Paying for greenhouse gas reductions, so-called results-based financing, requires robust systems to ensure that money deployed achieves real reductions and benefits. This was the main message of a panel on the margins of the UN climate change negotiations in Bonn, on Tuesday.

For example, to receive money directly from the new Green Climate Fund (GCF), countries need to show that they have the capacity to meet set fiduciary standards as well as environmental and social performance standards, explained Axel Michaelowa, Managing Director of consulting firm Perspectives.

UN's CDM Offers Model for Results Based Finance

His company is looking at how accreditation requirements for funding under existing multilateral climate funds, such as the UNFCCC’s Adaptation Fund and Global Environment Facility, could be streamlined to be applicable under the GCF.

Mr. Michaelowa said there are also lessons to be learned from Designated National Authorities set up under the Kyoto Protocol’s Clean Development Mechanism (CDM), and said he hoped the GCF would borrow from CDM’s strengths in monitoring, reporting and verification, stakeholder integration, and transparency of documentation.

Björn Dransfeld of The Greenwerk consulting company told attendees that results-based financing, “payments for performance of a mitigation action,” results in immediate, real emission reductions, when funding agencies pay CDM projects for their already verified emission reductions.

He gave the example of developing-country fertilizer manufacturers, which until recently had an incentive under the CDM to destroy, and not vent into the atmosphere, the very potent greenhouse gas N2O. The price paid for the certified emission reductions earned by CDM projects is now, for the most part, too low to make it worthwhile for factories to destroy the gas. Mr. Dransfeld said funds, such as the GCF, could step in to pay for the emission reductions and achieve immediate, real results, until policy responses, such as a ban on venting, are phased in.

Incubators and Tracking Key Requirements

Fan Chien Te, Director and Prof. of Law, Institute of Law for Science and Technology at National Tsing Hua University, Taiwan, made a case for “incubators,” entities that can help projects and start-up enterprises access funding and mobilize technologies.

Psamson Nzioki of Transparency International, Kenya, stressed the need for a clear definition of what constitutes “climate finance” and that climate money be properly labeled and tracked to avoid corruption. “We’re trying to ensure there is capacity in the countries and handlers of such money to avoid past mistakes,” said Mr. Nzioki.