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Green climate fund seeks clear role in post 2020 climate aid

PARIS, Dec 11 (Thomson Reuters Foundation) - As international climate talks headed into their final hours on Friday, the head of the United Nations' Green Climate Fund said the fund's future role in delivering tens of billions of dollars in climate aid after 2020 is unclear in the draft Paris deal. At last year's climate summit in Peru, the fledgling fund - set up under the U. N. negotiations - was in the spotlight as countries lined up to make public pledges, bringing its total resources to over $10 billion. The money is to be spent on projects to help poor countries curb carbon emissions and weather the impacts of climate change. But in Paris, the latest version of the legally-binding climate agreement, released on Thursday evening, makes no direct mention of the fund's role in delivering more than $100 billion annually in climate aid, a key element of a new global deal. The draft is "silent on the trajectory" of the Green Climate Fund (GCF) and other U. N. funds after 2020, when the Paris agreement would take effect, Héla Cheikhrouhou, the GCF's executive director, said in an interview at the talks."The latest agreement draft... does not give clarity," she said. "I would have preferred to see text that talks to the growth" of the U. N. funds, she added. When the GCF was set up in 2010, there were expectations it would be the main conduit for climate funding from donors to developing countries. The 2009 Copenhagen Accord, which created the fund, said "a significant portion" of the $100 billion a year rich nations promised to mobilise by 2020 should flow through the GCF.

Cheikhrouhou said she did not know why a reference to the role of the fund had been removed from the draft but she remained "cautiously optimistic" it would return to the final agreement, due on Saturday. Giza Gaspar-Martins, chair of the group of 48 least developed countries at the talks, said the current text reflected the need to recognise other smaller U. N. funds as channels for finance, particularly those focused on adaptation."(The GCF) is certainly a very important member of the ecosystem that serves climate finance, but it is not the only one," the Angolan diplomat told the Thomson Reuters Foundation."We also have to admit that in the future, we may find it necessary to establish new ones."

VALUE NOT VOLUME In November, the Green Climate Fund approved its first set of eight projects, to which it allocated $168 million. They include improving early warning systems to help Malawi respond to extreme climate events, a programme to manage climate change-induced water shortages in the Maldives, and a green bond to spur renewable energy investment in Latin America.

The fund's board has set a goal of committing up to $2.5 billion in 2016, but Cheikhrouhou said supporting quality projects was more important than the volume of spending."Pushing money out of the door is not necessarily a good thing," she said. "We need to make sure we are investing in the right opportunities and only invest once we have great proposals."Over the past few months, civil society groups and some developing countries have raised concerns the fund is heading in the wrong direction by emphasising the role of the private sector and steering towards loans rather than government grants."This is not how we had hoped the GCF would function," said Brandon Wu, a climate finance expert with international charity ActionAid. "It would not be surprising if developing countries are feeling a bit of caution about the GCF at this point."Niranjali Amerasinghe of the World Resources Institute said the Green Climate Fund needed to make sure it sticks to its mission to finance programmes that will create a "paradigm shift" in order to become the primary vehicle for global climate finance."The GCF needs to identify its niche relative to other funds," she said. But whether or not the fund's importance is specifically mentioned in the post-2020 Paris deal will have little impact on its future, some say."It is still a fund that developing countries think is the most fair and equitable way of channeling resources to those that are most vulnerable," said Heather Coleman, climate change policy manager for Oxfam America.

Money markets ecb gives no rate cut clues, cites interbank progress

* No clues on ECB interest rate cut from monthly policy meet* ECB President Draghi notes positive impact of ECB loans* Secured lending thaws, unsecured mkt still mostly frozenBy William JamesLONDON, Jan 12 The European Central Bank disappointed traders hoping for fresh clues on the path of interest rates on Thursday, but signs were growing that efforts to free up interbank funding markets were beginning to take hold. The central bank kept interest rates steady at its monthly rate-setting meeting and offered little insight into whether it would consider cutting the refinancing rate from its current record low 1 percent. However, ECB President Mario Draghi pointed to signs that its injection of half a trillion euros into the euro zone banking system in December had helped to avoid a credit crunch, highlighting the reopening of unsecured bond markets. Covered bond issuance in Europe has risen in early 2012 with more than a dozen deals lifting optimism the asset class will help banks meet their record 2012 funding needs.

"There's no doubt (the ECB lending) is helping banks secure much needed funding which, if you go back a few weeks, was an issue," said Lloyds Bank strategist Eric Wand. Booming demand for short-term sovereign treasury bills and sinking money market rates supported the view that there has been some improvement since the ECB lent banks 489 billion euros for an unprecedented three years. Italy became the latest sovereign to benefit from the glut of cash sitting with banks, as the ailing sovereign managed to sell short-term debt worth 8.5 billion euros at half the cost it had to pay in mid-December. This renewed appetite for bills issued by previously shunned euro zone states has helped to drive the cost of raising money with those assets sharply lower, affording banks better access to secured sources of funding.

"If you look at secured lending, our traders say repo markets, particularly for Italian collateral and peripheral collateral, have opened up again and are seeing trades going through in size again, up to three-month terms," said Commerzbank strategist Benjamin Schroeder. Data from electronic trading platform MTS showed the overnight rate for using Italian general collateral to raise money through the repo markets had fallen to 30 basis points, having frequently topped 1 percent in December.

NOT FUNCTIONING Despite signs of improvement in some areas, Draghi still described the interbank funding market as "not functioning". Analysts said the market for unsecured funding, where banks traditionally sourced the majority of their financial needs, remains moribund."Some of the unsecured markets are opening up but I think it's still pretty locked for all but the best names," Lloyds' Wand said. "There's a slight thawing but obviously a long way to go before we get banks happy to lend to one another. The three-month Euribor rate, fixed daily based on contributions from a panel of banks, showed banks believed they could obtain funding at 1.245 percent, extending a continuous daily fall that began on Dec. 21The equivalent Libor rate also fell but analysts said that at this stage, there was little real lending available to banks at that duration and cost."Unsecured lending is difficult to judge. The indication we have is Euribor, and that is pretty much a survey rate with little flows going on," Commerzbank's Schroeder said.