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Africa: Climate Debt Deferred, 2

AfricaFocus Bulletin
Nov 9, 2010 (101109)
(Reposted from sources cited below)

Editor's Note

"The UN Climate Convention requires [industrialized countries] to take a lead in cutting pollution, and to provide the finance and technology needed by less industrialized countries to overcome the adverse impacts of climate change ... [yet] The current financing model being advanced by developed countries, which centers on carbon markets and financial institutions outside the authority of the Convention, runs counter to their commitments under the Convention." - Civil Society Statement on Fair and Effective Climate Finance, September 2010

Despite a wide range of civil society and developing country voices calling for adequate financing of climate change action by rich countries, the response from rich countries is equivocal. The UN High-level Advisory Group on Climate Change Financing, which just presented its report, lays out a variety of financing mechanisms. Its includes some attention to innovative financing mechanisms, such as international transport fuel taxes and others. But its stress lies on dubious mechanisms managed by institutions controlled by rich countries.

This AfricaFocus Bulletin contains excerpts from the civil society statement cited above, as well as a summary analysis from the Brookings Institution of the report from the UN High-level Advisory Group. The highly technical and cautiously worded Advisory Group report itself is available on the UN website.

Another AfricaFocus Bulletin sent out today (http://www.africafocus.org/docs10/clf1011a.php) contains excerpts from a report from the World Development Fund on the slow start of developed countries' pledges for $30 billion in climate change financing, as well as from a Climate Change Primer from the Third World Network.

For additional background resources see:

Report of the Secretary-General's High-level Advisory Group on Climate Change Financing
http://www.un.org/wcm/content/site/climatechange/pages/gateway Direct URL: http://tinyurl.com/35offmy

Civil Society Papers and Statements on Climate Financing
http://www.un-ngls.org/spip.php?article3104

Climate Debt Resources
http://www.climate-debt.org/resources/documents

Climate Debt - World Development Movement
http://www.wdm.org.uk/climatedebt

World People's Conference on Climate Change and the Rights of Mother Earth (Cochabamba Conference April 2010, and follow-up)
http://pwccc.wordpress.com/2010/02/06/810/

Third World Network Briefings on Climate Change Negotiations
http://www.twnside.org.sg/climate.htm

For previous AfricaFocus Bulletins on the environment and climate change, visit http://www.africafocus.org/envexp.php

++++++++++++++++++++++end editor's note++++++++++++++++++++

Climate Finance Ministerial - Geneva, 2-3 September 2010

Fair and Effective Climate Finance: An assessment of finance in global climate negotiations

[This and other related documents available at
http://www.un-ngls.org/spip.php?article3104]

When developed countries signed the UN Climate Convention in 1992 they recognized their responsibility for emitting the vast majority of planet-warming greenhouse gases. Consequently, in recognition of this "climate debt" the Convention requires them to take a lead in cutting pollution, and to provide the finance and technology needed by less industrialized countries to overcome the adverse impacts of climate change, and to chart a sustainable pathway, rather than that set by industrialized countries. It's time to meet these responsibilities.

Finance: the keystone to climate negotiations

The current financing model being advanced by developed countries, which centers on carbon markets and financial institutions outside the authority of the UNFCCC [United Nations Convention on Climate Change], runs counter to their commitments under the Convention

11.11.11 * Action Aid * APRODEV * Both Ends * Campagna per la Riforma della Banca Mondiale * Eurodad * Friends of the Earth England Wales and Northern Ireland * Friends of the Earth US * International Forum on Globalization * Jubilee South * Jubilee South Asia Pacific Movement on Debt and Development * Pan African Climate Justice Alliance (PACJA) * Sustainable Energy & Economy Network,* Institute for Policy Studies * Third World Network * World Development Movement

The nations of the world affirmed their roles and responsibilities for tackling climate change in the Bali Roadmap agreed at the 2007 UN climate talks. The Roadmap established a "two-track" approach - one track to set the next phase of greenhouse gas emission reductions by developed countries under the Kyoto Protocol, and another to enhance efforts to implement commitments on adaptation, mitigation, finance and technology transfer under the Convention.

Despite the deal in Bali, the current financing model being advanced by developed countries runs counter to their commitments under the Convention to provide new, additional resources to developing countries. Developed country financing proposals, which rely on carbon markets and financial institutions outside the authority of the UNFCCC, are ineffective at meeting the needs of developing countries to address climate change now - let alone in the face of increased warming. Ensuring that climate finance is raised and managed in fair and effective ways is the key to advancing together down the path defined by the Convention and the Bali Roadmap and securing an equitable and effective global climate agreement.

