International Environmental Financing:
The Global Environment Facility (GEF)
Richard K. Lattanzio
Analyst in Environmental Policy
March 1, 2012
Congressional Research Service
7-5700
www.crs.gov
R41165
CRS Report for Congress
Pr
epared for Members and Committees of Congress
International Environmental Financing: The Global Environment Facility (GEF)
Summary
The United States contributes funding to various international financial institutions to assist
developing countries to 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 one of the oldest international financial institutions for the environment—the Global
Environment Facility (GEF)—and analyzes its structure, funding, and objectives in light of the
many challenges within the contemporary landscape of global environmental finance.
GEF is an independent and international financial organization that provides grants, promotes
cooperation, and fosters actions in developing countries to protect the global environment.
Established in 1991, it unites 180 member governments and partners with international
institutions, nongovernmental organizations, and the private sector to assist developing countries
with environmental projects related to six areas: biodiversity, climate change, international
waters, the ozone layer, land degradation, and persistent organic pollutants. GEF receives funding
from multiple donor countries—including the United States—and provides grants to cover the
additional or “incremental” costs associated with transforming a project with national benefits
into one with global environmental benefits. In this way, GEF funding is structured to
“supplement” base project funding and provide for the environmental components in national
development agendas. GEF partners with several international agencies, including the
International Bank for Reconstruction and Development, the United Nations Development
Program (UNDP), and the United Nations Environment Program (UNEP), among others, and is
the primary fund administrator for four Rio (Earth Summit) Conventions, including the
Convention on Biological Diversity (CBD), the United Nations Framework Convention on
Climate Change (UNFCCC), the Stockholm Convention on Persistent Organic Pollutants (POPs),
and the United Nations Convention to Combat Desertification (UNCCD). GEF also establishes
operational guidance for international waters and ozone activities, the latter consistent with the
Montreal Protocol on Substances that Deplete the Ozone Layer and its amendments. Since its
inception, GEF has allocated $10 billion—supplemented by more than $47 billion in co-
financing—for more than 2,800 projects in 168 countries.
GEF is one mechanism in a larger network of international programs designed to address the
global environment. Accordingly, its effectiveness depends on how the fund addresses
programmatic issues, builds upon national investment plans, reacts to recent developments in the
financial landscape, and responds to emerging opportunities. Critics contend that the existing
system has had limited impact in addressing major environmental concerns—specifically climate
change and tropical deforestation—and has been unsuccessful in delivering global
transformational change. A desire to achieve more immediate impacts has led to a restructuring of
the Multilateral Development Banks’ (MDBs’) role in environmental finance and the introduction
of many new bilateral and multilateral funding initiatives. The future of GEF remains in the hands
of the donor countries, including the United States, that can choose to broaden the mandate and/or
strengthen its institutional arrangements or reduce and replace it by other bilateral or multilateral
funding mechanisms.
Congressional Research Service
International Environmental Financing: The Global Environment Facility (GEF)
Contents
Introduction...................................................................................................................................... 1
The Global Environment Facility .................................................................................................... 3
Background................................................................................................................................ 3
Organizational Structure............................................................................................................ 4
Funding...................................................................................................................................... 5
Project Areas.............................................................................................................................. 8
Current Issues ................................................................................................................................ 10
External Challenges for GEF................................................................................................... 10
Internal Challenges for GEF.................................................................................................... 11
GEF Reform ............................................................................................................................ 13
Looking Forward..................................................................................................................... 14
Figures
Figure A-1. Commitments to GEF Pilot Phase and Replenishments............................................. 16
Figure A-2. Financial Status of GEF Trust Fund: Summary of Arrears......................................... 26
Tables
Table 1. Recent U.S. Budget Authority for Multilateral Environmental Programs ......................... 2
Table 2. U.S. Commitments and Contributions to GEF by Fiscal Year........................................... 7
Appendixes
Appendix. Global Environment Facility Trust Fund ..................................................................... 16
Contacts
Author Contact Information........................................................................................................... 26
Congressional Research Service
International Environmental Financing: The Global Environment Facility (GEF)
Introduction
Many governments acknowledge that environmental degradation and climate change pose
international and trans-boundary risks to human populations, economies, and ecosystems that
could result in a worsening of poverty, social tensions, and political stability. To confront these
global challenges, countries have negotiated various international agreements to protect the
environment, reduce pollution, conserve natural resources, and promote sustainable growth.
While some observers call upon developed countries to take the lead in addressing these issues,
efforts are unlikely to be sufficient without similar measures being implemented in developing
countries. Developing countries, however, focused on poverty reduction and economic growth, do
not have the financial resources, technological know-how, and institutional capacity to deploy
such measures. Therefore, increased international support in these areas has remained the
principal method for governments to assist developing country action on global environmental
problems.1
The United States and other industrialized countries have committed to financial assistance for
environmental initiatives through several multilateral agreements (e.g., the Montreal Protocol
(1987), the United Nations Framework Convention on Climate Change (1992), United Nations
Convention to Combat Desertification (1994), and the Copenhagen Accord (2009)). International
financial assistance takes many forms, from fiscal transfers to market transactions, and includes
foreign direct investment (FDI), bilateral overseas development assistance (ODA), and
contributions to multilateral development banks (MDBs)2 and other international financial
institutions (IFIs), as well as the offering of export credits, loan guarantees, insurance products,
etc.
Table 1 outlines recent U.S. financial support for multilateral environmental initiatives.3
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.4 As Congress considers potential
authorizations and/or appropriations for initiatives administered through the Department of State,
the Department of the Treasury, and other agencies with international programs, it may have
1 For a more detailed discussion on various sources and mechanisms of financial assistance for climate change
activities, see CRS Report R41808, International Climate Change Financing: Needs, Sources, and Delivery Methods,
by Richard K. Lattanzio and Jane A. Leggett.
