibility. For example, the COP could clarify the relationship between Stage III adaptation activities under the GEF Trust Fund and adaptation activi-ties under the LDCF and SCCF. The GEF, which has been requested by COP to give due priority to adaptation activities (UNFCCC Decision 2/CP.12), could make opera-tional all COP guidance on adaptation as part of its revised strategy on climate change. Future research could focus on the feasibility and desirability of a special adaptation programme, possibly subsuming the LDCF and the SCCF under the GEF Trust Fund. Similar to the current GEF Resource Allocation Framework for mitigation (GEF, 2006d), adaptation funding could be based on specific country allocations that reflect countries’ respective vulnerability and adaptive capacity. Decisions on such allocations would have to be informed by relevant research.

Acknowledgements An earlier version of this paper was presented at the Seventh European Conference on the Human Di-mensions of Global Environmental Change: “Earth System Governance: Theories and Strategies for


Sustainability” (Amsterdam, The Netherlands, 24–26 May 2007). The authors would like to thank Youssef Nassef, Benito Müller, Anthony Patt, Mikael Román, the participants in the 2007 Amsterdam Conference and the participants in the ADAM PhD workshop on Livelihoods, Vulnerability and Policy (Röstånga, Sweden, 11–13 December 2006) for their helpful comments. Richard Klein acknowledges funding from the European Commission under project number FP6-018476-2 (Adaptation and Mitiga-tion Strategies: Supporting European Climate Policy; ADAM) and from the Swedish Foundation for Strategic Environmental Research (Mistra) under its Climate Policy Research programme (Clipore).

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Annex 1. Overview of GEF adaptation projects under the SPA of the GEF Trust Fund as of October 2006 (UNFCCC, 2006a).

Size GEF FundingCountry or Region Project Primary Area or Sector (M USD) (M USD) (%)

Implementing / Executing

Agency Under implementation

Colombia Integrated National Adaptation Plan: High Mountain Ecosystems, Colombia's Caribbean Insular Areas and Human Health

Coastal zones, health, mountainous ecosystems

17.47 5.57 32 World Bank

Global Adaptation Learning Mechanism Knowledge management 1.37 0.72 53 UNDP Hungary Lake Balaton Integrated Vulnerability Assessment,

Early Warning and Adaptation Strategies Disaster risk management, water resources

4.08

0.99 24 UNDP

Kiribatia,b Kiribati Adaptation Program Phase II – Pilot Implementation

Coastal zones, water resources

6.70 1.90 28 World Bank

Regional (Dominicab, St. Luciab, St. Vincent & the Grenadinesb)

Implementation of Pilot Adaptation Measures in Caribbean Coastal Areas

Coastal zones 6.40 2.40 38 World Bank

Regional (Kenya, Madagascara, Mozambiquea, Rwandaa, Tanzaniaa)

Integrating Vulnerability and Adaptation to Climate Change into Sustainable Development Policy Planning and Implementation in Southern and Eastern Africa

Land management, water resources

2.27 1.00 44 UNEP

Approved Global (Bangladesha, Bolivia, Nigera, Samoaa,b, Guatemala, Jamaicab, Kazakhstan, Morocco, Namibia, Vietnam)

Community Based Adaptation Coastal zones, mountainous ecosystems, land management, water resources

9.54 5.01 53 UNDP

Mozambiquea Zambezi Valley Market Led Smallholder Development Land management 27.55 1.50 (5.05 LD)c

5 ( total 24)c

Word Bank

Regional (Senegala, Gambiaa, Guinea Bissaua,b, Mauritaniaa, Cape Verdea,b)

Adaptation to Climate Change: Responding to Shoreline Change and its Human Dimensions in West Africa through Integrated Coastal Area Management

Coastal zones 8.00 4.00 50 UNDP

Sri Lanka Participatory Coastal Zone Restoration and Sustainable Management in the Eastern Province of Post-Tsunami Sri Lanka

Coastal zones, land management

14.84 1.90(5.37 LD)c

13 (total 49)c

IFAD

a Least Developed Country (LDC) b Small Island Developing State (SIDS) c Receives additional GEF funding under the focal area Land Degradation

Annex 2. Overview of GEF adaptation projects under the SCCF as of May 2007 (GEF, 2007b).