Polluters pay

The provision of finance by the industrialized, Annex 1 countries, is intimately linked to their historical emissions and their failure to adopt and implement sufficient mitigation action. It is a simple equation - the historical emissions of the developed countries have lead to the majority of current and committed warming. Going forward, the weaker the emission reductions in Annex 1 countries, the more harm climate change will cause, and the deeper the cuts those countries who are least responsible for the problem will have to make. A lack of vision and leadership by the countries, corporations, financial interests, and people who have most benefited from the prevailing but perversely unsustainable economic paradigm is causing the cost of climate change to rise to what may soon become unpayable levels for all of humanity.

Existing pledges from developed countries to reduce emissions, add up to a mere 17-25% cut in emissions from 1990 levels by 2020 - a scenario that is inconsistent with any fair contribution to their own 2 degree goal, and that experts say will contribute to warming the planet between 3 and 4 degrees C.

Worse still, Annex 1 countries intend to emit considerably more pollution domestically through the use of loopholes in current rules and proposed carbon markets. These would allow them to make cuts on paper but not in practice and to claim they are providing climate finance by buying carbon offsets while shifting the climate change burden further to developing countries.

Bait and switch?

At the Copenhagen climate conference in December 2009, developed countries pledged to provide "new and additional" short-term financing approaching $30 billion between 2010-2012. It now seems, however, that little will be new and less will be additional.

Developed countries are recycling old pledges made before Copenhagen as new financing under the Convention. They are re-labeling other funds, such as those for agriculture and water, as "climate-related". Many countries intend to double-count climate finance and Overseas Development Assistance, inflating their support on paper, but leaving adaptation, mitigation and other urgent priorities for development, such as health, education and sanitation, underfunded.

Through these and other sleights of hand, discussions of climate finance are beginning to resemble a shell game in which the industrialized countries of the North offer money, then shift their pledges rapidly from one container to another, only to leave the purported recipients short changed. This seems an unlikely strategy for securing trust and reaching the agreement we all need to combat climate change.

On the road to Cancun, countries now have only a few more opportunities to discuss the generation and oversight of climate finance, and the role of a new climate fund under the UNFCCC. Building trust, and gedng the scale, sources and governance of financial resources right, are key objectives for upcoming negotiations.

Scale of the need

The G77 and China have called for an annual financial transfer from North to South equivalent to at least 1.5% of Annex I GDP by 2020, with other countries estimating that developing nations will need the equivalent of up to 6% of Annex I GDP to keep the world safe. These figures are based on the ambitious efforts needed to keep warming within safe levels, the spiraling costs of climate-related damage, as well as compensation for the over-consumption of atmospheric space by the industrialized countries. The latter figure represents less than what is spent worldwide on armed conflicts each year -- a reasonable investment to stabilize the Earth's life support system.

Limiting the discussion on financial needs to only $100 billion per year by 2020 - a number established in the Copenhagen Accord - will have dire implications for developing countries and indeed, the entire world. This amount falls astonishingly short of all reasonable estimates of adaptation and mitigation costs in developing countries. The amount is even more inadequate when measured against developed countries' weak emission reduction pledges -- which would shift an even larger burden of mitigation and adaptation costs to developing countries.

Sources of finance that are fair

To meet developed countries' commitments, climate finance must be public, grant-based so as not to further indebt developing countries, new and additional (not recycled ODA) and flow through institutions under the UNFCCC.

Civil society and developing countries have called on developed countries to provide financing from public sources - to implement their commitment and to ensure that the costs of mitigation and adaptation actions are covered, particularly for initiatives that are not likely to be profitable such as adaptation measures and those currently at a market disadvantage like clean, renewable energy.

Developed countries, however, have emphasized the role of the private sector in meeting their obligations to cover the costs of developing countries' responses to the climate emergency. They envision whole sectors of developing countries' mitigation potential being sold off to private interests through an expanded Clean Development Mechanism (CDM), REDD, or a new global carbon market.

Developed countries must not be allowed to use offsets to justify business as usual in their own economies, while outsourcing the difficult task of lowering emissions to developing countries.

Carbon offsets must not be used to fulfill developed countries' climate finance obligations because their financing is explicitly dedicated to meet the emission targets of the developed countries. Furthermore, most carbon offsets are sold as derivatives, and as such are poorly regulated. As carbon markets become dominated by financial speculators, the risk of shoddy offsets that fail to deliver promised reductions, as well as fraud and corruption, increases. Conflating this with public sources is inconsistent with the climate convention, unfair and ineffective.

Equitable and effective governance

Climate finance will only be as equitable and effective as the institutions through which it is channeled. Developing countries and social movements worldwide are calling for a new global climate fund under the authority of the UNFCCC with equitable and balanced representation, effective participation in all decision-making, direct access to funding and an absence of economic or other policy conditionality.

