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Climate finance

Climate finance. Åsa Persson, Stockholm Environment Institute & Stockholm Resilience Centre CEMUS, 2 November 2011. Climate finance is motivated by (i) the fundamental differences in vulnerability and adaptive capacity of societies in the developed and developing world.

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Climate finance

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  1. Climate finance Åsa Persson, Stockholm Environment Institute & Stockholm Resilience Centre CEMUS, 2 November 2011

  2. Climate finance is motivated by (i) the fundamental differences in vulnerability and adaptive capacity of societies in the developed and developing world...

  3. Global Adaptation Index 2010 http://gain.globalai.org/

  4. and (ii) the historical responsibility of the developed world for emissions and calls for equitable burden-sharing...

  5. IEA, 2011

  6. Applying a consumption perspective: net emission transfers from developed to developing countries (indexed to 1990) (Peters et al. 2011)

  7. Net change in emission transfers and territorial emissions 1990-2008 (Peters et al. 2011)

  8. and (iii) considering growing emissions by middle income countries and general development aspirations of developing countries, climate finance acts as a ’side payment’ to incentivise strong mitigation commitments from those countries.

  9. CO2 emissions from fuel combustion IEA, 2011

  10. IEA, 2011

  11. Approaching the Rio+20 summit... 2 billion people without access to clean cooking fuels More than 1.5 billion people without electricity More than 1 billion have poor access to fresh water About 800 million people chronically undernourished 2 million children die per year from diarrhea 30,000 deaths each day from preventable diseases 15

  12. Approaching the Rio+20 summit... • Basic development objectives on the agenda again, coupled with growing middle-class aspirations of emerging economies • ’Green growth’ and portrayal of ’easy’ win-win solutions questioned (’environmental imperialism’) • Acting on climate change: • Direct costs of mitigation and adaptation and their compatibility with income and wealth in developing countries • The opportunity cost of less resources for non-climate development objectives

  13. Copenhagen Accord 2009

  14. Copenhagen Accord 2009 “In the context of meaningful mitigation actions and transparency on implementation, developed countries commit to a goal of mobilizing jointly USD 100 billion dollars a year by 2020 to address the needs of developing countries.” “The collective commitment by developed countries is to provide new and additional resources, including forestry and investments through international institutions, approaching USD 30 billion for the period 2010–2012 with balanced allocation between adaptation and mitigation.”

  15. Outline • Background and earlier climate finance commitments • Definition of climate finance • Estimated need for climate finance • Supply and mobilisation of new finance • Governance of funds • Allocation and use of finance • Conclusion: critical issues for Durban and beyond

  16. How much is USD 100 billion? • 0.2% of world GDP • 6% of world military spending in 2010 • 14% of 2009 G20 financial stimulus packages • Roughly equal to Bangladesh GDP in 2010 • 22% of Sweden GDP in 2010 • Almost doubled global ODA (129 billion in 2010)

  17. 1. Background: UNFCCC (1992) Art 4.3 – “The developed country Parties and other developed Parties included in Annex II shall provide new and additional financial resources to meet the agreed full costs incurred by developing country Parties in complying with their obligations under Article 12, paragraph 1… The implementation of these commitments shall take into account the need for adequacy and predictability in the flow of funds and the importance of appropriate burden sharing among the developed country Parties.” Art 4.4 – “the developed country Parties and other developed Parties included in Annex II shall also assist the developing country Parties that are particularly vulnerable to the adverse effects of climate change in meeting costs of adaptation to those adverse effects.” Art 11.5 – “The developed country Parties may also provide and developing country Parties avail themselves of, financial resources related to the implementation of the Convention through bilateral, regional and other multilateral channels.”

