In Bali back in 2007, the Parties reached an agreement on the governance structure for the Adaptation Fund (AF), and it was thought that the Fund would be quickly operational. 14 months later considerable progress has clearly been made, but the net result is that the AF is not yet in a position to receive project and programme proposals.

The rapid, satisfactory operationalisation of the Fund is important for two reasons: firstly, the AF aims to become an important element of a future climate finance architecture to be agreed in Copenhagen. More importantly, practical adaptation action needs to begin in earnest for the benefit of the AF's ultimate target group, vulnerable people in developing countries.

AF is one of several funds created by the international community during climate change negotiations. Its objective is to finance concrete adaptation projects and programmes in developing countries. The AF is a unique fund for at least two reasons:

• The AF is funded by a 2% share of proceeds from the Clean Development Mechanism, not by grant money. The Fund is thus directly linked to the Parties' emission reduction targets under the Kyoto Protocol. 

• The AF's governance structure – Board (AFB) with 16 members and 16 alternate members - has majority representation from developing countries. In addition to regional representation, Least Developing Countries (LDC) and Small Island Developing States (SIDS) countries each have one representative.

Under the Bali decision, the Fund is supervised by the newly created board, whilst the Global Environment Facility (GEF) serves as the Secretariat and the World Bank (WB) as the Trustee. The Bali decision further spelled out that eligible recipients should have direct access to the AF. This changes common practice with the GEF whereby eligible countries need to apply for funding through implementing agencies (WB, UNDP, UNEP, etc.) rather than applying to the GEF and receiving funds directly.

The roles and responsibilities of the AFB, the GEF and the WB have now been agreed. Monetisation of Certified Emission Reductions (CER) will start soon and is expected to raise about USD 40 million in a first transaction. The AFB has also laid down the Fund's strategic priorities (priority funding for the particularly vulnerable, integration into national development plans, etc.). On the whole, the AFB has served as a promising example of international cooperation, often reaching difficult compromises.

Nevertheless, the AF is not yet in a position to receive project and programme proposals, and it may take a while before it is ready to do so. On the one hand, this is because the AFB has been given a difficult task, in particular as regards the definition of its operational policies and guidelines. For example, the AFB is supposed to decide which countries should receive money from the Fund first, how much, and for what. These are difficult questions on priorities that have been discussed during climate change negotiations for years without reaching practical results.

However, the differing visions that the country groups have regarding the AF might present a more fundamental impediment to rapid progress in making the Fund operational. This became obvious during the most recent climate change conference in Poznan, which saw tense negotiations on whether or not to bestow the Fund with legal capacity (in the end, the AFB was conferred “legal capacity, as necessary” – what this means in practice remains to be clarified). The background to these differences is developing countries' desire to create an independent fund whose board plays a lead role in project and programme selection, and works directly with recipients at a national level. Developed countries would prefer to see the strong involvement of experienced institutions, such as the GEF and the WB, in the Fund’s operations, rather than the creation of a new (and possibly cumbersome) fund administration. They are also concerned that mechanisms for sound financial management and impact monitoring have not yet been put in place.

The tense negotiations in Poznan obviously also affected work within the AFB. Sweden will take over the chairmanship of the AFB from the next session and must re-establish trust. When finalising the AF’s operational guidelines, the AFB will have to work hard to agree on a package that is acceptable to all AFB members and eventually to the parties. In this vein, the AFB should receive all the outside expertise that it might need. The AFB has surprisingly few human resources available for the task it has been given.

Laura Schmidt, Climate Change Team, BMZ