The Global Environment Facility

International Monetary Fund. External Relations Dept.
Published Date:
January 1991
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As industrial and developing countries, alike, assess the state of the global environment, it is becoming quite clear that a number of critical problems—the threat to the ozone layer, the “greenhouse” effect, the loss of biodiversity, and ocean pollution—cannot be addressed by nations in isolation. The primary responsibility for these problems still rests with the industrialized nations. But the developing ones will increasingly contribute to global air and water pollution, deforestation, and degradation of biological resources as their economies expand, and they will need assistance in taking steps to protect the “global commons.”

But what is to be done when a country must bear the costs for environmental protection, while the benefits accrue to the global community? Under certain circumstances, might not there be a need for concessionary financing? The establishment of a separate facility to do just that was proposed by France—supported by Germany and others—at the joint IMF-Bank Development Committee discussions in 1989. As a result, 25 developed and developing nations agreed in November 1990 to establish a Global Environment Facility (GEF), which would be run jointly by the Bank, the United Nations Development Programme (UNDP), and the United Nations Environment Programme (UNEP). Starting out with initial commitments of about $1.5 billion, the GEF should be operational by mid-1991.

What it will do

The goal of the three-year pilot program is to provide modest resources to help finance programs and projects affecting the global environment, and to do so in a manner that explores how developing countries can deal pragmatically with these issues, at low cost, and without impeding development. It is hoped that by moving quickly on establishing the Facility, valuable insights will be gained that can help accelerate the translation of the objectives of emerging global conventions into action, as well as provide useful input into the deliberations of the June 1992 UN Conference on the Environment and Development in Rio de Janeiro.

Four areas have been selected for the operations of the Facility:

• Protecting the ozone layer. There is a consensus in the world’s scientific community that the present levels of chlorofluorocarbon (CFC) emissions, halons, and other gases, contribute significantly to a deterioration of the ozone layer in the stratosphere, which acts as a shield against harmful ultraviolet radiation. Developing countries will be assisted to make the transition from CFC use and production into available substitutes and alternatives. The GEF’s work in this area will be coordinated with the implementation of the Montreal Protocol to phase out the use of these harmful substances to protect the ozone layer.

• Limiting “greenhouse” gas emissions. Although uncertainties remain, there is enough knowledge to justify immediate action to slow the emission of gases that produce the so-called greenhouse effect, such as carbon dioxide, CFCs, and methane. Areas for action include the adoption of cleaner fuels and technologies in the energy, agriculture and industry sectors, as well as some reforestation and forestry conservation.

• Protecting biodiversity. The variety of ecological systems and diversity of species contribute a wide range of goods and services, including harvestable material that can be used for medicines or industrial products, genetic resources for food production, and the regulation of climatic and rainfall patterns. Yet many of these now face disruption or even extinction. The developing countries still boast the richest remaining sources of biodiversity, and the GEF will support efforts to preserve specific areas.

• Protecting international waters. Trans-boundary pollution and water regime changes affect both the marine environment and bodies of fresh water that are a common resource for more than one country. The Facility will support programs to enhance contingency planning for marine oil spills; to abate industrial and wastewater pollution that affects international marine and freshwater resources; to improve reception facilities for removing ballast from ships in ports; to prevent and clean up toxic waste pollution along major rivers that affect international water courses; and to conserve unique water bodies.

How it will work

All developing countries with UNDP programs and that have a per capita GNP of $4,000 or less in 1989 will be eligible for GEF funding for investment projects and the full range of associated support. While most projects will be country-specific, some regional projects (e.g., biodiversity in adjacent areas in two countries) will also qualify. These projects will be put into three groups to ensure that there is a clear distinction between GEF and regular development programs and projects.

• Type 1: The project is justified on economic grounds and has an acceptable rate of return, but the country would not proceed without GEF involvement. Such a project will be eligible for GEF financing only in exceptional circumstances.

• Type 2: The overall rate of return of a project is not attractive enough for the country to undertake it, but such a project would have substantial global environmental benefits. Concessional assistance may help the country undertake the project thereby ensuring global benefits.

• Type 3: The investment is justified in domestic terms, but the country would need to incur extra costs to produce additional global benefits.

In addition, to qualify, projects must (1) be consistent with global environmental conventions; (2) be consistent with the country-specific environmental strategy or program; (3) use appropriate technology; and (4) be both cost-effective and of high priority from the global perspective.

The three agencies (UNEP, UNDP, and the Bank) will develop joint work programs of investments, scientific and technological support, and technical assistance using these guidelines.

The GEF will be composed of a core fund, to which contributions (on a voluntary basis and in convertible currencies) may be made in the form of grants, and a joint financing agreement funded through concessional loans or grants provided on a bilateral basis to cofinance activities supported by the core fund. The donor countries are expected to include: Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, the Netherlands, Norway, Spain, Sweden, Switzerland, the United Kingdom, and the United States—most of which have already confirmed their participation. In addition, contributions are expected from several developing countries, who will also be invited to attend the proposed six-monthly review meetings of participants. For most of the operations, the recipient will be expected to cover a small portion of the local costs, a recognition that the country is also a partial beneficiary.

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