2 The group of multilateral development banks referred to in this report includes the International Bank for
Reconstruction and Development (IBRD or World Bank), African Development Bank (AfDB), Asian Development
Bank (ADB), European Bank for Reconstruction and Development (EBRD), Inter-American Development Bank Group
(IDB), and the International Finance Corporation (IFC, the private sector wing of the IBRD).
3 Some commentators believe the new and increased funding for environmental issues is the result of several factors,
including (1) an increased political understanding by some policymakers of climate change, (2) the transformed role of
multilateral development banks in global energy and environmental issues, (3) an expressed desire to achieve more
immediate environmental and economic impacts through bilateral and private sector resources, and (4) a perceived lack
of efficiency in current financial mechanisms. See Gareth Porter, Neil Bird, Nanki Kaur, and Leo Peskett, “New
Finance for Climate Change and the Environment,” WWF and the Heinrich Böll Foundation, 2008.
4 For more substantive analysis of foreign aid and congressional roles, see CRS Report R40213, Foreign Aid: An
Introduction to U.S. Programs and Policy, by Curt Tarnoff and Marian Leonardo Lawson; and CRS Report R41170,
Multilateral Development Banks: Overview and Issues for Congress, by Rebecca M. Nelson.
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International Environmental Financing: The Global Environment Facility (GEF)
questions concerning the direction, efficiency, and effectiveness of current bilateral and
multilateral programs. This report provides an overview of one of the oldest, largest, and most
comprehensive multilateral programs to date—the Global Environment Facility (GEF)—and
analyzes its structure, funding, and objectives in light of the many challenges within the
contemporary landscape of global environmental finance.
Table 1. Recent U.S. Budget Authority for Multilateral Environmental Programs
In Nominal US$ Millions
2010
2011
2012
2013
Agency/Program
Actual
Enacted
Enacted
Request
Department of State
Least Developed Country Fund
30.0
25.0
TBDa TBD
Special Climate Change Fund
20.0
10.0
TBD
TBD
World Bank Forest Carbon
10.0 TBD TBD TBD
Partnership
Department of the Treasury
Tropical Forests Conservation Act
26.0
16.4
12.0
0.0
Global Environment Facility
86.5
89.8
89.8
129.4
Climate Investment Fund: Clean
300.0 184.6 184.6 185.0
Technology Fund
Climate Investment Fund: Strategic
Climate Fund - Pilot Program for
55.0 10.0 12.5 12.5
Climate Resilience
Climate Investment Fund: Strategic
Climate Fund - Forest Investment
20.0 30.0 25.0 25.0
Program
Climate Investment Fund: Strategic
Climate Fund - Scaling-Up Renewable
0 10.0 12.5 12.5
Energy
Source: Office of Management and Budget, Federal Climate Change Expenditures Report to Congress, 2010; Office
of Management and Budget, The Budget of the United States Government, 2011, 2012, and 2013.
a. TBD, “to be determined”: Appropriated funds for these specific programs/activities are drawn from larger
line item categories in agency budget authorities, occasionally with “shall”-language implementing spending
ceilings. Based on provisions in the appropriations bills, al ocations for these programs are left at the
discretion of the agency and have yet to be determined or reported.
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International Environmental Financing: The Global Environment Facility (GEF)
The Global Environment Facility
The Global Environment Facility (GEF) is an independent and international financial
organization that provides grants, promotes cooperation, and fosters actions in developing
countries to protect the global environment. Established in 1991, it unites 180 member
governments and partners with international institutions, nongovernmental organizations, and the
private sector to assist developing countries with environmental projects related to six areas:
biodiversity, climate change, international waters, the ozone layer, land degradation, and
persistent organic pollutants (POPs). GEF receives funding from multiple donor countries5—
including the United States—and provides grants to cover the additional or “incremental” costs
associated with transforming a project with national benefits into one with global environmental
benefits (e.g., choosing solar energy technology over coal technology meets the same national
development goal of power generation but is more costly, excluding long-term environmental
externalities; GEF grants aim to cover the difference or “increment” between a less costly, more
polluting option and a costlier, more environmentally sound option). In this way, GEF funding is
structured to “supplement” base project funding and provide for the environmental components in
national development agendas. Since its inception, GEF has allocated $10 billion—supplemented
by more than $47 billion in co-financing6—for more than 2,800 projects in more than 168
countries.7
Background
The idea for a Global Environment Facility was proposed in a September 1989 meeting of the
joint International Bank for Reconstruction and Development (the World Bank)—International
Monetary Fund Development Committee after recommendation by a World Resources Institute
report commissioned by the United Nations.8 The fund was established in 1991 as a pilot program
within the World Bank, and many observers saw it as the beginning of an important shift in
multilateral policy toward incorporating environmental concerns into development assistance.
GEF, however, quickly ran into some operational challenges. These included (1) problems with
communication among the implementing agencies (i.e., among the World Bank economists, the
United Nations Development Program engineers, and the United Nations Environment Program
environmentalists), (2) problems with differing agendas among the donor countries (i.e., between
environmental idealism in Europe and economic pragmatism in the United States and United
5 See Figure A-1 of the Appendix for a list of donor countries during each GEF funding, or “Replenishment,” period.
6 Co-financing may come from a variety of sources including public money in the recipient country, private money in
the recipient country, loans from the MDBs, foreign direct investment, or other official development assistance.
7 Information on GEF activities, organization, policies, and projects is available on its website, at
http://www.thegef.org/gef/.
