Tag: finance

Start funding the solution

ECO is pleased to report that after years of searching, long term funding for climate finance has been found! But first we must pry it out of the hands of big oil and coal companies. G20 nations in Pittsburgh, at the urging of the US, pledged to phase out fossil fuel subsidies. This could create a huge new source of funds that can and should be shifted to helping, rather than harming the climate.  Leaders have already agreed that we must phase these subsidies out. They simply need to commit to do this urgently and decide where the money goes.

How much money will be freed up by eliminating developed country fossil fuel subsidies?   While no definitive study exists, ECO notes that Jonathan Pershing, Head of the US delegation, authored a 2004 study that cited $57 billion annually in OECD subsidies.  The same paper notes that per-capita subsidies in the OECD are more than twice as high as those in the developing world.   Other studies put the figure as high as $150 billion in developed countries’ fossil fuel subsidies.  However you count it, it’s a huge dent in the need for long term climate finance.

G20 leaders agreed to phase out fossil fuel subsidies over the “medium term.” One way to advance both financing and emission reduction goals would be to set a firm date for Annex I subsidy phaseout.

Shifting fossil fuel subsidies to investments in a global clean energy economy is an elegant and urgently needed solution. It provides a simple and compelling argument for politicians to explain long term finance to its citizens:   Stop funding the problem, start funding the solution. Long term finance has to come from somewhere. Instead of giving US$3 billion to Exxon as the Obama Administration did just last week, shouldn’t part of the solution be to use the money for cleaner energy and adaptation?

If developed countries simply took advantage of the range of innovative finance sources out there, ECO’s math suggests that the 2020 finance gap would quickly disappear. Annex I leaders should be emboldened by the solutions at their fingertips and propose bold actions that could add up to meaningful long term finance.

Agree on finance from bunkers

ECO never tires of pointing out the obvious to delegates, but we promise we do it for your own benefit. So here we go again. What if you could find a way to control the fastest growing sources of emissions and generate billions of dollars of climate finance at the same time. You’d do it, wouldn’t you? ECO respectfully suggests you do just that for international aviation and shipping emissions, right here in Copenhagen.

Parties agree the emissions cannot be attributed to specific countries. The emissions are international, so the mitigation framework must be global. That’s okay, Article 4.1c of the Convention allows for this, but Article 4.3 lays down some conditions. To ensure the principle of common but differentiated responsibilities is respected, revenues created from bunker regulation — some estimates suggest US$25-37 billion per year — should be used to defray incremental costs and support climate action in developing countries.  Analysis shows that the impacts on trade would be minimal. Special exceptions can and should be made to exclude routes to and from the SIDS and LDCs, this is fully in the power of the International Civil Aviation Organization (ICAO) and International Maritime Organization (IMO) to do.

A key priority in the next seven days is ensuring that developing countries receive new, additional and stable finance to support their efforts. As many delegates have put it, no money, no deal! Bunkers can help bridge that gap by creating complementary money in addition to assessed contributions by Annex I countries. What a great double dividend: we achieve climate benefits while generating new climate money (through a levy or the auctioning of emission permits).

Now, consider the alternative. You keep on arguing in circles. Nothing gets decided. And bunker emissions keep on rising, making 2˚C impossible, let alone 1.5˚C. A recent study estimates that they would take up 92% of global emissions in 2050 if the rest of the world reduces emissions by the 80% we need. Further, unilateral approaches are springing up. The EU has already moved to bring aviation into its emissions trading system, and is likely to do the same for shipping in the absence of global action. In the US, bunker fuels are covered in the draft Congressional Bill. Such regional measures still cover developing country operators when they visit these major trading blocs but the money generated will not flow to developing countries. It goes to Annex I governments!

This is a huge missed opportunity. Don’t let it happen. Agree on something good: targets for  the sectors, timelines for ICAO and IMO to deliver at COP 16, and the principle of a co-operative approach that generates revenue for developing countries.

The unusual suspects

ECO had heard rumours about the possibility of a Mexican and Norwegian marriage on climate finance, but did not expect to see polygamy in the UN hallways. And it seems UK and Australia could not resist this love affair either.

ECO wants to congratulate these odd bedfellows coming together. Any clarity on what Parties actually mean is most welcome, in this opaque and mystifying atmosphere. ECO is feeling mildly optimistic about the explicit references to the Norwegian proposal and bunkers as finance sources from these countries. We have been tearing our ever-greying hairs out on the lack of progress around innovative mechanisms. However, ECO must remind the Parties involved that there may not be any offspring, even from a four-way union, unless this work is linked to an explicit reference to the scale of money needed. It is recognition of scale which will concentrate minds on the need for innovative sources, not vice versa.

ECO is also seriously concerned about the wishy-washy language on additionality. If there are new sources, shouldn’t the money they raise come on top of existing ODA targets? Otherwise this promise of funding is just an empty gesture and one which has devastating consequences for the poorest.

If we are looking for further reasons to be cheerful, ‘Direct Access’ is in the proposal! But what ECO wants to know now is this: does this allow for those who will be most impacted by climate change to have a voice in decisions? This is not clear, and worse, the text alludes to letting international financial institutions through the back door. What would the consequences be as to how this could operate under the authority of the COP?

