Rising to the climate change challenge: the Environmental Transformation Fund and the Climate Investment Funds
In response to the growing recognition that climate change and development are inextricably linked, in July 2008 the G8 committed to provide approximately $6 billion to the Climate Investment Funds (CIFs).
The CIFs will enable the international community to act quickly to tackle the harmful effects climate change is having on the lives of hundreds of millions of people in developing countries. They will help promote clean technology, tackle unsustainable deforestation, and help developing countries deal better with the impact of climate change.
The announcement, made at the G8 Summit in Japan, included an £800 million contribution from the UK’s Environmental Transformation Fund (ETF). This means the ETF will be used as part of a bigger global effort to help tackle climate change and poverty.
What is the Environmental Transformation Fund?
The aim of the £800 million joint DFID/DECC Fund is to reduce poverty through environmental protection and help developing countries respond to climate change. The ETF was announced by the Chancellor in the 2007 Budget, where £50 million was earmarked to protect the forests of the Congo basin.
The UK is contributing the £800 million as a capital grant to the CIFs, where it will be used to make a combination of grants and highly concessional loans - with zero or negligible interest - to developing countries that want them. This is the same way most developing countries finance their development.
What are the Climate Investment Funds?
DFID, DECC and other Whitehall departments have been involved in discussions about using the ETF to stimulate a bigger global effort to help tackle climate change and poverty.
Following an intensive consultation period with developing countries and other donors, this led to the proposal for a multilateral financing mechanism - the CIFs - which would receive funding from different donors.
Included within the CIFs will be a Clean Technology Fund (CTF) and a Strategic Climate Fund (SCF). The CTF will help developing countries grow in cleaner, more efficient ways, for example by using new and innovative technologies that cut down on carbon emissions.
A number of work programmes will be contained within the SCF. The first will be a Pilot Programme on Climate Resilience (PPCR), aimed at helping vulnerable countries deal with climate impacts such as flooding, and the second is likely to be aimed at avoiding deforestation (the Forest Investment Programme).
The CIFs were officially launched at the G8 Summit in Japan with a commitment of $6 billion from G8 donors. Read more about the G8 in Japan.
How will the Funds work in practice?
Both Funds will be administered by the World Bank, but the Bank will not be responsible for deciding how the money will be spent. Governing bodies made up of equal numbers of contributing donors and developing countries will jointly make decisions about where funding is allocated.
The UK government worked hard to ensure that the Funds were designed with a strong role for developing countries in the governance structure. Making sure that recipient countries have an equal voice is not only important, but consistent with the Paris Declaration on Aid Effectiveness, which commits us to ensuring development is driven by countries, not donors. Funding should support country-owned investment plans and must be consistent with wider poverty reduction activities at a country level.
What happens next?
Following the G8 announcement, the Climate Investment Funds opened to pledges from other donors. Progress to date has been rapid and is ahead of plan. At the end of January 2009, Mexico, Egypt and Turkey were given the green light to apply for $1 billion of funding from the CTF and a further eight developing countries were offered funding for adaptation as part of the Pilot Programme for Climate Resilience.
Over the course of 2009, we expect to see funds being dispersed so that
countries can begin implementing clean technology or adaptation projects. We
also expect to see further project proposals from more developing countries.
Further information and updates are available on the
World
Bank website.
Why DFID and DECC support the funds
It is the world’s poorest people who are hit hardest by the impacts of climate change, such as floods and droughts. That is why the UK is pushing for urgent action to cut global emissions and to help developing countries prepare for the impacts and build low-carbon economies.
The UK government’s principal goal is that the UN’s climate change deal (which is being negotiated to follow on from the current Kyoto protocol) is fair and credible, and establishes ways to fund clean technology, adaptation and forestry after 2012.
We want to use the CIFs to help bridge the funding gap until the UN deal is in place post-2012. They will also be used to test new financing options, helping inform the negotiations on climate finance and the design of future financing mechanisms.
There is no time to waste - this is about action at scale, and now. The funds are an interim arrangement to help fill the gap before the UN-agreed mechanisms are up and running. Their purpose is to ensure that money can begin to flow to developing countries to tackle climate change. They are not trying to create a post-2012 financial architecture now, but are about demonstrating and piloting new ways of providing climate finance. The funds will help pilot new programmes which can inform longer term approaches and solutions, giving developing countries real, on-the-ground examples of what works best in different situations.
Last updated: 20 February 2009