8 A full overview and analysis of the history of GEF and environmental financing can be found in a number of source
materials including book length studies by Inge Kaul and Pedro Conceição, The New Public Finance: Responding to
Global Challenges, New York: Oxford University Press, 2006; Robert L. Hicks, Bradley C. Parks, J. Timmons
Roberts, and Michael J. Tierney, Greening Aid?: Understanding the Environmental Impact of Development Assistance,
New York: Oxford University Press, 2008; and several articles including Gareth Porter, Neil Bird, Nanki Kaur, and
Leo Peskett, “New Finance for Climate Change and the Environment,” WWF and the Heinrich Böll Foundation, 2008;
Smita Nakhooda, Jon Sohn, and Kevin Baumert, “Mainstreaming Climate Change Considerations at the Multilateral
Development Banks,” World Resources Institute, 2005; and Smita Nakhooda, “Correcting the World’s Greatest Market
Failure: Climate Change and the Multilateral Development Banks,” World Resources Institute, 2008.
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International Environmental Financing: The Global Environment Facility (GEF)
Kingdom), and (3) problems with differing perspectives among developing countries (i.e.,
between an emphasis on economic growth or environmental initiatives).
Initially, GEF had been opposed by developing countries who believed that a program established
and controlled by higher-income donor countries under the framework of the Multilateral
Development Banks was not in their best interest. They remained committed to a governing
structure and a cooperative partnership founded on a U.N.-style majority-based decision. After
three years of debate, GEF was restructured in 1994 to address many of its institutional
challenges. GEF moved out of the World Bank to become a separate and permanent institution
with enhanced involvement from developing countries in decision making and implementation. A
new governing structure was instituted, the first operating procedures (“the Instrument for the
GEF”)9 were documented, and the funding cycle (“the GEF Replenishment”) commenced. The
World Bank took on the provision of the Trust Fund. The United Nations Development Program,
the United Nations Environment Program, and other international organizations contributed to
project development, management, and delivery.
Organizational Structure
International Agencies: GEF currently partners with 10 international agencies: the World Bank;
the United Nations Development Program (UNDP); the United Nations Environment Program
(UNEP); the United Nations Food and Agriculture Organization; the United Nations Industrial
Development Organization; the African Development Bank; the Asian Development Bank; the
European Bank for Reconstruction and Development; the Inter-American Development Bank;
and the International Fund for Agricultural Development. Procedurally, the World Bank
administers funding, UNDP oversees project development, and UNEP serves as the scientific and
technical advisor. The remaining agencies contribute to the management and delivery of projects.
International Conventions: GEF is the primary fund administrator for four Rio (Earth Summit)10
Conventions, including the Convention on Biological Diversity (CBD), the United Nations
Framework Convention on Climate Change (UNFCCC), the Stockholm Convention on Persistent
Organic Pollutants (POPs), and the United Nations Convention to Combat Desertification
(UNCCD). GEF also establishes operational guidance for international waters and ozone
activities, the latter consistent with the Montreal Protocol on Substances that Deplete the Ozone
Layer and its amendments.
Internal Organization: GEF’s main decision-making body is the GEF Council, which is an
independent board of governors responsible for developing, adopting, and evaluating operational
policies and programs. The Council is composed of 32 appointed members—16 from developing
countries, 14 from developed countries, and 2 from among the countries of Central and Eastern
Europe and the former Soviet Union. The balance between donor and recipient countries was
negotiated and agreed to by Member countries after the pilot phase of the program. The Council
meets approximately every six months and allows non-governmental organizations and private
9 The “Instrument for the Establishment of the Restructured Global Environment Facility” is the officially adopted
operating procedures of GEF. See documents at http://www.thegef.org/gef/node/2552.
10 The United Nations Conference on Environment and Development (UNCED), also known as the Rio Summit, Rio
Conference, Earth Summit, and Eco ’92 was a United Nations conference held in Rio de Janeiro from June 3-14, 1992,
in which 172 governments participated, with 108 sending their heads of state or government, and 2,400 representatives
of non-governmental organizations (NGOs), with 17,000 people at the parallel NGO “Global Forum.”
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individuals to attend most sessions. Formal voting goes before the GEF Assembly, which is
composed of representatives from all Member countries and meets every four years. During these
times, the Assembly reviews general policy for operations, membership, funding, and
amendments. The GEF Secretariat, based in Washington, DC, services and reports to the Council
and the Assembly and formulates the work program, oversees implementation, and ensures that
operational policies are followed.
Voting: The Assembly and the Council make decisions and adopt regulations through the process
of consensus. GEF defines consensus as an agreement reached by all participants which includes
the resolution or mitigation of all minority objections. If, in the case of the Council, all
practicable efforts have been made and no consensus appears, Members may request a formal
vote. The GEF formal vote is a double weighted majority; that is, an affirmative vote that includes
both a 60% majority of the total number of Participants and a 60% majority of the total amount of
contributions.11 This format arose through a coordinated agreement between developed and
developing countries in an effort to give facility to both donors and recipients in the decision-
making process. A formal vote has never been taken at Council.
Funding
Replenishments: GEF is funded by donor countries, which pledge money every four years
through a process known as GEF Replenishment. The process of Replenishment was designed to
allow for program flexibility, strategic planning, and periodic performance evaluations. The
original GEF pilot program of $1 billion has been replenished five times with $2.01 billion in
1994, $2.67 billion in 1998, $2.93 billion in 2002, $3.13 billion in 2006, and $4.34 billion in
2010.12 Financial commitments by donor country to the GEF pilot program and the five GEF
replenishments can be found in Figure A-1 of the Appendix.
