Shedding Light on Fast-Start Finance

How much fast-start climate finance is actually flowing, and where is it being spent?¹ This question has come up repeatedly alongside the United Nations Framework Convention on Climate Change (UNFCCC) climate talks in Bonn this week.

Today the World Resources Institute (WRI) and Overseas Development Institute (ODI) published two working papers examining the fast-start contributions of the UK and US (GBP 1.06 billion and USD 5.1 billion, respectively). These papers seek to shed light on how developed countries are defining, delivering, and reporting fast-start finance. A similar paper on Japan’s contribution is under development, led by the Tokyo-based International Group for Environmental Strategies (IGES). The studies are carried out in collaboration with the Open Climate Network (OCN).

The UK and the US have ramped up climate funding

One of the key findings is that the contributions do represent increases from previous years’ climate spending. Annual UK funding for climate objectives appears to have increased more than four-fold relative to the pre-fast-start period. Likewise, the US Congress appropriated more climate funding per year during the fast-start period than before, and Overseas Private Investment Corporation (OPIC) also appears to have increased its support for clean energy. This is encouraging in light of the tight economic circumstances under which these funds were mobilized. It will be essential to sustain this support.

The contributions include on-going programs and pledges made prior to 2009

While funding has increased, however, the US and the UK are also claiming fast-start finance “credit” for projects and programs that they were previously supporting. For instance, the US is counting its contribution to the Montreal Protocol Fund, which it has been supporting since the early 1990s, as fast-start finance. Both countries are counting contributions to the Climate Investment Funds, which they had pledged prior to the fast-start period. For the UK, in particular, support for these funds constitutes a substantial share of its overall fast-start finance contribution. These are important programs, for which sustained support is essential, but they are not new during the fast-start period.

The size of countries’ claimed contributions depends on what they count

In looking at different countries’ climate financing, it's clear that there is not a common understanding of what constitutes fast-start finance, and it can be difficult to decipher the basis on which countries decide to claim credit for particular contributions. For instance, Japan counts leveraged private finance toward its fast-start contribution, while the UK and US count only public finance. The US counts development finance channeled through OPIC and export-credit channeled through Ex-Im, whereas the UK does not count analogous sources of finance toward its contribution. Likewise, while both the UK and the US contribute to the Montreal Protocol Fund, only the US counts this contribution as fast-start finance.

This is significant because the overall magnitude of each country’s claimed contribution depends heavily on which sources it includes. As a result, while the self-reported contributions of the UK, US, and Japan range from USD 1.7 billion to USD 15 billion, these figures are not directly comparable. This strengthens the case we and other commentators have made for clear and compatible definitions and systems to track climate finance in support of a meaningful assessment of delivery on climate finance pledges. In seeking these improvements, however, we must not compromise on the need for substantially scaled-up finance in order to support developing countries to take ambitious action on climate change.

Differing perspectives

Some developing countries have claimed that they are not receiving fast-start finance, while developed countries stress that substantial finance is being mobilized. While some administrative delay is expected between the time developed countries commit funding and the time developing countries receive it, our studies suggest some additional reasons for these different perspectives.

First, we found that government entities do not consistently report on the status of disbursement of fast-start finance. While we did identify good practices on disbursement reporting on the part of a few entities we researched, as a whole, it's not clear that countries’ internal monitoring systems – particularly in some of the more decentralized agencies – are yet tailored to support this consistently.

Similarly, accurate information on disbursement depends not only on UK and US practices, but also on comprehensive and frequent reporting by multilateral institutions that manage funding, such as the World Bank and Multilateral Development Banks, whose disbursement reporting practices have been mixed.

Finally, we found that funds flow to a wide range of implementing entities in addition to developing country governments, including consulting firms, companies, and NGOs, some of which are based in developed countries. Entities based in the recipient countries do not directly receive the entire sum that contributor countries report.

More Transparency Needed

Both the US and UK are taking significant steps to establish more open and transparent systems for monitoring international finance. The US has launched a Web site to help track climate spending. The UK discloses a list of projects financed, and publishes project “business cases” online.

Overall, however, it’s not presently possible to say with confidence how much funding has been disbursed or where it’s going. Further action to improve transparency would advance our understanding of these issues. Specifically, consistent fast-start finance reports that provide detailed lists of projects and programs supported—including the administering agency and any channeling institutions, the recipient institution, the financial instrument, the beneficiary country, and (where feasible) information on disbursement status—are needed. Different countries are reporting this information to varying degrees. Over the course of the next year, WRI, ODI and OCN will work to expand their analyses of contributions to fast-start finance with the goal of highlighting good practices and supporting better understanding of how fast-start finance is spent.