Inside a foiled plan to use climate cash to help oil

By Jean Chemnick | 11/20/2018 07:30 AM EST

The nation of Bahrain tried to get money from the Green Climate Fund to help its oil industry. It shows how susceptible the global program is to political interference.

The island nation of Bahrain, seen here in a color satellite image, earlier this year sought money through the U.N. Green Climate Fund to help it save and reuse water.

The island nation of Bahrain, seen here in a color satellite image, earlier this year sought money through the U.N. Green Climate Fund to help it save and reuse water. Planet Observer/UIG Universal Images Group/Newscom

The nation of Bahrain tried to get money from the Green Climate Fund to help its oil industry.

The Persian Gulf kingdom was hosting a crucial meeting of the U.N. climate fund in the capital city of Manama in October when it proposed a project to clean up water pollution caused by oil and gas producers in Bahrain. That could in turn free up industry capital for investment in exploration and production.

The plan was characterized as an unprecedented move to benefit nations that emit high levels of greenhouse gases. The Green Climate Fund was created to predominantly help poor countries prepare for the threats of sea-level rise, drought and other damage from rising temperatures.


The idea to shift part of the costs of water cleanup from Bahrain’s oil sector to the global climate fund was part of a modest $9.8 million grant to help the nation conserve water. A sliver of that money would have been used by the wealthy kingdom to create a "framework" for receiving additional help from the Green Climate Fund to offset cleanup costs for the oil industry.

This raised hackles among the global fund’s board members and environmental observers, who worried it would set a dangerous precedent.

"If your direct or indirect impact is increasing the viability of the oil and gas industry to carry on doing the same thing again, you’ve got to question whether that’s what a climate fund should be financing," said Joe Thwaites, who attended the GCF meeting for the World Resources Institute.

Sweden’s alternate board member, Lars Roth, said approving the funding proposal could "lock in" Green Climate Fund support for fossil fuel projects for decades to come.

"This is not what this fund is about," he said during the board’s discussion.

Bahrain is facing a water crisis that’s exacerbated by climate change but is driven by aggressive land-use decisions like the construction of islands in the Persian Gulf and by economic and population trends. The island nation, located in the Gulf between Saudi Arabia and Qatar, wanted international climate funding to draw up a strategy to curb water demand. The plan to help its oil industry was a small part of that request.

The proposal before the 24-member board of the Green Climate Fund last month was mostly focused on water demand. It included subsidies for "innovative technologies" like dual-flush toilets.

But observers noticed that Bahrain had made its National Oil and Gas Authority, and not its Water Resources Council, responsible for the whole project. And buried in its svelte 39-page project application — so short because it was submitted under a new pilot program to help poor countries access funds quickly — was a reference to a second application Bahrain would make in the future.

"The National Oil and Gas Authority will play a central role in Phase 2 through the adoption of innovative technologies for the treatment of produced water from the oil industry to augment aquifer recharge," Bahrain wrote in its application. "The proposed interventions for Phase 2 will build on the framework for climate resilient integrated water resource management developed during Phase 1."

In other words, some of the climate fund’s money would go to support a program — for which Bahrain would eventually also seek GCF funds — to clean up water dirtied by the development of oil and gas. What’s more, it would relieve the industry from doing the job itself.

The move comes as hydrocarbons account for 20 percent of Bahrain’s economy and months after it announced its biggest offshore oil and gas find in decades. The climate funding could in theory free up industry money for investments in oil exploration and production — an outcome that contradicts the objectives of the Green Climate Fund.

Making islands

In the end, the climate board removed all mention of oil from the proposal and approved a sliver of funding for water conservation.

But the process that led to that result shows a glimpse of the politics that permeate the world’s largest climate fund.

The chief protagonist supporting Bahrain’s project was not Bahrain, which lacks a board member, but Saudi Arabia’s Ayman Shasly. Shasly, who also serves on his country’s delegation to the U.N. Framework Convention on Climate Change, is widely believed to have pressed for Bahrain to host the October board meeting as a partner in the Gulf Cooperation Council.

