Bonn III: Creative Accountants for Rent

14 August 2009

As regular readers will know, ECO prides itself on seeking out the most shocking, least noble attempts by parties to avoid their responsibilities for tackling climate change, no matter how well hidden. And after thirty years of fearless reporting, there aren’t many tricks of the climate negotiating trade that haven’t been exposed on these pages.

In this year alone, who could forget the shameful ‘bar to zero’ exposé that rocked the LULUCF closed sessions? Or the moment the news broke that the Japanese 2020 mitigation target was not as ambitious as their choice of base year suggested or their government claimed?

So it is with great excitement this week that ECO stumbled upon the latest trick from developed countries, this time seeking ways to avoid their obligations to provide adequate new and additional public climate financing to developing countries.

It is old news that developed countries are often found seeking to “double count” carbon offsets – both towards their own mitigation targets, and towards financing for mitigation in developing countries. But the EU and US have this week given the story a new twist.Confounded by accusations of “double counting”, the big brains in the EU have been working over-time to find ways to get recognition under a Copenhagen deal for all the money they send out of their own countries to buy offset credits for mitigation projects in the South. ECO can understand why – after all, if they don’t count funds flowing through offsetting, developed countries would actually have to fulfill their commitments to find and pay the new and additional public money they owe.

They found the solution in a single word: ‘rent’. CDM offset credits are sold at the marginal price set by the market, but most are generated at much lower costs, meaning a significant economic rent, or profit, is earned on the sale. It is this profit margin that the EU have been considering counting towards their public financing obligations under a Copenhagen agreement.

It seems the idea is catching on fast. On Wednesday night, US chief negotiator Jonathan Pershing was heard to claim the US would be trying a similar trick. At a stroke it seemed Annex I financing obligations could be slashed without any further effort required beyond clever accounting.

Except there is just one problem. The rent that accrues from the sale of CDM offset credits is captured not by developing country governments, but by private sector companies operating in developing countries. Unfortunately, there is no guarantee whatsoever that this money will be used to take additional mitigation measures in developing countries nor to fund adaptation to climate impacts amongst the poorest and most vulnerable people. It takes real creative accounting to consider this climate value for climate money.

So ECO would like to suggest some homework for the EU, US and any other developed country delegation considering this latest scam as they leave Bonn: think again about what climate financing is needed for. ECO suggests that a minimum of US$150bn annually by 2020 in public finance is needed to cover the incremental costs of mitigation and adaptation for developing countries to meet the <2˚C target. And not a penny of public money less.