  18. 1992-2007: Bali increases the pressure • 2001 Marrakech Accords (COP7): three multilateral funds under the UNFCCC launched (LDCF, SCCF, AF) • Around 400 million USD spent by 2011, plus 360 million more by 2013 • Voluntary contributions from developed countries • 2005 Bonn Declaration (COP11): 21 countries declared to provide 410 million per year by 2005 • Lack of monitoring arrangements • Failure to deliver (Pallemaerts and Armstrong 2009) • Beyond the convention • More climate change focus within ODA, but no use of climate markers to track aid • 2007 Bali Roadmap (COP13): finance one of four pillars • “Improved access to adequate, predictable and sustainable financial resources and financial and technical support, and the provision of new and additional resources” • Birth of MRV

  19. 2007-2011: ’Climate finance’ • National submissions prior to Copenhagen proposed levels of finance and instruments • Various new ODA funds set up • 2009 Copenhagen Accord (COP15) – 100 billion! • After Copenhagen: • Intensified work on sources of climate finance, UN AGF and G20 • Discussion on baselines for ’new and additional’ • Monitoring of delivery of fast-track finance • Mapping of the climate finance landscape (eg www.climatefundsupdate.org, CPI report) • 2010 Cancún Agreements (COP16): Transitional Committee to design Green Climate Fund, and Standing Committee • 2011 Durban (COP17): Decision on Green Climate Fund • History of failed promises and lack of trust until 2007 – increased delivery on commitments since but high uncertainty and strategic behaviour

  20. 2. Definition of climate finance • Lack of legal definition – ambiguities relating to what counts as ’mitigation and adaptation’, how to measure what is ’new and additional’, what is meant by ’mobilise’ • Emerging technical definitions focusing on specific flows: multilateral funding, ODA, some FDI (see CPI 2011) • Unresolved issues: • Baseline (see Stadelmann et al. 2011) • Over and above ODA target of 0.7% of GNI • Over and above 2009 ODA levels • New sources of finance only • UN channels only • No agreed baseline – current status • Public and/or private finance

  21. Definition of climate finance ...cont • A broader, more political definition Mitchell and Maxwell (2010, p. 2) : “[c]limate finance… signals a new global relationship, shaped by • “polluter-pays” rather than charity. It means: • governance structures to allocate money weighted toward developing countries; • resistance to the use of traditional aid rules and conditions; • new lines of accountability to the UNFCCC, rather than to traditional “aid givers”; and • demands from developing countries for direct access to finance, without the need to work through intermediaries”. • The dilemma: to create trust we need to account, but lack of trust prevents the definition of what to account for • Currently a learning period for MRV practices in climate finance

  22. 3. Need for climate finance

  23. Need for climate finance ... cont • Roughly equal needs for adaptation and mitigation (100 billion per year by 2030), but • High uncertainty and strong assumptions • E.g. adaptation used to be considered as purely private concern in integrated assessment models (autonomous adaptation) • Now concern that 100 billion is at low end considering that ecosystem impacts not considered (Parry et al. 2009) • 100 billion commitment less than cost assessments indicate • However, project proposals are not coming forward currently at this scale • NAPAs: 483 projects with total value of 1.8 billion • NAMAs: just starting to be submitted

  24. 4. Supply and mobilisation of new finance • What is already supplied? • What new sources could be developed? • What should be the respective responsibility of each developed country?

  25. Spaghetti diagram

  26. How much climate finance has been provided so far? • Coding of ODA project data – 11 billion USD in 2006 • Self-reported climate finance projects – 4.5 billion since 2009 • Fast-Start Finance 2010-2012 – 28 out of 30 billion USD pledged • CPI report: 97 billion per year • 55 billion from private sector • Includes carbon offset flows (2 billion) • Self-reported data on ODA marked as ’climate’

  27. Sources and instruments proposed • Carbon-linked fiscal instruments – for contributions from national budgets • Reduction of fossil fuel subsidies – 4-12 bn • Carbon market revenues – auctioning of allowances under EU ETS or sales of AAUs – 2 bn • Carbon tax revenue – 7 bn – if international carbon price of 25$/tonne applied to all Annex II countries, 25-50 bn • (General tax revenue) • Problem: opposition against earmarking of funds, requires expansion of ODA/climate finance budget line in times of economic recession • Carbon offsets – measurable by country • CDM and JI under the Kyoto Protocol – 2-3 bn • Problems: validity as ’new and additional’, uncertain future

