Green Climate Fund: Current Issues and Way Forward for the Successful Operationalization

Jione Jung, Jeongmeen Suh, Jinyoung Moon and Jihei Song

At the 16th session of the UNFCCC Conference of the Parties(COP), the parties reached an agreement to scale up climate finance to 100 billion dollars per year by 2020. This decision, also known as the Cancun Agreement, mandated the establishment of the Green Climate Fund, a multilateral fund designated for climate change mitigation and adaptation activities. The Green Climate Fund is expected to serve a key role in operationalizing the scaled-up climate finance. Korea entered the competition to host the Fund along with five other nations, including Germany and Switzerland. At the GCF Board Meeting in October 2012, the board decided to host the GCF Secretariat in Songdo, Incheon. The decision was approved at the COP18 in Doha the following December. Thus, the establishment of the GCF Secretariat in Songdo, Republic of Korea became official.

Considering its emergence from a recipient to a donor country in just a few decades, Korea has the potential to serve as the bridge between the developing and developed nations. In addition, by hosting the only multilateral climate fund in the Asian region, Korea seeks to pursue a more active role in the international climate change scheme.

The GCF maintains an independent secretariat as well as a legal entity. Moreover, a substantial amount of the long-term finance for climate change is expected to be channelled through the GCF. This paper seeks to provide an up-close observation of the backgrounds and characteristics of the Green Climate Fund. Based on the observations, the paper aims to analyze the potential and limits the Fund presents to Korea, and eventually to provide a policy direction for Korea.

The paper is organized in the following order. Followed by an introduction in the first chapter, Chapter Two provides a precise observation on the establishment of the GCF. The chapter reviews discussions regarding climate finance at the Convention, as well as those on the relationship between the Fund and the Conference of the Parties. To pursue these goals, the paper analyzes the financial mechanism of the Convention as well as the COP guidelines and decisions.
Chapters Three and Four review two critical issues at the GCF Board: mobilization and delivery of the Fund. Initially, the resources for the GCF was projected to be mobilized through various sources including bilateral and multilateral channels; as well as public, private, and innovative sources. Nevertheless, at the moment, no donors have made pledges to the Fund, putting the operation of the Fund at risk. Chapter Three seeks to provide a theoretical overview of factors that influence donor countries' decisions to contribute to multilateral funds. Global Environment Facility has been responsible for the financial mechanism within the Convention. The World Bank's Climate Investment Fund is also a prominent multilateral fund related to climate change. An analysis of the two funds are made, in order to explore options for the GCF. Chapter Four discusses various issues regarding the delivery of the Fund. These issues include financial instruments, access modalities, and options to facilitate private sector participation. The Chapter also provides a review of existing funds regarding critical issues. Based on the findings, the chapter emphasizes strengthened financial readiness of the recipient country, considerations for private sector participation, and mutual accountability as preconditions for the success of the Fund.

In conclusion, Chapter Five provides suggestions for the Fund and strategies for Korea, focusing on the success of the Green Climate Fund. In order to ensure the successful launch and sustainable operation of the GCF, the paper identifies three major challenges that need to be addressed. The challenges include, differentiating the Fund from other existing funds in order to draw financial resources, creating an enabling environment for effective use of the Fund, and expediting progress in the Convention negotiations regarding climate finance. Currently, the most urgent task in operationalizing the Fund is maximizing the inflow of public resources to the Fund. By highlighting country ownership, the Fund can promote distinction vis-a-vis other existing funds, thus attract donors' contributions. Furthermore, as contributions are not expected until the completion of the GCF business model, prompt creation of an enabling environment for direct access and result-based approach is crucial. Breakthrough at the climate finance negotiation which is directly related to the resource mobilization of the Fund is another pressing task.

In the second part of Chapter Five, the paper provides suggestions for Korea as the host country of the GCF Secretariat. For instance, Korea can present ideas for a more rapid operationalization of the GCF. While regular replenishment of resources is desired in terms of stable function of the Fund, ad hoc contribution is inevitable for initiating operations in the near future. Korea can consider putting forward an alternative, to provide a guideline for the phased conversion of ad hoc contribution to regular replenishment based on certain conditions, and to persuade countries to agree to the guideline. Secondly, climate finance readiness and preparatory support for developing countries will lead to creating an enabling environment for the delivery of the Fund. Government support to foster related industries, such as finance, and consulting services in climate change and green technology will largely facilitate the partnership with the GCF. Lastly, the paper presents a guiding direction for Korea in its participation in the climate talks. Durban Platform, as decided at the 17th session of the Conference of the Parties, will serve a critical role in the future climate change negotiations. Since finance, technology development and transfer, and capacity building are mentioned as the means of implementation, Korea should pursue more active participation in the climate finance negotiations so that a good sum of international climate finance is channeled into the GCF. In addition, the paper also suggests that Korea participate more actively in the discussions regarding balanced support to mitigation and adaptation, creation of an effective tracking system of climate finance, and also linking capacity building and technology transfer with the GCF support.