Why Should Governments Refill the Green Climate Fund's Coffers?

Last month, a 10-megawatt solar plant went online in Sumber Soum, in central Mongolia. New solar plant inaugurations may be commonplace in many parts of the world, but in Mongolia, this was a noteworthy development. The country of 3 million people has traditionally relied heavily on coal-fired electricity. Sumber Soum broke new ground by helping Mongolia move to energy solutions that reduce global carbon emissions and improve air quality and health prospects for local communities.

There's another reason the solar plant broke new ground: It's the first to be funded by a Mongolian bank, XacBank. Renewables like solar have high upfront costs and don't generate returns right away. These projects therefore require long-term investment horizons. But in Mongolia, interest rates have historically been too high and loan periods too short to make local lending for solar feasible.

How did XacBank break this trap? With help from the Green Climate Fund (GCF).

The GCF is the largest multilateral fund dedicated to funding projects for cutting greenhouse gas emissions and helping communities adapt to climate change. In 2017, the GCF approved a soft loan of $8.7 million to XacBank. The relatively cheap, long-term loan from GCF made the financials work for the Mongolian bank. 

Just 15 months later, the plant is online and feeding into the country's central grid. It is now helping power Mongolia's fast-growing economy and improving its people's quality of life. While the country still has a long way to go in cutting emissions and reducing dependence on high-carbon activities, making green investment easier is a key step to shifting the economy in the right direction. 

This year, as the GCF spends down its first pot of funding, the world's governments gather to refill the coffers (replenishment). Germany and Norway have already announced that they intend to double their original contributions. With replenishment looming, it's time to consider how the GCF is helping communities mitigate and adapt to climate change—and how it can do better.