Transparency of Climate Finance: Results from Cancun and Next Steps

The UNFCCC Cancun Agreements of December 2010 marked an important step forward for transparency of country actions to respond to climate change. In addition to creating a new standard for the way countries report on their national climate commitments and actions, the agreements mandated advances in the reporting and review of countries’ climate finance contributions.

The success of Cancun in improving the transparency of climate finance will depend on the actions countries take to implement this mandate in the coming months, as there are still many details that need to be filled in. As countries meet in Bangkok this week, they will have to decide how to move forward on the details that were left up-in-the air in Cancun. The following questions help explain the issues on the table and the next steps.

What is transparency of climate finance and why is it important?

The 1992 United Nations Framework Convention on Climate Change (UNFCCC), agreed to by 195 countries, recognized that developed countries should provide new and additional financial, technology and capacity-building support to help developing countries reduce their greenhouse gas emissions and adapt to a changing climate. Accordingly, developed countries have committed to mobilizing $100 billion in climate change financing by 2020.

Keeping track of these funds and ensuring that they are delivered effectively is a huge undertaking. In the world of international climate negotiations, the transparency of these climate finance arrangements -- how governments, banks, international institutions and civil society groups report and review financial contributions --is referred to as the “measurement, reporting and verification” (MRV) of finance.

Transparent and accurate reporting has many benefits. For example, developed countries can gain international recognition for their support and developing countries can gain assurance that the money pledged is actually delivered. Furthermore, increased transparency can help governments and civil society groups assess the scale and type of support provided, identify trends and pinpoint possible gaps in sectors or regions.

Don’t countries already report their climate finance contributions?

Yes, but existing systems need to be improved. Developed countries report their bilateral and multilateral climate finance contributions in periodic national communications submitted to the UNFCCC. However, countries currently use multiple methods for reporting and often provide insufficient information even where requested. Because of this, the data gathered are of limited utility.

Outside the UNFCCC, developed countries report their overall development assistance to the OECD DAC and indicate which supported projects aim to help mitigate climate change. However, this framework has certain limitations. For example, development assistance supporting mitigation is measured in a qualitative rather than quantitative way, making it difficult to aggregate and analyze information. In addition, the mitigation category is applied to an entire project even if only a portion of the project relates to climate change.

Do the Cancun Agreements improve MRV systems for long-term financial commitments?

The Cancun Agreements mandate the revision and improvement of climate finance MRV, which could help alleviate some of the current limitations of reporting under the UNFCCC.

Specifically, they call for enhanced reporting in national communications by developed countries. Enhanced reporting should include “common reporting formats” and “methodologies for finance”, to be developed, and should “ensure that information provided is complete, comparable, transparent and accurate." Developed countries will also need to generate biennial reports that include information on progress in providing financial, technology and capacity-building support to developing countries.

In addition to enhanced reporting of financial information, the COP called for enhanced review of this information.

The Cancun Agreements also call for developing countries to submit national communications every four years, in which they must report on “support received.” This information could help reviewers cross-check information from developed countries.

What about the transparency of the so-called ‘fast-start finance’?

The Cancun Agreements invite developed countries to annually report their financial commitments to 2012 (known as “fast-start”). Reiterating a pledge made in Copenhagen, developed countries committed to providing $US30 billion of new and additional resources for the period 2010-2012, with a balanced allocation between adaptation and mitigation. The Cancun Agreements invite developed countries to submit information on how they are meeting this ‘fast-start finance’ commitment by May 2011, 2012, and 2013.

It is important to note, however, that the Cancun Agreements contain no specifics with regard to the format that such reporting should follow, putting the quality of these reports at risk. That is why WRI has issued a list of elements we hope to see in these reports.

What new institutions were created in Cancun that relate to the MRV of finance?

The Cancun Agreements established a “Green Climate Fund,” to channel financial resources to developing countries. A Standing Committee was also established to improve coordination in the delivery and MRV of climate finance.

In addition to these bodies under the financial mechanism, the Cancun Agreements established a registry that will help developing countries match their projects with available international support.

What are the next steps in this process?

The Parties to the UNFCCC have a great deal of work to do in the months leading up to the next Conference of the Parties in Durban in December 2011 in order to improve the transparency of climate finance.

• Countries will need to draft enhanced guidelines and methodologies for reporting climate finance, as well as review procedures. This should include an agreed common approach for reporting on additionality, which was not addressed in Cancun.

• In the meantime, developed countries will need to report on their fast-start financial commitments starting this year each May until 2013.

• In addition, countries will need to clarify the role of the Standing Committee, particularly in relation to the MRV of finance process.

• Finally, many of the characteristics of the registry have yet to be determined. This includes the role, if any, the registry or another other international body will play in reviewing the actions and support submitted to the registry.