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Thursday, May 12, 2011

International Climate Change Financing: The Climate Investment Funds (CIF)

Richard K. Lattanzio
Analyst in Environmental Policy

The United States contributes funding to various international financial institutions to assist developing countries address global climate change and other environmental concerns. Congress is responsible for several activities in this regard, including (1) authorizing periodic appropriations for U.S. financial contributions to the institutions, and (2) overseeing U.S. involvement in the programs. Issues of congressional interest include the overall development assistance strategy of the United States, U.S. leadership in global environmental and economic affairs, and U.S. commercial interests in trade and investment. This report provides an overview of two of the larger and more recently instituted international financial institutions for the environment—the Climate Investment Funds (CIF)—and analyzes their structure, funding, and objectives in light of the many challenges within the contemporary landscape of global environmental finance.

The CIF are investment programs administered by the World Bank Group that aim to help finance developing countries’ transitions toward low-carbon and climate-resilient development. Formally approved by the World Bank’s Board of Directors on July 1, 2008, the CIF are composed of two trust funds—the Clean Technology Fund (CTF) and the Strategic Climate Fund (SCF)—each with a specific scope, objective, and governance structure. The CTF provides financing for demonstrating, deploying, and diffusing low-carbon technologies that have the potential for longterm avoidance of greenhouse gas emissions. The SCF—a suite of three separate funds, including the Pilot Program for Climate Resilience (PPCR), the Forest Investment Program (FIP), and the Scaling Up Renewable Energy Program in Low Income Countries (SREP)—supports the least developed countries in their efforts to achieve low-carbon, climate-resilient development. Overall, donor countries have pledged $6.9 billion to the funds since September 2008 in support of programs in 45 developing countries. The U.S. pledge totals $2 billion. In FY2010, Congress approved $375 million for the CIF (P.L. 111-117, Consolidated Appropriations Act, 2010); in FY2011, Congress approved $235 million for the CIF (P.L. 112-10, Continuing Appropriations). For FY2012, the Administration has requested an additional $590 million for the program.

The CIF are just one set of financial mechanisms in a larger network of international programs designed to address the global environment. Accordingly, their effectiveness depends on how the trust funds address programmatic issues, build upon national investment plans, react to recent developments in the financial landscape, and respond to emerging opportunities. Proponents of the CIF point to several factors in support of the funds, including an innovative programmatic design, a country-led investment process, and a balanced governance structure with enhanced stakeholder engagement. Proponents of the multilateral development banks’ (MDBs’) role in environmental assistance emphasize several advantages to financing climate programs through the World Bank Group, including its commitment to private sector development, its capacity to leverage large co-financing arrangements, and its possession of fiduciary standards and institutional expertise. However, critics highlight several factors of concern with the CIF and their Trustee, including a lack of transparency, coordination, and “polluter pay” responsibilities; a potential for new conditionalities, additionalities, and increased debt burdens on developing countries; and a prior economic development policy at the World Bank that is considered a conflict of interest for environmental protection.

Date of Report: May 5, 2011
Number of Pages: 20
Order Number: R41302
Price: $29.95

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