New Money for the Green Climate Fund: How To Tackle Climate Change More Effectively

The UK, alongside France, Germany, and Norway, has doubled its commitment to the Green Climate Fund (GCF) to £1.4 billion over the next four years. Given the scale of climate change, it's important that we get the most bang for our buck. The GCF currently has 28 climate mitigation projects in 41 countries. According to the GCF’s figures, for the same cost, the most effective programme prevents 150 times more emissions than the least effective program. With this step up in funding and the UK as co-chair, there is a major opportunity to encourage the GCF to focus spending where it’s most effective.

Climate is a true global public good, so mitigation should happen where it’s most effective.

The GCF undertakes projects on both mitigation—avoiding climate impacts, and adaptation—coping with them. For climate change mitigation, efforts to limit the magnitude of global warming are a global public good. That means it doesn't matter much where we do it. Avoiding a tonne of C02e (emissions of greenhouse gasses equivalent to one tonne of C02)  being emitted in the UK has the same effect on global sea levels as preventing a tonne of C02e being emitted in Brazil. So does sequestering a tonne of C02 from the atmosphere by planting more trees. We should therefore try to mitigate climate change wherever it is most cost-effective.

The Green Climate Fund’s current portfolio

The Green Climate Fund has been around since 2010—and its projects to date suggest efforts have not been focussed on cost-effectiveness. Looking only at pure mitigation projects (it sensibly categorizes all of its programmes as mitigation, adaptation, or cross-cutting) it has funded 28 projects in 41 different countries (they are implementing $2.4 billion of projects from 2015-18 of which 42 percent are mitigation, roughly $250 million per year). Some of these projects are vastly more cost-effective than others. We calculated the cost of avoiding a tonne of C02 for each mitigation project (see Figure 1). The cost for most effective project (finance for green SMEs in South Africa) was $1. Five other projects had a cost of $4-6. The 14 least effective projects cost more than $40 per tonne of C02e. The cost for the least effective programme (investment in renewable energy in Tonga) was $156.

Essentially, there are vast gains to be made by moving money from less effective programmes to more effective ones.

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Source: Authors’ analysis of GCF-reported impact on greenhouse gasses. See data and calculations here.

The South Africa project might not be scalable at the same cost effectiveness, meaning we could not just shift more money to it. However, there are other options. A project by REDD+ (a UN-backed payment-by-results facility to reduce emissions from deforestation and forest degradation) to protect the Brazilian rainforest costs only $5 per tonne of C02e avoided, still 30 times more cost effective than the Tonga project. For now, Brazilian forests face particular challenges. However, two more REDD+ projects in Ecuador, an industrial project in Vietnam, and a renewable energy project in five African countries all cost less than $6 per tonne C02e. If the UK’s £1.4 billion funding went to projects as effective as REDD+ in Brazil or Ecuador, rather than all going to projects as effective as the Tonga project, we would prevent emissions equivalent to around two-thirds of the UK’s emissions for one year.

You might imagine that, in selecting projects, the GCF accepts a lower level climate mitigation in countries with lower income levels. However, this is not the case—there is almost no correlation between the cost effectiveness of a project and the income level of the country it is in. You can see this in the chart above. There are some quite ineffective programmes in relatively wealthy countries (e.g., Bosnia, Mexico, Brazil), and some quite effective programmes in poorer countries (South Africa, and a project in various sub-Saharan African countries).

How does the GCF select programmes?

The GCF sensibly uses several criteria to select projects but it seems that on its main criteria—climate mitigation—it may not be using a benchmark of most effective potential project, but the effectiveness of nearby projects. Figures for total cost and total C02e avoided come from project proposals (example here). They could be flawed, but they are used to make allocation decisions, and the GCF endorses these figures by reporting them prominently on their website, so we should take them seriously. Since the GCF therefore knew the variance in cost-effectiveness before picking programmes, why did they pick such ineffective ones?

The Tonga proposal gives a clue. The prompt on the GCF’s proposal form asks how $/tC02e and other indicators “compare to the appropriate benchmarks established in a comparable context” (emphasis our own). The proposal points out that the Tonga project’s cost per tC02e averted ($156)  compares favorably with one in the Cook Islands ($167), and another in the Solomon Islands ($724). The fact that the cost of REDD+ in Brazil is only $5 appears not to be relevant. The implication is that the GCF do not think that, for climate mitigation, we should get the most impact for our money, wherever in the world that is. They think we should try to get similar cost-effectiveness to projects in the same “context.”

It’s right to consider the co-benefits of climate mitigation projects—but not to the point where the project is ineffective in its main aim. As well as the global public good of climate mitigation, projects might help reduce poverty, improve biodiversity, help adaptation, or have other economic benefits. However it's hard to imagine that these are powerful enough to justify such a vast gap in the main outcome measure. The total cost of the Tonga project was $53 million, of which $29 million came from the GCF, $15 million from other aid agencies, and $6 million from the Government of Tonga. You could have achieved the same reduction in emissions as the Tonga project did with just $1.7 million through REDD+ in Brazil. The remaining $48 million of donor and government funding (that’s $450 per person, about 7 percent of Tonga’s national income) surely could have had a stronger impact on poverty if it was spent on a different project. If mitigating climate change is tens or hundreds of times more expensive in Pacific Islands, we should focus on adaptation there, and mitigation elsewhere. Nor is this just a problem with Pacific Islands. There are 16 other programmes, with a combined total cost of $4 billion, which cost more than $40 per tonne of C02e avoided. That means they are between 8 and 18 times as expensive as REDD+ in Brazil or Ecuador, or the project in Vietnam. They include projects in Europe, Africa, Latin America, and Asia.

Driving higher effectiveness at the GCF

The UK is the co-chair of the GCF Board, and is committed to driving reform in multilateral institutions so that money is used to greatest effect. So, while any of the 24 board members can push this agenda, we think the UK is particularly well-placed. The UK should use its role in three ways:

1. Ensure that the analysis of climate mitigation effects—the expected results—are as realistic as possible, drawing on the best evidence and avoiding exaggerated benefits.
2. The UK should push for the GCF to identify and scale up the most effective mitigation projects wherever the potential is highest.
3. The UK should ensure that a well-meaning desire to deliver co-benefits and geographical spread of mitigation projects doesn’t lead to supporting projects that are tens of times less effective in their primary aim.