U.S. Commitments: The United States supported the establishment of GEF in 1991. While the
United States did not provide direct funding to the pilot phase of the program (1991-1993),13 it
has made commitments and contributions to all five GEF replenishments. U.S. commitments to
the various four-year Replenishment cycles have been $430 million in 1994, $430 million in
1998, $430 million in 2002, $320 million in 2006, and $575 million in 2010, for a total of $2.185
billion. U.S. commitments correspond to 13.9% of total contributions for GEF during the history
of the program, or, more specifically, 21.3% of total contributions for GEF-1, 16.1% for GEF-2,
14.7% for GEF-3, 10.2% for GEF-4, and 13.2% for GEF-5.14
11 For the purpose of voting power, total contributions consist of the actual cumulative contributions made to the GEF
Trust Fund.
12 Replenishment figures calculated in Special Drawing Rights (SDRs) from respective currencies at time of pledge.
Figures are nominal. GEF’s fiscal year runs from July 1 to June 30.
13 During the GEF pilot phase, the United States had a separate co-financing arrangement administered by USAID.
14 The percentage of total contributions and the percentage of new donor funding are computed from different totals.
U.S. percentage of new donor funding, including supplemental contributions, is 21.3%, 21.7%, 19.5%, 14.0%, and
16.2%, respectively. See Appendix, Figure A-1, for a full breakdown of U.S. contributions in relation to other sources.
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U.S. Contributions: Payments made by the U.S. Treasury to the International Bank for
Reconstruction and Development (the World Bank) as trustee for GEF have varied widely over
the years due mainly to budget trends:
• For FY2010, P.L. 111-117 was enacted in December 2009 with a budget
authority of $86.5 million to GEF, of which $80 million was for the final GEF-4
contribution and $6.5 million was for a portion of arrears.
• For FY2011, the U.S. Budget for Fiscal Year 2011, released in February 2010,
had originally set forth a U.S. commitment of $680 million for the Fifth
Replenishment, to be paid in four equal installments of $170 million from
FY2011 through FY2014. The FY2011 Budget had included $170 million for the
first installment of GEF-5 and $5 million for a portion of U.S. arrears, for a total
request of $175 million.15 However, in reaction to lower-than-expected pledge
levels by other donor countries during the GEF-5 negotiations in May 2010, the
U.S. delegation reduced its pledge to $575 million, to be paid in four equal
installments of $143.75 million from FY2011 through FY2014. The U.S. pledge
represents an 80% increase over the GEF-4 Replenishment. The increased pledge
was precipitated in part by the U.S. Administration achieving certain policy
reforms designed to improve GEF’s overall effectiveness, particularly with
regard to country-owned business plans for funding and resource allocation. P.L.
112-10 was enacted in April 2011 with budget authority of $89.82 million to
GEF, some $53.93 million in arrears of the FY2011 pledge.
• For FY2012, P.L. 112-74 was enacted in December 2011 with a budget authority
of $89.8 million to GEF, some $53.93 million in arrears of the FY2012 pledge.
• For FY2013, the U.S. Budget for Fiscal Year 2013, released in February 2012,
requested $129.4 million for the FY2013 contribution to GEF, some $14.35
million in arrears of the FY2013 pledge.
Arrears: As of November 2011, direct payments to the trustee of GEF have totaled close to $1.6
billion. Further, in July 2011, the United States cleared a portion of its GEF-3 arrears in the
amount of $11.9 million through a retroactive early encashment of its GEF-4 contributions.16
With these payments, the United States is currently $258.9 million in arrears of its pledged
commitments. As of the last “Trustee Report” furnished to GEF in November 2011, the United
States is joined in arrears status by two other countries: Egypt ($0.8 million) and Nigeria ($1.1
million).17
A summary of U.S. commitments and contributions to GEF is shown in Table 2. The financial
status of the GEF Trust Fund and the summary of arrears by country can be found in Figure A-2
of the Appendix.
15 The U.S. Budget for Fiscal Year 2011, op. cit.
16 “Early encashment” is a payment mechanism used by GEF that allows donors to account for interest made on their
contributions.
17 See GEF, “Trustee Report: Global Environment Facility Trust Fund as of September 30, 2011,” GEF/C.41/Inf.13,
October 24, 2011, at http://www.thegef.org/gef/sites/thegef.org/files/documents/C.41.Inf_.13_Trustee_Report_0.pdf.
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Table 2. U.S. Commitments and Contributions to GEF by Fiscal Year
$ Committed to GEF
$ Contributed to GEF
Fiscal Year
($ in millions, nominal)
($ in millions, nominal)
1994 $0
$30.0
1995 $107.5
$90.0
1996 $107.5
$35.0
1997 $107.5
$35.0
1998 $107.5
$47.5
1999 $107.5
$167.5
2000 $107.5
$35.8
2001 $107.5
$107.8
2002 $107.5
$100.5
2003 $107.5
$146.8
2004 $107.5
$138.4
2005 $107.5
$106.7
2006 $107.5
$79.2
2007 $80.0
$79.2
2008 $80.0
$81.1
2009 $80.0
$80.0
2010 $80.0
$86.5
2011a $143.8
$89.8
2012 $143.8
$89.8
2013 $143.8
TBD
Total $2,041.25
$1,626.60
Source: CRS correspondence with U.S. Department of the Treasury.
a. The U.S. delegation to the GEF-5 Replenishment meetings had originally planned to pledge $680 million for
the 2010-2014 period, a sum that was initially requested in the FY2011 Budget; however, in reaction to
other donor pledges, the U.S. delegation only pledged $575 million at the negotiations on May 12, 2010,
equivalent to $143.75 million per year. The enacted FY2011 figure includes the 0.2% rescission across all
non-defense accounts, in accordance with Section 1119(a) of P.L. 112-10.
Congressional Jurisdiction: All U.S. funding is subject to annual congressional approval.
Authorizing legislation is managed by the House Financial Services Committee and Senate
Foreign Relations Committee. The House and Senate Appropriations Subcommittees on State,
Foreign Operations, and Related Programs have jurisdiction over appropriations.
