The role of institutional design in mobilizing climate finance: Empirical evidence from Bangladesh, Brazil, Ethiopia, and Indonesia

Abstract

International climate finance is a crucial component of the response to climate change. This paper examines how national-level funding vehicles mobilize finance from international sources. Based on interviews with policymakers and various actors involved in the negotiation and design of four major early national climate funds, the Amazon Fund, the Bangladesh Climate Change Resilience Fund, Ethiopia’s Climate Resilient Green Economy Facility, and the Indonesia Climate Change Trust Fund, this paper identifies design features of national climate funds and highlights the trade-offs that developing countries face in their pursuit of climate finance. These design features have significant bearing on the overall effectiveness of the funds themselves. The findings from this study suggest that developing countries seek to maximize control over the funds even though it means that the design features do not minimize costs, as efficiency-oriented perspectives would suggest. The experience of these early national climate funds could be instructive to those governments and stakeholders considering establishing their own national climate funds or improving features. Three policy lessons are noteworthy: the importance of demonstrating commitment to climate policy through transparent data and results, instilling robust fiduciary standards and safeguards, and the virtuous cycle mobilizing climate finance and acquiring a track record on climate programming.