Governance for Climate Finance in Nepal

Submitted by Anton Cartwright | published 1st Dec 2013 | last updated 5th Dec 2013

The UNFCCC states that national responses to climate change should be guided by the principle of "common but differentiated responsibilities" between member countries based on their historical contribution to greenhouse gas emissions and their current socio-economic status. The principle involves a measure of compensation from developed nations to developing nations, most of which is delivered as donor aid or finance.  

The Bali Action Plan realized that there was a need for improved access to “adequate, predictable and sustainable financial resources, and the provision of new and additional resources”.

Later on in the Copenhagen Accord, developed country Parties pledged to transfer US $30 billion in fast-start finance to developing countries over three years (2010-2012) for immediate climate action as well as create a Green Climate Fund capable of disbursing USD 100 billion per year by 2020, which they formally agreed in Cancun Agreement. Donor countries have met their initial commitment on fast-start finance, but progress on the Green Climate Fund has been slow, with issues of governance and whether or not climate aid and development aid are different becoming points of contention?

Climate finance is currently delivered through a range of public and private financial instruments from donor to recipient nations. Under the UNFCC, it was agreed that the Global Environmental Facility would administer the Climate Fund, the LDC Fund and the Special Climate Change Fund. However, developing countries have sought new and better mechanisms than GEF, which they claim is overly influenced by developed nations. On the board of the GCF there is an equal representation from developed and developing nations, giving hope to the idea that the GCF could be a more accountable mechanism for climate finance. Despite several criticisms, the World Bank is serving as the interim trustee of the GCF, meaning it is managing the fund's financial assets for an initial three years. The bank is criticized because some of its investments have had negative social and economic impacts on populations in countries receiving financial assistance. Lets hope GCF, working with beneficiary governments, will not end up making the same mistakes as many other financial institutions in funding unsustainable projects that generate negative social and environmental consequences.  

As per the Global Climate Risk Index 2014, Nepal has been identified as the 14th most vulnerable country to the risk of changing global weather patterns. Accordingly, Nepal hopes to receive huge amounts of climate aid for mitigation and adaptation projects. At the same time, the funding of renewable energy is also expected to increase. Nepal, however, ranks 139th in terms of corruption free governance according to Transparency International, suggesting that the corruption in national development projects from national budget is high in Nepal.

Accountability, transparency and integrity in climate finance will be difficult for Nepal to maintain, but Nepal has made significant progress in establishing an institutional mechanism for climate finance delivery. The Climate Change Council (CCC) under the chairmanship of the Prime Minister will be coordinating all the climate change activities. A Multi-stakeholder Climate Change Initiatives Coordination Committee (MCCICC), under the chairmanship of Secretary of Ministry of Environment helps for proper functioning and coordination. The Foreign Aid coordination division under the Ministry of Finance coordinates the foreign aid coming into Nepal. The aid then would be passed to the project executing ministry - mostly the Ministry of Forests and Ministry of Environment. The local bodies such as District Development Committees, Village Development Committees and their project activities will also play an importsnt part in project implementation and will have their activities administered by the Ministry of Federal Affairs and Local Development.

Approximately, USD 650 million was received by Nepal in the form of international development assistance between 2000 and 2010. The Ministry of Environment signed a Memorandum of Understanding with fourteen development partners in 2009 so as to create a tentative vision of climate finance of Nepal. The Nepalese Climate Change Policy of 2011 does not define the climate finance framework of Nepal. The climate finance framework is very important in Nepal; its existence could discourage the corruption that has already started in different climate funds.

The need of the National Climate Change Fund from the developing nation’s national budget is essential for developing nations to switch to renewable energy, research and developments and other initiatives.  Bangladesh has already created Bangladesh Climate Change Resilience Fund (BCCRF) in which government allocated USD340 million between 2009-2013 and Indonesia Climate Change Trust Fund (ICTF) has been well supported. Nepal needs to work on the similar kind of national trust or fund as a consolidated repository for national and international grants and finance, and ensure that this facility is both integrated and accountable. This kind of initiative could strengthen the climate governance in national level.