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Project Areas
GEF funding is provided to recipient countries for projects and programs in six areas:
biodiversity, climate change, international waters, ozone layer depletion, land degradation, and
persistent organic pollutants. For examples of the types of projects funded by GEF, see the text
box below.
Biodiversity: GEF is the financial mechanism of the 1992 United Nations Convention on
Biological Diversity. The goal of GEF’s program is the conservation and sustainable use of
biodiversity, the maintenance of the ecosystem goods and services that biodiversity provides to
society, and the fair and equitable sharing of the benefits arising out of the use of genetic
resources. To achieve this goal, the program has several objectives including sustainability
initiatives in protected areas, conservation measures in production sectors, capacity building to
implement the Cartagena Protocol on Biosafety (CPB), and capacity building to support the
implementation of the Bonn Guidelines on Access to Genetic Resources. Biodiversity projects
constitute the largest percentage of GEF’s portfolio, making up 36% of total grants.
Climate Change: As the financial mechanism of the 1992 United Nations Framework Convention
on Climate Change, GEF allocates and disburses funding for projects in climate change
mitigation (i.e., reducing or avoiding greenhouse gas emissions in the areas of renewable energy,
energy efficiency, and sustainable transport), and climate change adaptation (i.e., increasing
resilience to the adverse impacts of climate change of vulnerable countries, sectors, and
communities). GEF projects in climate change help developing countries contribute to the overall
objective of the UNFCCC to achieve a “stabilization of greenhouse gas concentrations in the
atmosphere at a level that would prevent dangerous anthropogenic interference with the climate
system.” Moreover, GEF manages two special funds under the UNFCCC—the Least Developed
Countries Fund, to assist in adaptation strategies for the most vulnerable countries; and the
Special Climate Change Fund, to assist in mitigation and adaptation programs for countries that
are heavily reliant of fossil-fuel technologies.
International Waters: GEF’s international waters focal area does not serve as a financial
mechanism for a specific convention. Through an association with regional agreements, it targets
trans-boundary water systems, such as river basins with water flowing from one country to
another, groundwater resources shared by several countries, and marine ecosystems bounded by
more than one nation. GEF grants help countries collaborate with their neighbors to modify
human activities that place stress on trans-boundary water systems and interfere with downstream
uses of those resources. Some of the issues addressed include trans-boundary water pollution,
over-extraction of groundwater resources, unsustainable exploitation of fisheries, control of
invasive species, and balancing the competing uses of water resources.
Ozone Layer Depletion: GEF, in partnership with the 1985 Vienna Convention for the Protection
of the Ozone Layer and the 1987 Montreal Protocol on Substances that Deplete the Ozone Layer,
has aimed to safeguard the earth’s protective ozone layer after the discovery that certain
compounds were found to deplete it, posing substantial risks to human health and the
environment. GEF has allocated funds to assist in phasing out ozone-depleting substances (ODS)
and curbing the rising production and use of hydrochlorofluorocarbons (HCFCs). GEF’s aim is to
protect human health and the environment by assisting countries in phasing out consumption and
production of ODS while enabling alternative technologies and practices, according to countries’
commitments under the Montreal Protocol. The long-term goal of GEF interventions is to
contribute to the return of the ozone layer to pre-1980 levels.
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Examples of GEF Projects
1. Rural Electrification and Renewable Energy Development in Bangladesh (GEF ID 1209)
GEF Grant: $8,540,000
Description: The project promoted solar energy in rural areas by (1) increasing awareness of Solar Heating Systems
(SHS) among consumers and providers; (2) building technical and management capacity; (3) implementing and
evaluating SHS programs; (4) providing technical and business development support to institutions; (5) introducing
standards and programs for testing and certification; (6) financing grants to buy-down capital costs to increase
affordability of SHS; (7) promoting electricity as a means for income generation and social wellness; and (8) identifying
mechanisms to promote sustainability. Multiple approaches to SHS delivery were enacted, including a “fee-for-service”
program through rural electricity cooperatives, purchase supported by micro-credit through NGOs and microfinance
lenders, and hire-purchase/direct sale programs by private dealers and NGOs. Over 40,000 systems were installed
supplying energy to rural dispersed communities.
2. Biodiversity Conservation in Cacao Agro-Forestry in Costa Rica (GEF ID 979)
GEF Grant: $750,000
Description: The project improved management of cacao-based indigenous smal -farms according to both ecological
and organic productive principles so as to ensure conservation and sustainable use of plant and animal diversity and
provide a sustainable source of family income. The project promoted and maintained on-farm biodiversity while
improving livelihoods of organic cacao producers (including indigenous, Latin-mestizos, and Afro-Caribbean groups) in
the Talamanca-Caribbean corridor in Costa Rica.
3. Prevention and Management of Marine Pollution in the East Asian Seas in Indonesia (GEF ID 396)
GEF Grant: $8,025,000
Description: The project developed policies and plans to control marine pol ution from land and sea-based sources,
upgraded national and regional infrastructures and technical skills, and established financing instruments to project
sustainability. Project included selection of demonstration sites, establishment of regional monitoring and information
networks, and involvement of regional association of marine legal experts to improve capacity to implement relevant
conventions.
Source: GEF Project database at http://www.thegef.org/gef/gef_projects_funding (accessed November 30, 2011).
Notes: As of March 1, 2012, there were 2,929 projects listed in the GEF database, of which 837 were “closed” or
“completed”; 434 were “under implementation”; and the remaining 1,658 were in an approval or endorsement stage.