Finally, we were wondering. Given the insistence on using existing channels to deliver ‘fast start finance,’ do our loving foursome plan to make sure that urgent NAPAs – sitting unfinanced for eight years – will see some money at last?

Some Progress: More Action Needed

ECO was excited to see streamlined adaptation text emerging over the weekend, with content on almost all fundamental points. In addition, the Co-Chairs expect to have a shorter text by the end of the week.

Based on the contact group discussions, there is convergence between Parties on “practical delivery” but divergence on some vital areas. These include scale of finance for adaptation, additionality of finance to existing overseas development assistance (ODA) targets, a rights-based approach, and vulnerability and prioritisation for support.

ECO however is troubled by response measures.

These cannot be part of the adaptation component as response measures are not about adapting to climate change but about the spillover effects of measures to mitigate climate change.

It is also worrying that the focus of Annex I countries is on planning and delivery for adaptation. Non-Annex I countries have clearly articulated in session after session that the greater focus should be on action on adaptation.

The text on adaptation for Copenhagen must incorporate six key points.

Firstly, the fundamental principles: prioritise support to the most vulnerable people and countries; promote a rights and community based approach to adaptation; and incorporate transparent, participatory and inclusive decision making at all levels. Crucially, adaptation must also recognise the value and importance of healthy ecosystems.

Secondly, financial support must be both predictable and reliable, and result in regular and adequate flows. ECO believes reference to finance delivery must remain in the adaptation section, and supports strong references to adaptation in the main finance section.

Thirdly, the subsidiarity principle should apply. Countries and communities should decide what is needed to enable them to adapt, not developed countries or multilateral agencies.

Fourthly, the agreement must include a comprehensive approach to building resilience. There should be a stronger focus on addressing underlying risk factors for vulnerability, such as poverty and marginalisation.

Fifthly, a climate risk insurance mechanism should be initiated with two components. A fund for high-level, climate-related shocks financed by developed countries (to cope with disasters as just seen unfold in the Philippines and India), and technical and financial support for setting up and operating pro-poor micro insurance schemes.

Finally, there must be provisions to address loss and damage from irreversible large-scale impacts of climate change. To address this issue, Parties need first to recognise that such impacts are likely, especially if strong, science-based emission reductions targets are not achieved.

ECO is pleased to see reference to action on adaptation starting “now, up to and beyond 2012.” Parties must actively negotiate on these areas over the coming week. But the right words alone are not enough; brackets in the text highlight differences of attitude. Annex I Parties must recognise that financing for adaptation is not ODA. It is reparation for damage done - the adaptation deficit caused by their combined lack of mitigation action so far.

Adaptation is Additional by Definition

As negotiators continue to wrangle over procedural issues in the adaptation contact group, Parties should be preparing for a possibly contentious debate on an issue that is nonetheless essential – the additionality of climate finance.

ECO has overheard very few developed countries in the corridors who are ready to provide climate finance in addition to their obligations to provide 0.7% of gross national income (GNI) for overseas development assistance (ODA). Most developed countries apparently hope to get away with cherry-picking their future aid budgets to meet the potential provisions of a Copenhagen agreement on financial support for adaptation (and mitigation as well) in developing countries.

There are some important reasons why climate finance needs to be additional – and that means not only additional to existing ODA flows, but additional to ODA targets.

First: Finance for adaptation is not aid but advance compensation for climate change impacts experienced by developing countries from emissions by developed countries.

Second: The pledge to deliver 0.7% of developed countries’ GNI as aid was made long ago – and long before the additional burden of climate change became apparent. To be sure, 0.7% is not exactly a huge amount of money if we are to achieve the Millennium Development Goals (MDGs), and the developed countries aren't on track for their ODA targets on the MDGs.  Not even close, in fact.

Third: In a fair Copenhagen agreement, developed countries would have to provide public finance of at least $50 billion per year for adaptation (and $100 billion for mitigation and other needs). If just a portion of these totals were to be obtained by diverting money for climate change purposes from future aid budgets, this would come at the expense of already scarce resources needed for basic education, health care, sanitation, housing and poverty eradication.

The argument is often heard that adaptation interventions cannot be considered as separate from development. However, while it's true that adaptation efforts should be consistent with poverty reduction and development programs, adaptation funding must be additional.

An increasingly hostile climate makes development increasingly expensive. This necessitates new resources for agriculture, increases in social and private insurance, and investment in new buildings and infrastructure, to name only a few.  These are the costs of adaptation, and they are by definition additional. Therefore, adaptation financing should also be truly additional, and not extracted from future aid budgets.

ECO will be listening closely when developed country colleagues speak on their plans to provide new and additional financial resources. If the LCA adaptation text in para 14(p) made the 0.7% target explicit, it would have it just right.  So developing country delegates may wish to focus on this paragraph when working on the finance chapter of the LCA text.

[Article published in Climate Action Network's Eco Newspaper, Sep. 30, 2009 from Bangkok, Thailand UNFCCC negotiations - full PDF version here]


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