The inducement would have been clear: Samoa and Egypt have hosted the only two board meetings outside Songdo, South Korea, since the fund was made operational. Each nation got a project approved at its meetings, and the informal tradition has sometimes been likened to a host gift — a problem that has led French officials to propose that all meetings in the future be held in South Korea.

It’s unclear to what extent Bahrain’s hand might have been strengthened by the fact that the U.N. Environment Programme’s regional headquarters is based in Manama. The body sent the project to the Green Climate Fund secretariat for consideration under an expedited process that was intended for small, low-risk projects from poor countries that lack the capacity to clear all the hoops usually required of Green Climate Fund applicants. The project’s price tag, $9.8 million, seemed calculated to fall just short of the $10 million limit for projects submitted under the so-called simplified approval process.

UNEP did not return calls for comment.

The next stops for the project were the Green Climate Fund secretariat in Songdo and the fund’s independent technical advisory panel (ITAP) of experts tasked with assessing the value of projects and making recommendations to the board.

The secretariat’s assessment was relatively bullish about its chances to effect a paradigm shift in Bahraini water use.

Simon Wilson, a spokesman for the secretariat, declined to say whether any board members had reached out to the staff to support Bahrain’s application.

"We can’t comment on the position of individual board members," he said.

Then the project moved to the ITAP, which issued a scathing assessment.

It called the project’s climate change rationale "weak" in several places, noting that Bahrain’s rapidly diminishing freshwater aquifers have more to do with its growing population, its trend toward urbanization and its municipal water policies that subsidize large water users.

The country has also reclaimed substantial land from the sea since the 1980s, expanding its footprint by a whopping 12 percent. That has contributed to saltwater intrusion into freshwater aquifers.

In a possible nod to the Green Climate Fund’s prolonged effort to adopt a gender policy over persistent Saudi objections, Bahrain’s proposal promised that an irrigation subsidy would "target farms owned by women." But there are none, according to the World Resources Institute.

The technical advisory panel also recommended that the board prohibit the program’s administrators from using money from the Green Climate Fund to support any part of "Phase 2" of the project — the part that benefits the oil sector — until an application was submitted for that separately.

Despite its strong objections, the ITAP forwarded Bahrain’s proposal to the board for its approval at the October board meeting. Joe Yamagata, who serves on the panel for Japan, told E&E News that no countries tried to influence the technical advisory panel to issue a positive assessment.

"There was no intervention, formal or informal, which could impact (or was aimed to impact) on our final assessment and decision as far as I am aware," he said in an email. "I am happy to say that the ITAP has been operating fairly independent since [the fund was established in 2015] following the Board’s encouragement and guidance."

Legends of immortality

The night before the October meeting, the Bahraini government hosted a dinner for board members and delegates on a private spit in Manama, run by the Ritz-Carlton hotel chain. The affair followed a disastrous July meeting of the Green Climate Fund, which failed to distribute $1 billion in funding and saw its executive director abruptly quit.

Patricia Espinosa, executive secretary of the UNFCCC, reminded the delegates gathered in the opulent setting of the meeting’s importance: The troubled climate fund could improve its image leading into a high-profile U.N. climate convention scheduled for December in Katowice, Poland. It should approve some climate adaptation projects and begin the process of refilling its nearly depleted coffers.

The failed July meeting in South Korea stirred old doubts among developing countries that rich ones might renege on their promises to infuse the Green Climate Fund with $100 billion annually. A second failure could further damage morale.

Sheikh Mohammed bin Khalifa al-Khalifa, Bahrain’s minister of oil and a member of its royal family, reminded his guests that "Bahrain" means "between two seas": the Persian Gulf, which surrounds it, and the freshwater aquifers that flow under its soil. He also shared another local tradition: that if you die in Bahrain, you will become immortal.

Participants say those messages became a kind of refrain throughout the four-day meeting. It appeared to be a reference to the project application: The Persian Gulf is the first sea, and the underwater aquifer it is infiltrating was understood to be the second.

The reference to immortality was more of a puzzle, at least to some attendees. Was al-Khalifa just sharing a piece of his homeland’s identity, or might he be hinting that if his country’s project wasn’t approved, that result would come back to haunt the Paris Agreement in Katowice and beyond?