Land Degradation: In 2002, the GEF Assembly expanded GEF’s mandate by adding land
degradation to the portfolio and designating it the financial mechanism of the United Nations
Convention to Combat Desertification. GEF focuses on sustainable agricultural practices (e.g.,
crop diversification, crop rotation, water harvesting, and small-scale irrigation schemes),
sustainable rangeland management, and the preservation of viable indigenous forests and
woodlands. GEF projects aim to integrate sustainable land management into national
development priorities, and to strengthen human, technical, and institutional capacities.
Persistent Organic Pollutants: GEF is the interim financial mechanism of the 2001 Stockholm
Convention on Persistent Organic Pollutants, a global and legally binding agreement to reduce
and eliminate pollutants including pesticides (e.g., DDT and mirex) and industrial chemicals (e.g.,
PCBs) as well as unintentionally produced POPs (e.g., dioxins and furans). GEF’s involvement in
tackling the threats posed by POPs dates back to 1995, with the introduction of the International
Waters Operational Strategy and its contaminant-based component. In this framework, GEF
began to develop a portfolio of strategically designed projects including regional assessments and
pilot demonstrations that addressed a number of pressing POPs-related issues.
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International Environmental Financing: The Global Environment Facility (GEF)
Current Issues
Each year, billions of dollars in environmental aid flow from developed country governments—
including the United States—to developing ones. GEF is one mechanism in the larger network of
international programs designed to address environmental issues. While the efficiency and the
effectiveness of these programs are of concern to donor country governments, a full analysis of
the purposes, intents, results, and consequences behind these financial flows has yet to be
conducted.18 International relations, comparative politics, and developmental economics can often
collide with environmental agendas. Critics contend that the existing system has had limited
impact in addressing major environmental concerns—specifically climate change and tropical
deforestation—and has been unsuccessful in delivering global transformational change. A desire
to achieve more immediate impacts has led to a restructuring of the Multilateral Development
Banks’ role in environmental finance and the introduction of many new bilateral and multilateral
funding initiatives.
The effectiveness of GEF depends on how the fund addresses its programmatic issues, reacts to
recent developments in the financial landscape, and responds to emerging opportunities. The
future of GEF remains in the hands of the donor countries that can choose to broaden the mandate
and strengthen its institutional arrangements or to reduce and replace it by other bilateral or
multilateral funding mechanisms. The following section investigates some of the current strengths
and challenges facing GEF and summarizes some of the responses initiated by the program.
External Challenges for GEF
• Rise of Climate Change Issues and Funding: The past decade has seen a rise in
the significance of global environmental issues—particularly climate change—on
the political agendas of many countries. Proposed policies have not only
attempted to address the environmental implications of greenhouse gas
mitigation and climate change adaptation, but have become linked to energy and
infrastructure issues through international economic, trade, and geo-political
concerns. To address these issues, governments have begun to incorporate many
global environmental objectives into their sustainable growth and development
strategies. Funding for these activities has increased, and various institutional
responses for this extensive portfolio are under consideration. Some critics
contend that existing environmental funds (e.g., GEF) are unsatisfactory because
they do not have experience managing investments of this scope.
• The Changing Role of Multilateral Development Banks in Environmental
Funding: Multilateral Development Banks (MDBs) are key actors in the global
system of environmental financing. As commercial lending institutions, some
have argued that they dispense funds more efficiently than many institutional
programs such as GEF; but as primary mechanisms for economic development,
their past environmental lending practices have produced perceived conflicts of
interest.19 Objectives began to shift in 2005 when MDBs were encouraged by the
18 See Hicks, et al., op. cit., for an initial foray into a quantified analytic and a discussion on the metrics involved.
19 The development portfolios of most MDBs strongly emphasize a bias toward conventional fossil fuel power
generation and infrastructure loans that often worked counter to environmental aims (e.g., the World Bank loaned more
than $2.5 billion for conventional power projects in 2005 compared to $109 million for renewable energy or energy
(continued...)
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G-8 leaders to play a more leading role in sustainable development and
environmentally friendly technologies.20 Since this time, MDBs have launched
many new initiatives to address the environment, including efforts to (1) account
for GHG emissions and improve energy efficiency; (2) support renewable
energy; (3) manage forests sustainably; (4) promote carbon finance; and (5) adapt
to climate change.21 GEF programs now find themselves in competition with
many of the new initiatives in MDB portfolios.
• Increase in New Bilateral, Multilateral, and Private Funding Mechanisms: Many
donor governments perceive that the existing environmental finance system has
not produced satisfactory results.22 In searching for new and effective approaches
to environmental funding, donors have sought options that can be organized
quickly, administered directly, and be demonstrated to produce a more significant
impact on the environment. Many have turned to highly specified multilateral
programs, bilateral or even private sector measures to accomplish these aims, and
no fewer than 15 environmental finance mechanisms have been announced
between 2007 and 2010. GEF is in competition with many of these new
initiatives for a share of environmental funding.23
Internal Challenges for GEF
• Low Level of Funding by Donor Countries: Donor countries never intended GEF
to cover all the financing needed to achieve developmental objectives. Rather, it
was designed to be a catalyst for additional measures to address global
environmental problems. As such, historical funding provided by donor countries
was never at the level required to produce significant progress in reversing global
threats. This experience has demonstrated that the initial assumptions underlying
GEF—that relatively small amounts of incremental grant financing could
leverage multilateral investment for transformational change—may be flawed.
(...continued)
efficiency). See Gareth Porter, et al., op. cit., for further comments.
20 See the Gleneagles Plan of Action at the 2005 G-8 Meeting in Gleneagles, Scotland. It should be noted that the
portfolios of many MDBs still retain significant provisions for conventional power and infrastructure projects as
compared to most bilateral environmental aid, albeit with a greater ratio of renewable and efficiency resources than in
the past. See Hicks, et al., op. cit.
