The development of UNFCCC negotiations and policy has shown the successive reinforcement at key instances of policy creation of the role GEF and the limitations of COP governance of the financial mechanism. Created at the same time as the SCCF and LDC Fund at COP-7 in 2001 and initially designated as a GEF responsibility, the several years taken to ratify the Kyoto Protocol meant that the process of determining the functions and governance of the Adaptation Fund took place slightly later. As a result of this short but important delay, there was time for experience with the LDC Fund and SCCF to reinforce perceptions that the GEF was an unavoidable political reality within the UNFCCC system (Agarwal et al. 1999). This experience lead to a spike in concern when the Adaptation Fund was operationalised, particularly in terms of funding areas, access to funding, and the GEF’s Resource Allocation Framework (Müller 2006, pp. 23–24). In addition, the GEF replenishment before COP-11 had been something of a crisis, with developed countries, led by the US, imposing numerous conditions on their contributions in order to achieve greater scrutiny of GEF activities (Schipper and Boyd 2006, p. 82). These circumstances offered an opportunity and additional motivation for developing countries to pursue a governance arrangement that would differ from previous instances within the UNFCCC. It was clear that criteria for accessing future funds must be clearly articulated by the COP rather than being delegated to the GEF, in order to overcome the potential for replicating the same inequalities
and challenges that developing countries had experienced with the SCCF and LDC Fund (Mace 2005).
Developing countries’ concerns about governance involving the GEF were evident during negotiations: at COP-11 in 2005, the G-77/China expressed concern that the new GEF Resource Allocation Framework ‘could make it harder to operationalize the Adaptation Fund, and that co-financing requirements present a barrier to LDCs and SIDS accessing funds’. ‘AOSIS, with others, added that the Adaptation Fund should be administered by the COP rather than by the GEF/World Bank’ (both ENB-282). The G-77/China ‘emphasized that for developing countries, having the GEF and World Bank acting as trustee would not be the best option for managing the Fund’, while Tuvalu and Bangladesh said the COP ‘should exercise its authority in administrating the Fund’ (ENB-282). ‘Namibia noted the cumbersome role of the GEF and called for an innovative approach to manage the Adaptation Fund’ (ENB-289), while Japan, in contrast, ‘stressed that the GEF should be the operating entity for the Adaptation Fund’ (ENB-291).
At the subsequent SBI-24 meeting, developing countries expressed a largely consistent call for a new governance arrangement to be created, with an emphasis on governance by the COP/MOP (the term used because the Adaptation Fund sits under the Kyoto Protocol). The G-77/China brought a proposal for the Adaptation Fund and also ‘referenced the need for further information from prospective institutions for managing the Fund, including whether the Fund would be managed separately and have autonomy from other funds’ (ENB-301). In addition, ‘AOSIS noted the need to avoid another fund that is difficult to access’ (ENB-301). At COP-12, the G-77/China ‘said the Fund’s principles, governance structure and modalities should be agreed before deciding on institutional arrangements, and stressed that the Fund should be accountable to the COP/MOP’ (ENB- 310), and ‘proposed a set of principles, including the COP/MOP’s authority and guidance’ and ‘accountability of the Fund to the COP/MOP’ (ENB-311). The LDCs highlighted the desire for independence, saying ‘the Fund should be managed by an executive body such as the CDM Executive Board with regional representation, including LDCs’ (ENB-310). This clearly highlights the push by developing countries to build a coalition of sufficient strength to deviate from the existing institutional structure and ensure that the COP, in which they have greater influence, is more able to exert its authority to govern the fund, rather than giving the GEF the primary role.
In line with the initial policy from COP-7, developed countries assumed that the GEF would have a prominent role in the Adaptation Fund (Flåm and Skjærseth 2009, p. 110), and remained committed to involving the GEF, corroborating Grasso’s (2011) reports of distinct North-South blocs taking divergent views on institutional arrangements. At SBI-24 in 2006
(before COP-12), ‘the EU, Canada, Switzerland and Norway preferred that the GEF be designated as the operating entity for the Fund’ (ENB-301) and at COP-12 ‘Japan, Norway and Switzerland said the GEF is best placed to manage the Fund’ (ENB-310). Echoing the confidence of its donors, ‘the GEF underscored its qualifications to manage the Adaptation Fund’ (ENB-316). Decision 5/CMP.2 (under the Kyoto Protocol) reflected the North-South division more closely than previous financial mechanism policy when it determined that ‘the Adaptation Fund should operate under the authority and guidance of and be accountable to’ the COP/MOP, ‘which shall decide on its overall policies’ (paragraph 1(e)), and that ‘membership of the governing body of the Adaptation Fund shall be from Parties to the Kyoto Protocol, follow a one-country-one-vote rule and have a majority of Parties not included in Annex I to the Convention’ (paragraph 3). This opened the door within policy for an alternative to the GEF to be introduced with a voting structure different to the GEF Council, but since proposals for managing the Adaptation Fund were invited from external organisations, the possibility remained that the GEF would be selected.
