Although some announcements have been made on finance for climate change, there remain a number of contentious governance issues that need to be addressed, and trade-related gaps that need to be plugged.
Although commissioned by the UNFCCC, the outcomes of the recent High-Level Advisory Group on Climate Change Financing (AGF) report have been criticised for being overtly vague, and pinning much hope on a market that lacks foundations – the global carbon market – at a time when overall faith in the efficiency of markets remains at an historic low, and commodity markets in general, remain volatile. For example, as noted in a recent ODI blog, the AGF report suggests that US$100 bn of climate finance may be provided if the carbon price is high. However, carbon prices depend on internationally agreed targets.
Despite attempts by the G-20 to address gaps in global governance, including in relation to the provision of finance for global climate change adaptation and mitigation efforts, the final communiqué shows that discussions failed to move beyond trade imbalances. Even if agreement had been reached on both the level and types of resources committed to climate change finance, however, it is important to remember that the G-20 is a voluntary members club – it is not able to match pledges with enforcement. References made to getting a deal on Doha offer no new solutions to addressing the current deadlock.
At the same time, regions are pushing ahead with their own plans on climate change mitigation, for example the European Union’s 20-20-20 strategy (which may be upgraded to 30-30-30 if agreement at COP16 is reached). Other large emerging markets such as China, Brazil and India are similarly forging ahead, and these strategies are likely to affect the development trajectories of other countries – including least developed countries – in the future.
In some cases these impacts may be positive, for example by creating new markets for goods and services associated with current export baskets such as certified low carbon agricultural goods or the certified emissions reductions associated with improved land-usage. But they could also affect trajectories negatively. The impacts of climate change will not only be physical, but also regulatory, and the severity on exporters will be product and country specific. Through production, processing and regulatory channels, climate change is likely to have a significant impact on the landscape that defines countries’ comparative advantages in the future.
Despite the potential trade-related impacts of mitigation and adaptation to climate change, there is limited interest in bringing these discussions to the UNFCCC forum. Even though the incorporation of a new deal on climate change is increasingly unlikely and highly contentious (due to differing principles, related governance structures enforcement and dispute settlement structures) there is continued deference to the World Trade Organisation. This presents developing country negotiators with a number of formidable challenges.
Policy-makers need to address governance issues, regulatory gaps and potential clashes between the trade and climate change regimes. But they should also explore potential synergies. There are mechanisms established at the multilateral level to help developing country negotiators design strategies that adapt to new rules, regulations and markets.
In the case of Aid for Trade, it was agreed as part of the Doha round of negotiations that, if resources were not forthcoming, developing countries would be under no obligation to adopt the rules included in WTO trade agreements. Therefore, there are both principles and mechanisms that could be borrowed from the trade regime.
Principles of special and differential treatment (SDT) should be maintained between the trade and climate change regimes, as well as other rules adhered to. All of this will help trade and climate change regimes become more mutually supportive rather than destructive. For example, low-income countries most vulnerable to the physical effects of climate change should be able to benefit from new opportunities. These include soil compliance markets and related support in terms of the promotion of good agricultural practices, in addition to new climate-change-related services, such as REDD (reduced emissions from deforestation and degradation) and the CDM (Clean Development Mechanism). However, this will require new resources in order to avoid diverting existing ones, which also means strengthening monitoring mechanisms.
Any new agreement on climate change, and the resources attached to it, needs to be dovetailed with the multilateral trade regime. There are areas where improvements in global governance related to the trade and climate change regimes may be necessary in order to ensure policy coherence for development. This approach is likely to be more commensurate with the new incremental approach adopted for UNFCCC negotiations since the dramatic failure of COP15 negotiations last year, and may also better recognise, and work with, the current fragility of multilateralism."