Paying for Climate Change: “How” Is as Important as “How Much”

This post was prepared by Athena Ballesteros of the World Resources Institute, and Vivek Ramkumar of the International Budget Partnership.

Adaptation, mitigation, conservation, new technologies—when it comes to addressing the impacts of climate change and moving to a low-carbon economy, the costs will be shared and significant. As 190 countries met in Copenhagen over the last two weeks to negotiate the next global agreement on climate change, they were confronted by the question of “how much?” but also “how?”

While much of the energy so far has focused on securing contribution commitments from countries, it is critical how these commitments are managed. To get this right, resources and management must be considered simultaneously.

Regardless of how the funds are generated (private investment, bilateral and multilateral contributions, market-based carbon markets, or national budget allocations), a significant share will flow to developing countries that, because of entrenched poverty and threatened and degraded environments, are most vulnerable and less able to respond to climate change impacts.

Any consensus on finance that emerges from Copenhagen must address how to help these countries build resilience and the capacity to respond to climate change, and how to create finance architecture that is seen as legitimate; can mobilize new, additional, and predictable sources of funds; and is transparent and accountable.

A new global deal on climate finance will likely redistribute power, responsibility, and accountability significantly between traditional contributor and recipient countries, including a fair and balanced representation of developed (primarily contributor) and developing (primarily recipient) countries. This redistribution is both long overdue and necessary to ensure the national and local “ownership”—and thus effectiveness—of mitigation and adaptation actions in developing countries.

Given the potential impacts of climate change on their economic development and the lives and livelihoods of their people, governments receiving climate mitigation/adaptation funds must manage these effectively. Responding to climate change will require governments to make fundamental shifts and choices on how to grow economically and how to identify and address significant environmental and social risks that might arise. Involving civil society organizations (CSOs) and the public in these decisions can strengthen policy choices, increase buy in, and, ultimately, improve outcomes.

However, for this public engagement to be meaningful, governments must provide comprehensive and useful information and opportunities to participate. In designing a climate change finance mechanism, the parties in Copenhagen must consider ways to place appropriate pressure on recipient countries to be more open and accountable.

First, any new global climate change finance institution should incorporate practices and procedures into its operations that ensure that its finance flows are transparent, thus promoting accountability at both the international and country level.

For instance, donors often channel aid through mechanisms that are outside a recipient government’s formal budget system, and which follow separate and parallel budget and reporting procedures. Such off-budget funding is justified by concerns that existing government budget management institutions and practices may be weak.

While donors should be concerned about the proper use of their aid monies, they also need to assess the long-term impact of off-budget funding.  Off-budget financing places strains on public finance systems, inhibits effectively integrating aid funds into the regular policy- and budget-making cycle, and undermines the capacity of civil society to engage in oversight.

A global climate finance mechanism should be designed to channel funds whenever possible through government budget systems.  When this is not possible, efforts should be made to ensure that the systems and procedures for funded projects and programs are as compatible as possible with those of recipient government budget systems.

In addition to making sure its own practices are transparent, a climate change finance mechanism could place appropriate pressure on recipient countries to make information publicly available. For example, a clause could be included in financing agreements that all information on the amount and use of these resources that the recipient government provides to the finance mechanism be considered publicly available.

In countries where the main obstacle to increased transparency is a lack of technical capacity or adequate systems for producing and disseminating information, a climate finance institution could play an important role. For example, it could support the introduction of comprehensive information systems to enhance the ability to produce accurate and timely information, and the creation of information disclosure systems. Such systems would allow governments to proactively make public information on the use of these public resources.

It will also be important to recognize that managing climate change funds will be influenced not just by the overall level of transparency but also by the wider accountability environment. This includes oversight institutions with an official mandate to monitor the work of the executive, as well as a civil society and media that is able to use available information to hold governments to account for the use of climate resources. There is growing evidence that these actors can improve the overall quality of accountability and support the functioning of formal oversight institutions.

Therefore, support for strengthening recipient countries’ systems of checks and balances for how public funds are used, including strengthening the role and powers of legislatures and auditors, could be an important contribution to efforts to use climate change resources effectively.

Transparency and accountability are key challenges in negotiating the design of a future climate finance mechanism. If done properly, shifting power and responsibility to developing countries, through greater voice in decision-making, will entail greater responsibility for the outcomes of investments. Combining this with a climate change finance architecture that promotes transparent, participatory, and accountable national and international systems for decision making, measuring, reporting, and verifying funded actions may lead to stronger and deeper partnership between contributors and recipients and, ultimately, to more effective and sustainable efforts to combat climate change.

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