The new global climate fund should have: 1) a board with equitable representation among the United Nations regions with additional seats for countries most vulnerable to climate change, civil society, and affected community members; 2) an independent trustee selected through a process of open bidding; 3) an independent secretariat to support the work of the fund board; and 4) a set of technical panels and funding windows to enable effective mitigation, adaptation and technology transfer, and support for activities in specific sectors such as forest conservation. The UNFCCC should also establish systems to track delivery of contributions from developed countries, and evaluate the source, additionality, and nature (grants vs. loans) of contributions, among other activities.

The World Bank - an institution often championed by developed countries to be the world's new climate banker - has a history marred by environmental degradation and human rights violations and lacks adequate developing country representation. It continues to be among the world's chief proponents of an unsustainable development model and largest public fossil fuel financiers. Funds at the Global Environment Facility, an operating entity of the UNFCCC financial mechanism that is linked to the Bank, have proven difficult to access and ineffective in raising and channeling funds. This situation is not appropriate for the management of global climate finance.

The road to success in Cancun

Addressing the legitimate interests and concerns of developing countries on climate finance is a keystone to a successful climate agreement. In Cancun, Parties must work together to clarify the scale - both short- and longterm - of financing, as well as its sources and governance.

Industrialized, Annex 1 countries can build trust by ensuring transparency and accountability in their shortterm financial commitments. They should, at a minimum, clarify: 1) the proportion of funds they pledged before Copenhagen and the proportion that is genuinely "new;" 2) the proportion that is above their current commitments for Overseas Development Assistance (both 0.7% of GNI and current levels) and so is genuinely "additional;" 3) the proportion that is to be provided through grants (as opposed to loans that are to be repaid by developing countries); 4) the proportion of funding going to adaptation versus mitigation; and 5) the proportion of funding going through UNFCCC channels. Transparency of short-term finance is a first step towards more effective and accountable governance of climate finance over the longer-term.

For the longer term, developed countries should agree to the following:

  • Climate finance discussions should be held within the UNFCCC to ensure inclusivity of all perspectives and knowledge about the needs and demands of those most impacted by climate change.
  • The scale of financial resources committed by developed countries to developing countries must match the scale of the need. The G77 and China have called for longer-term financing equivalent to at least 1.5% of Annex I GNP. Many governments and much of civil society have called for higher amounts, such as those proposed by the African Group and Bolivia, based on the need for truly ambitious action to stabilize the Earth's climate system.
  • Climate finance must be conducted in a manner that is consistent with the obligation of Annex 1 countries to settle their climate debt. It must be consistent with the need, both North and South, to advance toward new modes of production and consumption that are respectful of the rights of people and of the planet. It must not be used as a vehicle for shifting the burden of mitigation or adaptation to developing countries, or shifting funding from other development priorities. Climate finance must therefore be sourced from public money, must be in grant form, and it must be new and additional to ODA; resources generated by the purchase of carbon offsets must not count toward developed countries' commitments.
  • Through a COP [Convention of the Parties] decision, establish a new democratically and equitably governed global climate fund under the authority of the UNFCCC on terms consistent with the proposals of developing countries and civil society. Establish a new democratically and equitably governed global climate fund, through a COP decision and under the authority of the UNFCCC on terms consistent with the proposals of developing countries and civil society.


Mobilizing $100 Billion per Year for Climate Financing

Kemal Dervis, Vice President and Director, Global Economy and Development

Katherine Sierra, Senior Fellow, Global Economy and Development

The Brookings Institution

http://www.brookings.edu/global.aspx

November 05, 2010

Today, the U.N. Secretary General's High Level Group on Climate Change Financing (AGF) reported that raising $100 billion each year by 2020 to finance climate mitigation and adaptation in developing countries is "challenging but feasible." The group, made up of heads of state and government, as well as finance leaders from both developed and developing countries, was tasked to develop the $100 billion per year pledge of long-term financing under the Copenhagen Accord. Designed in parallel to the global climate negotiations under the UNFCCC, it aims to provide a technical assessment of financing options, filtered against criteria such as political acceptability. While the report will disappoint those who want a bold recommendation, it does move the dial by providing a menu of international and domestic financing options, some considered more promising than others.

So how is raising $100 billion per year doable? Members of the high-level group anticipate new public funds to flow in from a combination of revenues from emission allowances or direct taxes; taxes on international transportation fuels; and redeployment of fossil fuel subsidies or other carbon-based mechanisms like a small levy on electricity (wire tax) that could raise $50 billion per year. Add to this the net flows from private investment that could raise $10-20 billion per year (total private investment that could be leveraged by this would be in the order of $100-200b) and net flows from the carbon markets of $10 billion. Another $11 billion per year could be raised by providing increased resources to the Multilateral Development Banks. Taken together, these could total $80-$90 billion per year, with traditional public finance from budget appropriations covering the balance. Fast Start funding under the Copenhagen Accord of $10 billion per year shows that public finance could cover the difference at the higher end of the assumptions, but more effort would be needed at the lower end.