  28. Sources and instruments proposed .. cont • Fuel taxes in international aviation and shipping – ’new’ source, does not pass national budget • Could raise 7-11 bn • Problems: requires significant international cooperation, need to provide tax rebates for developing countries • Private finance • Targeted FDI – 37-72 bn • Public instruments to facilitate and leverage private investment: guarantees, demonstration projects, PPPs • Financial transactions tax (Tobin tax)

  29. Allocation of burden among developed countries • Responsibility – in proportion to historical emissions • Capacity – in proportion to GDP (eg as applied for assessed contributions to the UN) • Unilateral pledges – no formula, a ’grandfathering’ approach • Unlikely with burden-sharing formula in the near future

  30. National Obligations in 2020 (for climate costs = 1% of GWP)

  31. 5. Governance of funds • Under UNFCCC or beyond? Private/public • Comprehensive fund (a new World Bank) or fragmented architecture? • Strong interest in the political economy of climate funds: • Decision-making and power - board structure and decision rules • Regulations on access to funds – direct or via multilateral organisations

  32. Green Climate Fund • Transitional Committee to present a ’design’ to COP17 • Still unclear business model • GCF to become ”the main global climate fund” but no pathway outlined • Equal representation of developing and developed countries on Board • Direct access modality proposed • Minimal guidance on objectives of fund, environmental and social safeguards, accountability to beneficiaries

  33. 6. Allocation and use of funds • Uneven allocation between adaptation and mitigation, 14:86 ratio • Uneven and inequitable allocation between countries • Most mitigation investments in emerging economies (eg CDM) • Not clear that ’particular vulnerability’ criterion for adaptation finance is applied • Uneven allocation between individuals and communities in different countries: • Eg Adaptation Fund proposals show a difference in dollars/beneficiary by 4 orders of magnitude • Countries vs. communities as recipients raises i) democracy issues and ii) equity issues • Accountability, transparency and anti-corruption

  34. 7. Conclusion • Important progress since Copenhagen 2009: • Climate finance commitment survived Global Financial Crisis? • Pledges near the fast-start finance commitment (30 billion) • Green Climate Fund to be ’considered’ by the COP • Strong monitoring by NGOs, academia and stakeholders of climate finance progress and accounting practices

  35. Critical issues unresolved • Interim targets for scaling up between 2012-2020 missing • If no proposal on baseline for determining what is ’new and additional’ from Parties soon, large chance that ’no baseline’ continues to be applied • Unlikely with explicit national burden-sharing quotas for provision of finance from developed countries • Need for convergence of expectations whether climate finance should come mainly from public or private sources • The bleak prospects for the Kyoto Protocol suggests that ’new’ sources of climate finance (international aviation and shipping tax) could be more promising than carbon-related national revenue streams • However, growing level of ambition of national climate policy independently of international agreement • G20 to digest new World Bank report on sources, finance ministries taking over the climate issue • Need to improve needs assessment and use of finance, to maintain credibility and cooperation • Critical start-up phase of Green Climate Fund

  36. Key references • IEA (2011) CO2 emissions from fuel combustion – Highlights. http://iea.org/publications/free_new_Desc.asp?PUBS_ID=2450 • Peters et al. (2011) Growth in emission transfers via international trade from 1990 to 2008. PNAS April 25, 2011. • CPI (2011) The landscape of climate finance. http://climatepolicyinitiative.org/files/attachments/177.pdf • Mitchell, T. and Maxwell, S. (2010) Defining Climate Compatible Development. CDKN Policy Brief. Climate & Development Knowledge Network, London, UK. • The World Bank (2011) Mobilizing Climate Finance. Paper prepared at the request of G20 finance ministers. Washington, DC. • Persson et al. (2009) Adaptation Finance under a Copenhagen Agreed Outcome. http://sei-international.org/publications?pid=1309

  37. Thank you!

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