GEF funds the "incremental" or additional costs associated with transforming a project with national benefits into one with global environmental benefits; for example, choosing solar energy technology over coal or diesel fuel meets the same national development goal (power generation), but is more costly. GEF grants cover the difference or "increment" between a less costly, more polluting option and a costlier, more environmentally friendly option.
The approach in determining incremental cost consists of five steps that simplify the process of negotiating incremental costs, clarifies definitions, and links incremental cost analysis to result-based management and the GEF project cycle. The steps are as follows:
- Determine the environmental problem, threat, or barrier, and the “business-as-usual” scenario (or: What would happen without the GEF?);
- Identify the global environmental benefits (GEB) and fit with GEF priorities within GEF focal areas and themes as identified in GEF focal area strategiesIdentify the global environmental benefits (GEB) and fit with and priorities linked to the GEF focal area;
- Develop the results framework of the intervention;
- Provide the incremental reasoning and GEF’s role; and
- Negotiate the role of .