21 For a full analysis of the rise of MDBs in environmental finance, see Smita Nakhooda, Correcting the World’s
Greatest Market Failure: Climate Change and the Multilateral Development Banks, World Resources Institute, 2008.
22 Statistics confirm these perceptions: as a point of comparison, the success rate for multilaterally funded
environmental projects often pales in comparison to education, health, or infrastructure projects. Only 25% of World
Bank-financed environmental projects during the years 2001-2003 received a “satisfactory” project outcome rating,
compared to 100% for education, 86% for health, and 87% for infrastructure. See Hicks, et al., op. cit., p.6.
23 Recent initiatives include the Global Climate Change Alliance (GCCA) of the European Commission; the
International Window of the Environmental Transformation Fund (ETF-IW) of the United Kingdom; the Spanish
Millennium Development Goals (MDG) Fund; the Japanese Cool Earth Partnership; the German International Climate
Initiative; the Norwegian Agency for Development Cooperation (NORAD) Rainforest Initiative; the Australian Global
Initiative on Forests and Climate (GIFC); the German Life Web Initiative; the World Bank Forest Carbon Partnership
Fund (FCPF); the GEF Tropical Forest Account (TFA); the World Bank Clean Technology Fund (CTF); the GEF-IFC
Earth Fund; the World Bank Strategic Climate Fund (SCF) and Pilot Program for Climate Resilience (PPCR); the
Kyoto Protocol Adaptation Fund; and the Copenhagen Accord Green Fund. For an analysis and overview of these new
programs, see Porter, et al., 2008, op. cit.
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• Limits of Grant-based Instruments: GEF was set up mostly to finance grants.
Grants have proven to be inefficient in many development contexts given the
greater leveraging and enhanced financial sustainability obtained from loan-
based instruments. Such loans also provide reflows which can be lent again.
• Difficulties in Defining “Incremental” and “Additional”: As stipulated in the
“GEF Instrument,” grants cover the “incremental” or “additional” cost of
“transforming a project with national benefits into one with global environmental
benefits.” Incremental cost calculations have also been used as preference in
project selection. Historically, GEF’s implementing agencies have had difficulty
producing a coherent methodology for calculating incremental cost, slowing the
rate of project development. Furthermore, countries continue to argue over the
requirements of additionality (i.e., whether or not the global environmental
elements of a project would have taken place in the absence of GEF funding).
• Difficulties with Adaptation: GEF was established to finance global
environmental benefits, which has made it difficult to justify GEF financing of
climate change adaptation projects, which moreover provide local benefits.
• Inefficient Procedures and Legal Status: GEF’s two-layer structure means that all
funding must be approved twice (by GEF and the relevant GEF Agency), leading
to inefficiencies. GEF’s lack of legal status (the trust is held by the World Bank)
prevents it from disbursing funding directly to countries with a one-step approval
process.
• Slowness of GEF Project Initiation and Implementation: Since its inception, most
note that GEF’s project approval process has been long and complex. A 2006
internal report found a 66-month lapse between entry of a concept into the
project pipeline and its initiation. Significant effort has been exerted to reduce the
duration of the approval process, and the interval currently stands at 16 to 22
months. Bureaucratic structures, work program frequencies, Council
deliberations, and consensus politics have all factored into delays.
• Criticism of Donor and Agency Management of GEF: With 32 voting Council
Members, 16 from developing countries, 14 from developed countries, and 2
from Eastern Europe, consensus on institutional matters is often slow and
contentious. Further, donor control over the aim and the direction of
environmental funds has always been a challenge to multilateral mechanisms.
Recipient countries can only access GEF resources through one of the 10
executing agencies—a practice that has become objectionable to developing
countries which complain about poor performance and slow pace. The interests
of GEF Agencies are not always aligned with those of the recipient countries, and
indeed, the agencies’ interests are not always aligned with GEF. Critics claim that
MDBs, U.N. agencies, and donor countries alike use GEF money as a tool to get
recipient governments to commit to larger loans with political conditionality.
Finally, some recipient governments note that the agencies routinely assess
unreasonable administrative fees.24 These and other accusations of institutional
24 A January 26, 2009, audit of GEF by Deloitte Touche Tohmatsu showed that more than $17 million went to pay for
fees during the 2008 accounting period; and more than $15 million was spent on fees in 2007.
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torpor, inflexibility, and opaqueness have hindered GEF’s objectives as an
international site of coordination.25
• Lack of Strategic Approach: Historically, GEF has adhered to a project-by-
project approach to allocating funds, wherein over 95% of pledges have been
allocated to individual countries and less than 5% have been set aside for
regional or global programs. The dynamic assumes that ongoing negotiations and
incremental adjustments could foster transformational change in economies over
time. While a project-by-project approach has allowed GEF to fulfill the
mandates of many of its conventions, large-scale environmental issues such as
climate change and biodiversity may demand more strategic and programmatic
funding modalities.
• Unsuccessful History of Leveraging the Private Sector: While GEF has long
recognized a need to mobilize investment resources in the private sector,
successful collaboration may require a degree of experience and commitment that
GEF cannot achieve under its existing structure. The length and uncertainty
inherent in the GEF project cycle may make participation less attractive to the
private sector, and the organization’s emphasis on government entities at the
expense of forming relationships with investors and manufacturers may serve as
a further impediment.
