Financing climate change
Surya Sethi - Chief Energy Adviser, Government of India
Monique Barbut – CEO, The Global Environment Facility
Neil Bird - Research Fellow, ODI
Neil Bird welcomed all present and introduced the speakers and the agenda of the meeting.
Surya Sethi presented his five ‘truths’ about climate change financing:
1st: Funding that supports developing countries address climate change should be different from the voluntary aid paradigm. Developed countries have an obligation to provide new, additional, adequate and predictable resources to help developing countries address climate change. Article 4.7 of the UNFCCC outlines “the extent to which developing country Parties will effectively implement their commitments under the Convention will depend on the effective implementation by developed country Parties of their commitments under the Convention related to financial resources and transfer of technology and will take fully into account that economic and social development and poverty eradication are the first and overriding priorities of the developing country Parties”. The commitment of the developed world should therefore be distinct from the voluntary aid ‘donor / recipient’ paradigm and Official Development Assistance (ODA).
2nd: The second ‘truth’ pointed out by Mr. Sethi refers to the incremental costs of climate change. Social-economic development should not be compromised, thus climate change finance should be additional to current development aid. Furthermore, such resources should be adequate to the needs of developing countries.
3rd: The incremental costs of addressing climate change should be met by resource transfers,grants, or concessional loans and this limits the role of the private sector. Recent research indicates that private funding can become a significant part of climate finance only under a cap and trade regime with hard caps backed by very deep emission reduction commitments, of the nature of 100% of current emissions of developed countries.
4th:Funding required to address climate change is a thousand times the amount available. There are lot of estimates of how much finance is required to address climate change. However, what is needed is thought to be in the region of 1,000 times as much as what is presently available.
5th: Finally, a new financial mechanism matching the governance structure foreseen under the Convention is needed to deliver the financial flows committed by developed countries. Mr. Sethi stressed that none of the current institutions have these characteristics, with the exception of the Adaptation Fund. He suggested that an in-country institution would be necessary to receive money and disburse to projects, with demand driven structures, and be independent from the national government.
The second speaker, Mrs. Barbut, started her presentation saying that she did not disagree with Mr. Sethi’s ‘truths’, however her answers to these ‘truths’ come from a different perspective. She also stressed that her talk represented her personal view, not that of the GEF Council.
Mrs. Barbut pointed out an evaluation is needed before we say ‘we need something new’. She suggested that if there is a problem with the existing instruments for delivery, perhaps we should try to fix them before creating any new ones. Mrs. Barbut then outlined some thoughts on climate financing:
1. The current system of voluntary replenishment, as happens with the GEF, should stop, because it is neither sustainable nor predictable. Resources to climate change should not be taken from the ODA budget, they should be additional to ODA. To achieve this additionality, innovative financial mechanisms are needed, such as increasing the 2% CDM levy or creating new trading mechanisms. Two options appear to have considerable potential: aviation transport taxes and the international maritime emissions scheme. The Mexico proposal is also a very interesting scheme that creates incentives for countries to reduce their emissions.
2. On financial architecture, Mrs. Barbut believed it to be essential to preserve some kind of integrated approach when addressing climate change. Loss of biodiversity could very well return as a major global concern. So, for example, forest management should not only be approached from a carbon market perspective.
3. There are fields in which competition can be damaging. A recent ODI study for the Heinrich Boell Foundation/WWF documented a total of 14 newly created funds on Climate Change. Yet, very little money has been disbursed and so these funds will not be able to offer many implementation lessons for the Copenhagen meeting. We need more collaboration, and implementation of the Accra declaration and Paris declaration principles.
4. Multilateral organizations like the World Bank have a unique set of skills, experience, and expertise that will be key in tackling climate change. However, we have to insure that climate change money will be disbursed in the most cost-effective way, where the most capable agencies compete to disburse the funds.
Mrs. Barbut concluded by saying that the UNFCCC parties will review and decide on the future of the GEF as the financial mechanism of the convention. GEF is an institution that has an integrated approach to the environment, and it already manages several funds. The GEF is a learning organization, with a very powerful independent evaluation office, the highest level of transparency, disbursing predictable resources that are country-driven and free to countries to use as they want. In the last replenishment meeting, it was decided that the COP should have a more important role in the governance of GEF, countries should have direct access to GEF resources, project cycles should be further reformed, and implementing agencies should be more accountable to developing countries.
Discussion centred around a number of issues, including:
- How to mainstream the developing countries position in Copenhagen? Mr. Sethi suggested that the developing world will not give up on the Convention and its Articles. Developed countries need to realise that the money for climate change has to be additional. The current institutions do not have the mechanisms required to tackle climate change effectively.
· Mr. Sethi also commented that the problem with carbon markets is related to the stock of emissions. There is a need for countries to take on bigger emission reduction targets. We have to realise that we live on the same planet and we all will suffer the effects of climate change.
· Mrs Barbut added that with the global economic crisis, countries are unlikely to commit a percentage of GDP for ODA. This raises a major challenge to secure funding for climate change that is additional, if the countries have not yet delivered the commitments made on 0.7% target for ODA.
Securing a financial package will be a central element of any global deal reached at the UN climate change conference in Copenhagen at the end of this year. Yet, the emerging architecture that is developing around new climate funds has already brought out differences in view as to how international support to help fund climate change actions in poorer countries should be governed. There is clearly some way to go before a consensus is found.
The UN say $50 bn - $70 bn will be needed each year to help poor countries adapt to a changing climate, but so far pledges made to the international climate funds have been very low. So, as governments worldwide debate on how best to respond to the many challenges set by climate change, strong leadership is needed to secure the financial resources from the international community to respond to this crisis. Where will that leadership come from?
ODI is pleased to welcome two speakers who can offer an authoritative view on this subject. Ms Monique Barbut, as Chief Executive Officer of the Global Environment Facility, will provide insights from the work of the GEF in supporting Least Developed Countries; Mr Surya Sethi, will draw on his experiences gained within the Planning Commission of India.