Journal Issue

The New Global Environment Facility

International Monetary Fund. External Relations Dept.
Published Date:
January 1994
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REPRESENTATIVES from more than 80 developed and developing countries meeting in Geneva on March 14-16 agreed to transform the Global Environment Facility (GEF) from an experimental program into a permanent financial mechanism that will provide grants and concessional funds to developing countries for programs aimed at protecting the global environment.

The agreement, which came three years after the GEF was launched as a pilot program, builds on the achievements of the Rio Earth Summit of 1992. In Rio, more than 150 nations signed landmark conventions on climate change and biodiversity, designating the GEF as the funding mechanism to cover the “incremental” costs of activities with global benefits—that is, the extra cost, net of any additional domestic benefits. Agenda 21, the action plan for the 21st century, also singled out the GEF—which is run jointly by the United Nations Development Programme, the United Nations Environment Programme, and the World Bank—for this purpose.

However, in response to developing country and nongovernmental organization (NGO) concerns that the GEF was too restrictive during the pilot phase, the Rio summit specified that the GEF could be used as the funding entity of the new conventions only if it were restructured and replenished in a way that encouraged universal participation and greater transparency and democracy in governance.

The GEF’s new shape

The GEF restructuring began in earnest in December 1992 at the first of seven negotiating rounds that embraced a growing membership (from 28 in 1991 to more than 80 by March 1994). The lengthy negotiations reflected the determination of governments to avoid the creation of a new bureaucracy.

Coverage. The GEF will continue to deal with four global environmental problems: climate change, the destruction of biodiversity, the pollution of international waters, and ozone depletion. Furthermore, land degradation—primarily desertification and deforestation—will also be eligible insofar as it relates to one or more of the four main focal areas.

Decision making. Decisions will normally be reached on the basis of consensus, but when this is not possible, a vote may be taken. Differences between developing and developed countries over whether to use the UN system, which is based on one country one vote, or the Bretton Woods approach, where voting rights reflect economic strength, were eventually resolved with the introduction of a “double majority” system. This requires a 60 percent majority of all member countries as well as approval by donors representing at least 60 percent of contributions—in effect, giving both developed and developing countries veto power.

Governance. The new arrangements represent a unique blend of UN and Bretton Woods practices. They include:

  • A universal assembly that will meet every three years to review the GEF’s policies.
  • A council, constituting the main governing body, that will meet at least twice a year. The 32 members will embrace 16 developing countries, 14 developed countries, and 2 economies in transition. Responsibility for conducting the council’s business will be shared between an elected chairperson (the UN model) and the GEF’s Chief Executive Officer (the Bretton Woods model), who will also be the chairman of the GEF.
  • A functionally independent secretariat that will be administratively supported by the World Bank but will report directly to the GEF’s council. This follows up on one of the main recommendations of a recent independent evaluation of the pilot phase.

Who will pay

A parallel negotiating process began in mid-1993 to replenish the GEF, which by spring 1994 had committed around $750 million to over 100 projects throughout the world. Donors finally agreed to provide more than $2 billion to the GEF’s core fund for commitment over three years. This sum, which is about two and a half times larger than the core fund during the pilot phase, is contributed over and above resources channeled to regular official development assistance.

As for burden sharing, it was agreed that contributions would be based on the formula used for the Tenth Replenishment of the International Development Agency (the soft loan facility of the World Bank, aimed at poverty alleviation in the poorest countries) but with the understanding that the entire issue would be reconsidered in the next replenishment exercise three years hence.

Several countries have already pledged voluntary contributions in addition to their burden shares. The United States will be the largest donor (SDR 307 million, or about $430 million), followed by Japan (some SDR 296 million), Germany (SDR 171 million), France (SDR 102 million), and the United Kingdom (SDR 96 million).

What is ahead

The Geneva agreement opens the way for the GEF to become a principal funding mechanism for the climate change and biodiversity conventions. The agreement also tries to facilitate access to other funding sources (e.g., leveraging additional resources from the private sector) and broaden the range of partners with access to GEF funds (e.g., the regional development banks, the UN agencies, and bilateral development agencies).

But the permanent GEF is intended to be more than a channel for project financing. It will also help support global environmental security by integrating the global environment into national development, encouraging the transfer of environmentally sound technology and knowledge, and, crucially, strengthening the capacity of developing countries to play their full part in protecting the global environment. Making the GEF permanent sends a modest but important signal about the international community’s determination to follow a path to a more secure and sustainable way of life on earth.

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