COPENHAGEN:

Red tape, high fees hamstring int'l green funds

UNITED NATIONS -- A key provision of the controversial Copenhagen Accord provides cash for climate adaptation and energy projects in developing nations.

Government officials in those countries are holding out hope that the agreement's three-year, $30-billion-a-year financing facility will soon become a reality. And they are looking forward to a proposed $100 billion annual fund for developing nations' adaptation and mitigation efforts.

But while the promises made at the U.N. climate change talks in Copenhagen last week raised hopes of future payments, some skeptical observers point out that the world's largest and oldest environment fund is quickly running out of cash and has no commitments to replenish it.

At issue is the Global Environment Facility, or GEF, started by the World Bank for a sweeping range of environmental and energy projects in 1991. Fund administrators warn it will be empty by next summer. Negotiations are under way for the GEF's fifth "replenishment" cycle, but there are no offers yet.

"A lot's at stake, but it's kind of early," said Christian Hofer, senior communications officer at the GEF. "I don't think anything is smooth in the world with regards to getting funds."

The massive climate funds proposed at the U.N. talks last week seem destined to hold financing structures found in the GEF and other international green funds that developing nations and nongovernmental organizations find problematic.

GEF administrators are never certain how much money they will get and whether new donations will arrive before the fund dries up. And donors typically insist on tight controls over where and how the money is spent, with the World Bank policing the program.

Activists also complain that World Bank administrators and donors alike use the GEF and similar programs as political tools or as carrots to get governments to commit to larger loans that they must struggle to pay back. Recipient governments complain of an unwieldy bureaucracy and millions of dollars siphoned from the GEF to pay administrative fees.

"It does fundamentally constrain any potential of the environmental funding being distributed on the basis of scientific advice or democratic governance," said Zoe Young, a researcher and author of a book about the GEF.

So blocs of developing nations are determined to keep the new climate funds -- which the accord says would flow through a proposed "Copenhagen Green Climate Fund" -- from being administered by the World Bank and from being as tightly controlled by the donors as the GEF currently is. But experts say political realities will likely see much of the same constraints and practices enforced on the proposed new funds.

In its 18-year history, the GEF has provided some $8.7 billion to 2,700 separate grant programs throughout the world. The GEF is also the chief source of funding for the administration of the Montreal Protocol agreement for protecting the stratospheric ozone layer, the Convention on Biological Diversity, and three other multilateral environmental treaty systems. About 800 climate change mitigation and adaptation projects in developing nations, however defined, have to date netted some $3 billion in direct GEF financing.

There are also two GEF-related side funds, the Least Developed Country Fund (LDCF) and the Special Climate Change Fund (SCCF). GEF funds are dispersed to separate U.N. bodies to actually run the projects it finances.

"GEF is a bank account, and they disburse all their money through the implementing agencies," explained Stanislav Saling, a spokesman at the U.N. Development Programme, the largest GEF project manager.

The proposed $100-billion-a-year fund proposed in Copenhagen would dwarf current green funds. After the previous replenishment period, the entire GEF fund was given $3.25 billion to see it through four years. Officials say the fund will run empty by next June.

Proposed GEF expansion

As demands for GEF funds grow, officials there and many governments are proposing a massive expansion coming out of the fifth replenishment period, now under negotiation.

GEF boosters have set a funding target range of $4.5 billion to $6.5 billion, or a near doubling of the previous amount.

"My gut feeling is that this money is going to come forward," said Veerle Vandeweerd, director of the environment and energy projects at UNDP.

Negotiations are next scheduled for January, but no funds are expected to be put on the table until March.

"Of course, we are hoping for a significant increase," GEF's Hofer said. "The more the better. But it's not done yet."

Vandeweerd said she is confident new money will be put on the table, but cannot say for sure whether the large expansion will happen, especially in light of the global recession. To date, GEF financing has not expanded in real terms from one replenishment cycle to the next, she said.

"It is through negotiations with donors that the level is set," Vandeweerd said. "There is a give and take."

But such is the way of all large international programs financed almost entirely by tightfisted governments and their fickle taxpayers, Young said.

When the GEF was first proposed, developing nations were hoping to have it run in an open democratic fashion, with recipients enjoying a voice on the table equal to those of the developed nation donors. Poor country governments are now calling for the giant climate funds to be administered in an open fashion, perhaps even by the U.N. General Assembly. But this is not likely to happen, Young said.

"Donors were completely not willing to accept that for issues of so much greater strategic importance such as biodiversity and climate change," Young said. "If you think of that, that's all the world's agriculture, biotech and so forth on one side, and on the other, it's all the world's energy."

Hefty fees

Other factors found within the GEF will likely become sticking points as negotiations on new expansive climate change financing move forward next year.

U.N. agencies and some nonprofits routinely skim fees from the funds. UNDP will often charge fees for simply moving cash from one bank account to another. It is a system that is ingrained in the world of official development assistance even though it limits the amount of dollars that can be spent directly on projects.

A recent audit of the GEF by Deloitte Touche Tohmatsu shows that more than $17 million went to pay for fees by the end of the 2008 accounting period. More than $77 million was spent on fees in the prior year.

Though no one knows for sure how the new climate change funds will ultimately be structured, experts say it is highly likely that they will be modeled to some extent on existing programs.

U.N. officials say they believe the new climate funds will eventually be run by an executive board that reports to the Conference of Parties now negotiating a new binding climate change treaty. They also insist that the new funds be managed through existing institutions and mechanisms to the greatest extent possible, to avoid adding layers of bureaucratic complexity and duplication of work.

But UNDP's Vandeweerd said that given the general level of discontent with the GEF in many developing nations, the new funds should avoid the same problems of uncertain financing, excessive paperwork and expensive administrative fees activists now complain about.

However, she added, "I'm not sure that I'm confident" such problems can be avoided.

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