Agency Approved

Ethiopiaa Coping with Drought and Climate Change Disaster risk management, land management

2.86 1.00 35 UNDP

Guyanab Guyana Conservancy Adaptation Project Coastal zones, water resources

20.00

3.80 19 World Bank

Kenya Kenya Adaptation to Climate Change in Arid Lands Land management 51.63 6.78 13 World Bank/ UNDP

Mozambiquea Coping with Drought and Climate Change Disaster risk management, land management

1.89 0.96 51 UNDP

Tanzaniaa Mainstreaming Climate Change in Integrated Water Resources Management in the Pangani River Basin

Water resources 2.57 1.00 39 UNDP

Zimbabwe Coping with Drought and Climate Change Disaster risk management Land management

2.14 0.98 46 UNDP

In the pipeline Global (Barbadosb, Bhutana, China, Fijib, Jordan, Kenya, Uzbekistan)

Piloting Climate Change Adaptation to Protect Human Health

Health 24.47 6.47 26 UNDP

Regional (Bolivia, Peru, Venezuela) Design and Implementation of Pilot Climate Change Adaptation Measures in the Andean Region

Mountainous ecosystems, water resources

27.39

7.29 27 World Bank

Regional (Cook Islandsb, FSMb, Fijib, Naurub, Nuieb, Papua New Guineab, Samoaa,b, Solomon Islandsa,b, Tongab, Tuvalua,b, Vanuatua,b)

Pacific Islands Adaptation to Climate Change Coastal zones, food security, water resources

82.40 11.60 14 UNDP

China Mainstreaming Adaptation to Climate Change into Water Resources Management and Rural Development

Water resources 55.00 5.00 9 World Bank

Chile Targeted Research on Climate Change Impacts on Southern Mid-Latitude Ice Masses

Water resources 2.00 1.00 50 UNEP

Ecuador Adaptation to Climate Change through effective Water Governance

Water resources 9.35 3.35 36 UNDP

Egypt Adaptation to Climate Change in the Nile Delta Coastal zones, water resources

9.20 4.00 43 UNDP

Fiji Adaptation to Climate Change in the Tourism Sector in Fiji Islands

Tourism

2.00 1.00 50 UNEP

India Climate-Resilient Development and Adaptation Coastal zones, food security, water resources

20.25 4.25 21 UNDP

Maldives Implementing Tourism Adaptation to Climate Change Tourism 2.00 1.00 50 UNDP Mexico Protection of Environmental Services of Coastal

Wetlands in the Gulf of Mexico to the Impacts of Climate Change through Improved Water Resource Management

Coastal zones, water resources

13.80 4.80 35 World Bank

Philippines Climate Change Adaptation Project Disaster risk management 55.00 5.00 9 World Bank a Least Developed Country (LDC) b Small Island Developing State (SIDS)

Annex 3. Overview of GEF adaptation projects under the LDCF as of May 2007 (GEF, 2007b).



Agency In the pipeline

Bangladesha Strengthening Adaptive Capacities to Address Climate Change Threats on Sustainable Development Strategies for Coastal Communities in Bangladesh

Coastal zones, disaster risk management

9.25 3.1 34 UNDP

Bhutana Reduce Climate Change Induced Risks and Vulnerabilities from Glacial Lake Outbursts Floods (GLOFs) in Punakha-Wangdi and Chamkhar Valleys

Disaster risk management 7.38 3.63 49 UNDP

Malawia Climate Adaptation for Rural Livelihoods and Agriculture

Disaster risk management, food security, land management

27.65

3.26 12 AfDB

Mauritaniaa Reducing Vulnerability of Arid Oasian Zones to Climate Change and Variability through Improved Watershed Management

Water resources 3.08 1.66 54 UNEP

Nigera Implementing NAPA Priority Interventions to Build Resilience and Adaptive Capacity of the Agriculture Sector to Climate Change in Niger

Food security, water resources

6.25 2.1 34 UNDP

Samoaa,b Integrated Climate Change Adaptation in Samoa disaster risk management, food security, health, ecosystems

4.1 2.09 51 UNDP

a Least Developed Country (LDC) b Small Island Developing State (SIDS)

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