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THE MEANING OF "FULL INCREMENTAL COSTS"
The Convention, in Article 20 says that "developed country Parties shall provide new and additional financial resources to enable developing country Parties to meet the agreed full incremental costs to them of implementing measures" of the Convention. It goes on to say that the Conference of the Parties will establish an indicative list of incremental costs. Incremental costs have been defined by some as the costs of those additional activities in a project that would be undertaken in order to implement the Convention. Some have defined this to mean the costs of a project that would give global benefits, although this interpretation is challenged by many developing countries.
GEF Administrator Ian Johnson stated that the concept of incremental costs is key within the Convention and that the main issue for the GEF is how to apply it in a pragmatic, transparent and reasonable manner. He said that incremental cost, as a philosophy, is central to the raison d'etre for monetizing additional finances, at least for many donors. Incremental costs is but one element of an overall decision-making process to identify and agree on specific actions. Other elements include guidance from the COP on programme priorities and eligibility, technical and social viability, and the extent to which the project or activity fits within a country-driven strategic agenda and is integrated within a framework of national priorities. Incremental costs should not be confused with incrementalism. Some domestic benefits may be reasonably deducted, others need further consideration. The issue of global benefits must be approached pragmatically and reasonably, as the corollary of global benefits -- domestic benefits -- may be important especially where such benefits can be monetized and result in streams of financial resources.
In the discussion that followed, Johnson stated that when domestic benefits could be easily "monetized," they would be deducted on a case-by-case basis. Malaysia called "incremental costs" and "global benefits" undefinable, and asked if they would be removed from the GEF vocabulary. In response, Johnson justified the concept of incremental costs as a necessary rule for the allocation of limited funds. When asked by Norway about the financing of domestic biodiversity, he explained that the GEF has not focussed on this. When asked by Costa Rica whether GEF funding was dependent on a country's ratification, Johnson replied that this was a matter for the COP.