When the opening business of the board was done and co-chairs Lennart Båge of Sweden and Paul Oquist of Nicaragua moved to consideration of the 20 funding proposals, Shasly’s flag shot up.

The Saudi diplomat and two other developing country board members had effectively run out the clock on the July meeting, contributing to the stalemate. But now he argued that there was no time to lose.

"We need to send a very positive signal that the fund is here and it’s operating and we have no problem approving funding proposals," Shasly advised his 23 fellow board members and alternates.

The board should approve all 20 proposed projects, including Bahrain’s, en bloc without discussion, he said. He ignored the reservations of the technical adviser panel, instead characterizing it as an endorsement.

"We need the time, we really need the time," said Shasly, who is an official with Saudi Arabia’s Ministry of Petroleum and Mineral Resources.

Developing country board members Karma Tshering of Bhutan and Tosi Mpanu Mpanu of the Democratic Republic of Congo seconded his proposal to move all projects together as a package.

They did not respond to requests for comment by E&E News.

‘Time to pay back!’

Observers at the meeting were left with the impression that Shasly had made it clear to other developing country representatives that the Bahraini project was his priority and he was prepared to sink the meeting if it weren’t adopted.

Shasly "made it clear that before he would agree to any other significant decisions further down on the agenda, he wanted this to be resolved," noted Lutz Weischer, who attended the meeting for Germanwatch.

But rich country advocates protested. Bahrain’s project wasn’t the only controversial one on the docket — this would also be the first time China had applied for GCF funding. And the United States had its objections ready.

When it became clear he would lose his bid, Shasly seemed to protest on behalf of all 12 developing country participants.

"This is not a good start," he said. "Things are not going the right direction to give a positive tone to Katowice … because developed countries unfortunately have taken a hard line, making our lives miserable to approve crumbs, peanuts, small amounts of funding proposals that we need to approve just to tell our people that the world is standing behind you, the international community is there to support you."

Then Shasly changed tactics. He proposed that the board approve just three projects — all of which were under $10 million. That gave them an expedited path to approval — Bahrain’s water proposal included.

He hit another wall.

Mathew Haarsager, the U.S. board member and a career official with the Treasury Department, opposed the motion. He was soon supported by other developed country board members who argued for taking the projects one by one. They raised concerns about the Bahrain project’s weak link to climate adaptation and its potential for making a transformational change in the country’s water management and climate change policies.

Roth, the Swedish alternate, noted that the board had approved loans and not grants for a similar project in Tanzania the year before. A good argument had not been made, he said, for why Bahrain should not be required to repay it.

There was no mention of Bahrain’s wealth or that its per capita domestic product was over $51,000 last year, revealing how far its citizens had come from relying on pearl diving for sustenance.

Shasly chastised rich countries on behalf of poorer ones for quibbling over "crumbs, peanuts, small amounts."

"This money you put here, you owe this money to developing countries," said Shasly, a former official with Saudi Arabia’s state-owned oil producer. "It’s a debt that your economies have to pay back because you built your superpowers, you built your economies at the expense of the atmosphere, at the expense of climate change."

Shasly, who was the last participant to sign off on the Intergovernmental Panel on Climate Change’s special report last month on the dangers of exceeding 1.5 degrees Celsius of warming, referred to the report’s findings that global emissions must begin to decline almost immediately. Developing countries would have little space to develop, he said.

"Now it’s time to pay back!" he said.

In the end, the board of the Green Climate Fund approved a little more than $2.2 million to help Bahrain’s Water Resources Council integrate climate resilience into its water management planning. The plan to help the oil sector was gone — and so was funding for dual-flush toilets.

Shasly, uncharacteristically, had little to say.

"This is quite unfortunate, and this is really not helpful at all," he said.

The general feeling was that Shasly, a skilled tactician, had been outmaneuvered.

"My reading is that this whole thing went out of control for Ayman," said Weischer of Germanwatch, referring to Shasly. "He did not think that this funding proposal would meet the resistance it did."