Developed countries continued to highlight their preference for the GEF as the managing entity, with Japan again stating its support at SBI-26 in 2007 (before COP-13) (ENB-324), and the GEF was the only organisation to submit a proposal to manage the Adaptation Fund (FCCC/SBI/2007/MISC.2). GEF representatives also lobbied hard at the beginning of COP-13 as they sought to secure a role for the organisation (ENB-354), which seemed inevitable as COP-13 progressed (ENB-347). However, the GEF was only given the role of providing interim secretariat services for the Adaptation Fund, and a new Adaptation Fund Board was created in decision 1/CMP.3 ‘to supervise and manage the Adaptation Fund, under the authority and guidance of the Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol’ (paragraph 4), marking a notable departure from previous fund management arrangements. The language used to establish the Board and COP/MOP oversight is equivalent to earlier decisions dealing with GEF management of the SCCF and LDC Fund, and the MOU with the GEF, but takes on a different implication in light of the independence of the Adaptation Fund Board. Decision 1/CMP.3 also gives the Adaptation Fund Board authority to receive applications directly from countries and their agencies and create relevant criteria (paragraphs 29 & 30), which heralded the more direct access to the fund that developing countries had called for, in contrast to the GEF system where funding can only be accessed via the GEF’s three implementing agencies.
Various factors contributed to this break in the policy path prioritising the role of the GEF. Firstly, developing countries including the G77/China, African Group, LDCs and AOSIS were unified in their negotiating stance (Müller 2007, p. 10), indicating a strong coalition seeking institutional change. This is partly due to the Adaptation Fund receiving
the majority of its financial inflows from a levy on Clean Development Mechanism (CDM) projects. As mentioned above in 5.4.1, Khan and Roberts (2013, p. 175) argue that the levy actually extracts money from the nations hosting the projects, which are mostly larger developing countries such as China, India and Brazil. As a result, developing countries regarded the funding from the levy ‘as their own money’ and had a particularly strong desire to prevent its distribution being managed by the GEF, since they perceived the GEF Council as undemocratic in its voting structure and the Council would allow the USA to be involved in Adaptation Fund governance decisions, despite it not being party to the Kyoto Protocol (Grasso 2011, p. 370). Developing countries also demonstrated a strong collective concern with the most vulnerable countries having access to the Adaptation Fund (ibid.), contributing further to the unity amongst developing country groups.
Secondly, the G77/China alliance was increasing in economic and political clout (ENB-354) and the Adaptation Fund sits under the Kyoto Protocol. This meant that the USA, which had not ratified the Protocol, was excluded from relevant negotiations (Grasso 2011, p. 363). The absence of the USA represents a relatively “standard” example of a path dependence, where prior decisions taken by American politicians created a situation where subsequent American representatives in the UNFCCC were unable to participate in Adaptation Fund policy making. This shift in constituents of the developed country coalition, traditionally concerned with preserving the status quo, meant that European countries could take a more prominent role in negotiations. In advance of SBI-25/COP-12, the EU ‘decided to go into listening mode’ and held preliminary meetings with developing countries that helped both sides focus on core principles for the Adaptation Fund’s governance rather than the specific issue of the GEF’s role (Müller 2007, pp. 10–11). Without a key developed country involved, the reduced focus on reinforcing the status quo exhibited by the more prominent EU meant that developing countries were more able to articulate their preferences and gain legitimacy within the policy process, a necessary precursor to institutional change (Vatn 2015), and meant that the unified developing country coalition was able to gather sufficient political strength to secure change to existing institutional structures.
Thirdly, it must be recognised that the funding model for the Adaptation Fund meant that developed countries would only provide a small proportion of its funding. The new Adaptation Fund Board would govern the distribution of finance mostly not provided by developed countries, meaning the disadvantages to developed countries of giving up their pursuit of GEF management were lower than would be the case had they been providing the totality of the funding. At SBI-25/COP-12, the EU referred to ‘the special features of the [Adaptation Fund] financed by the share of the proceeds’ of the CDM (Grasso 2011, p. 372),
illustrating a cognisance of the fund’s unique source. It is unlikely that this variation in advantage gained from institutional structure would have shaped developed countries’ preferences to the extent that they would have brought about institutional change themselves (Fioretos 2011), but under pressure from a well-organised developing country coalition in the absence of the USA these lower costs of change can be seen as a factor in the reduced resistance to change shown by the EU.
Agreement on the Adaptation Fund Board, operating directly under COP/MOP governance and with a one-country-one-vote arrangement, was a significant breakthrough in light of the previous continued reinforcement of the GEF’s donor-led role in managing the financial mechanism, and can be seen as the most significant example of developing countries overcoming an established path dependence within the UNFCCC in relation to climate finance. The institutional arrangements allowed the Adaptation Fund to pioneer procedures that would allow more direct access (Flåm and Skjærseth 2009), which has been praised as an innovative development that benefits developing countries’ ownership of projects and the funding they receive (Bird et al. 2011) and is an unusually concrete policy response to longstanding concerns that developing countries have had about access to the GEF and, latterly, the SCCF and LDC Fund. As a result of its governance arrangements, the Adaptation Fund came to be seen as distinctly different to other UNFCCC funds and its direct access provisions went on to influence operation of other funds, such as the LDC Fund, illustrating the significance of the policy design (COWI and IIED 2009), and it has the potential to be a positive influence on the GCF after it was created at COP-15 and COP-16 (Horstmann and Abeysinghe 2011).