GEF Reform
During the 2006 Replenishment meetings, GEF worked to address many of its program
deficiencies. The Council aimed to streamline costs and management fees, ensure project quality
upon proposal, and reduce the length of the project pipeline. A Sustainability Compact was
enacted that would oversee several issues, including (1) the shift away from a project-oriented
approach to a strategic and programmatic one; (2) a concentration on financing pre-market
innovation in an attempt to leverage private capital; (3) a heightened dedication to transparency,
accessibility, and equitability; and (4) a renewed focus on country-driven ownership through the
implementation of a Resource Allocation Framework (RAF) wherein funding is determined by a
country’s potential to generate global environmental benefits and its capacity to successfully
implement GEF projects. Further, in 2007, GEF initiated a pilot public-private partnership (PPP)
initiative called the “Earth Fund” to enhance engagement with the private sector. Internal
assessment of these reforms has shown promise, but independent reviews still find “many
limitations with the current system.”26
Meetings leading up to the Fifth Replenishment of GEF in 2010 saw the development of policy
recommendations along two lines:
• Enhancing Country Ownership: A key finding in GEF’s recent performance
evaluation was the relationship between country-driven strategic development
and project success rate. Recommendations to strengthen country ownership
25 For examples, see Porter, et al., 2008, op. cit., and Environment and Energy Daily, “Copenhagen: Red Tape, High
Fees Hamstring International Green Funds,” December 22, 2009, at http://www.eenews.net/Greenwire/print/2009/12/
22/1.
26 See GEF’s “Fourth Overall Performance Study” and “Policy Recommendations for the Fifth Replenishment of the
GEF Trust Fund,” February 12, 2010, p. 4, at http://www.thegef.org/gef/node/2483.
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include (1) reforming in-country corporate programs to include greater project
portfolio identification and enhanced stakeholder coordination, (2) developing a
more flexible and transparent resource allocation framework, and (3) broadening
access to the GEF partnership to include national development agencies in
developing countries.27
• Improving the Effectiveness and Efficiency of GEF Partnerships:
Recommendations to strengthen GEF partnerships include (1) enhancing
accountability to the conventions and protocols; (2) streamlining the project cycle
and refining the programmatic approach; (3) enhancing engagement with the
private sector; (4) implementing the results-based management framework; (5)
clarifying the roles and responsibilities of GEF entities, agencies, and
conventions; and (6) enhancing engagement with civil society organizations.
Looking Forward
While carbon markets and new financial mechanisms are expected to play a significant role in
environmental finance, particularly with regard to climate change investment projects and
programs, U.S. Administration officials and U.S. NGO observers see GEF as potentially having
several comparative advantages in the future:28
• Financing of Enabling Activities: GEF could finance the national
communications and other enabling activity requirements for all Parties under the
various U.N. conventions.
• Financing and Coordination of National Low Carbon Development Strategies:
Given its ability to work with all the MDBs and U.N. agencies engaged on
climate change, GEF could provide and oversee the financing for nationally
owned low carbon development strategies. GEF Secretariat staff could play a
strategic role with the country and between the agencies. This is particularly
valuable given GEF’s perception as a fair broker. GEF agencies would play the
lead role in partnering with the country and providing the necessary technical
assistance needed to develop a robust strategy and set of policy reforms.
• Emphasis on Financing Technical Assistance and Capacity Building: GEF’s
technical assistance and capacity building program has had notable successes,
particularly in energy efficiency, as documented in the climate change portfolio
review for the GEF’s Third Overall Performance Study. Renewable energy would
be a focus, particularly since GEF’s grant financing would be appropriate to help
cover the higher incremental costs. Further, GEF could help countries build the
capacity necessary to access carbon markets.
• Financing of Experimental Technology Pilot and Demonstration Projects: GEF
withdrew from the financing of experimental technologies, in part at the urging
of the United States, due to cost-effectiveness concerns. However, given GEF’s
experience with pilot projects, it might be appropriate to restart its program in
27 These policy recommendations correspond to those highlighted in the U.S. Budget for Fiscal Year 2011 contributing
to the U.S. pledge increase for the GEF-5 Replenishment, p. 862.
28 These points were offered in conversations between CRS and the U.S. Department of the Treasury, Office of Energy
and Environment, and representatives from Resources for the Future and the World Resources Institute.
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experimental technologies, particularly if its capacity in learning dissemination
were increased.
• Expanded Role in LULUCF and REDD Projects: Given its work in natural
resource management projects, GEF could enhance its role in financing projects
related to preventing and avoiding Land Use, Land-Use Change and Forestry
(LULUCF), and Reducing Emissions from Deforestation and Forest Degradation
(REDD) emissions. Through its financing and coordination function, it could
help ensure consistency between MDB and U.N. efforts in REDD. Much of its
work would be related to capacity building and technical assistance.
• Role as the New Financial Mechanism for the UNFCCC. If the negotiations for
the Green Climate Fund as proposed by the Cancun Agreements of the UNFCCC
Conference of Parties (COP-16) prove unviable, climate funds could be placed at
GEF. One merit of retaining GEF as the financial mechanism of the UNFCCC
would be to ensure that technical assistance (provided by U.N. agencies) and
investment activities (overseen by MDBs) are properly sequenced. GEF could
also minimize the number of competing climate finance entities. A reformed
GEF, with a stronger Secretariat and Council, could finance development of low
carbon development strategies and subsequently ensure that relevant GEF
agencies were aligning their GEF-financed activities (either technical assistance
or investment) with the respective country plans through large programmatic
approaches.
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Appendix. Global Environment Facility Trust Fund
Figure A-1. Commitments to GEF Pilot Phase and Replenishments
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Source: Instrument for the Establishment of the Restructured Global Environment Facility - March 2008, at
http://www.thegef.org/gef/node/2552.
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Source: CRS correspondence with GEF.
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Figure A-2. Financial Status of GEF Trust Fund: Summary of Arrears
Source: GEF “Trustee Report: Global Environment Facility Trust Fund as of September 30, 2011,”
GEF/C.41/Inf.13, October 24, 2011.
Author Contact Information
Richard K. Lattanzio
Analyst in Environmental Policy
rlattanzio@crs.loc.gov, 7-1754
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