The report emphasizes that raising these sums has to be part of a broader package of meaningful mitigation actions along with transparency of implementation. This ties the debate back to the Copenhagen Accord and the United States' position that the elements of the accord have to be mutually reinforcing. A key assumption is that emission reductions targets, and associated instruments, would result in a price on carbon of $20-25 per tonne of CO2 equivalent. So it is critical to take action on this in order to raise financing.

An opportunity missed.

The report reaffirms the importance of strong commitments to domestic climate mitigation and introduction of carbon-based instruments, and calls for strengthening the carbon markets. But a much stronger case could have been made for taxing carbon through an outright tax or broad-based use of auctioned permits to not only provide a source of finance for developing countries, but to also help reduce deficits in advanced economies.

Some innovative public finance proposals gain momentum.

While sources of public finance have continually been debated over the past several years, the AGF report signals that several previously controversial innovative sources of finance are now being considered viable, such as revenues from taxation and auctioning of emission allowances; taxation on international transport via maritime bunker and aviation fuel taxation; and redeployment of fossil fuel subsidies. Though delicately worded, the proposal to leverage IMF Special Drawing Rights seems to have been eliminated, as well an international financial transaction tax, though a nod is given to countries and regions that may want to use this as a source. And despite the dismal fiscal situation of advanced economies, use of general public revenues remains. The report acknowledges that public finances in many developed countries are under extreme pressure. Indeed, the current political environments will make this option difficult in many countries. Simultaneously, the AGF reaffirms the expectation that direct general public contributions will also play a key role in the long term.

The potential of private finance.

The AGF correctly makes the case that whatever the source, private sector investment will be critical if developing countries are to successfully move to low-emission development pathways. But the diplomatic language describing differing points of views on whether and how to count total flows, and on the balance between public versus private finance in the overall package, point to continued strain between developed and developing countries. We maintain that developing countries are right to expect that only the grant equivalent of public flows should be accounted for as part of the contribution from the developed countries. This should also include the net grant element embedded in the potential increasing carbon markets as has been the case for the Clean Development Mechanism. The logic here is that these flows are going to support a global public good: mitigation. But developed countries are also correct in their position that private flows will need to cover a significant part of the costs. So having a metric that also captures the total flows will be critical to assess whether the incremental public financing is indeed crowding out the massive amounts of private funds that will be needed to finance the investments as a whole.

The loan versus grant debate.

Authors of the report found consensus over a topic that has caused great consternation in the climate finance world, especially among civil society advocates: should all climate finance come in the form of grants, or can concessional loans (and guarantees) serve as the right instruments? The report supports the use of both loans and grants, but notes that grants and highly concessional loans are crucial for adaptation in the most vulnerable countries. The AGF is correct in saying that for mitigation, funds like the Clean Technology Fund prove loans and guarantees can be structured to leverage significant private and public finance. But this has to be accompanied with the caveat that, in terms of burden sharing on mitigation efforts, only the grant equivalent embedded in these loans should be counted toward the contribution from the developed countries. For adaptation initiatives, a stronger call for grants for the poorest countries would make sense politically. Otherwise, the positive results from these flows, like building trust, will be obscured by the rhetoric that highly concessional loans deepens the debt of those countries who are least responsible for climate change in the first place.

The role of the multilateral development banks.

The report notes the importance of the U.N. in capacity building, and describes some proposals for direct access of funds to developing countries. But simultaneously it strongly defends the use of MDB capabilities, sending a clear signal to those who advocate against the utilization of the MDBs. The AGF focuses in particular on the multiplier role that the MDBs can play by combining support for public policies that will support low-carbon and climate-resilient futures. The MDBs have the ability to combine sources of finance to provide significant leverage. The AGF also sets the stage for considering the contribution to the climate finance equation of future capital increases and IDA-type replenishments.

While the report is not the breakthrough that many hoped for, it does make progress on tackling climate change by signaling acceptance of innovations that may now gain momentum. But designing these instruments will be challenging. The financial amounts that can be raised will depend on significant mitigation targets. And ultimately, domestic action will depend on each nation's political acceptance. It will be an uphill battle in the United States to overcome the skepticism of the electorate and the expected opposition in the new Congress to any new taxes (even if they are immediately given back to domestic taxpayers by lowering other taxes on income or payroll) and policies that provide transfers to the developing world. Although challenging, it is these types of policies that will make climate finance, and in turn global coordination and agreement, feasible.


AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

AfricaFocus Bulletin can be reached at africafocus@igc.org. Please write to this address to subscribe or unsubscribe to the bulletin, or to suggest material for inclusion. For more information about reposted material, please contact directly the original source mentioned. For a full archive and other resources, see http://www.africafocus.org


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URL for this file: http://www.africafocus.org/docs10/clf1011b.php