The Environmental Transformation Fund & the Strategic Climate Fund
In response to the growing recognition that climate change and development are inextricably linked, the UK is providing £800 million to help tackle the challenge. This was announced by the Chancellor in the 2007 Budget.
The aim of this joint DFID/Defra fund, known as the international Environmental Transformation Fund, is to support development and poverty reduction through better environmental management, and help developing countries respond to the realities of climate change. £50 million has been earmarked to help safeguard the forests of the Congo basin.
How the money will be used
DFID, Defra and other Whitehall departments have been involved in discussions about using the £800 million to stimulate a bigger global effort for more funding to help tackle climate change and poverty.
This has led to a proposal for a multilateral financing mechanism to pool funding from different donors. The current proposal is for a Strategic Climate Fund (SCF) to be administered by the World Bank. This would channel funds into a Clean Technology Fund (CTF) to help developing countries grow in cleaner, more efficient ways, for example by using new and innovative technologies that cut down on carbon emissions.
The SCF would also channel funds to other climate related investments including forestry and a Pilot Programme on Climate Resilience (the PPCR) that aims to help vulnerable countries deal with climate impacts such as flooding.
What happens next?
A number of details are still under discussion, including the structure of the funds, how they are governed, which countries are prioritised for funding, and how much money different donors will commit.
The World Bank is currently consulting widely on the proposals - the latest consultation documents are available on their external websitewebsite.
DFID, Defra and other Whitehall departments will continue to participate in further consultation discussions with the World Bank, other multilateral and bilateral donors, developing countries, the UN system and civil society with the aim of launching the funds at the G8 summit in July.
Why DFID and Defra 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 (that 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 SCF to help bridge the funding gap until the UN deal is in place post 2012 and to provide new financing options to inform negotiations on climate finance.
There is no time to waste - this is about action at scale and now. The World Bank administered funds are an interim arrangement to help fill the gap before the UN-agreed mechanisms are up and running, so 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.
What we want the funds to look like
The UK Government is working hard to ensure that the funds are designed with a strong role for developing countries in the governance structure. Making sure that recipient countries have an equal ‘voice’ is important and consistent with the Paris Declaration on Aid Effectiveness, which commits us to ensuring development is country, not donor, driven. Funding should support country owned action plans and must be consistent with wider poverty reduction activities at a country level.
The proposed design aims to maximise the space for country-level and developing country-led decision-making. Under the current proposal, the World Bank will act as the administrators of the funds, but they are not responsible for deciding how the money will be spent. The governance arrangements will ensure these decisions are made by recipient developing countries and contributing donors.