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Show Me the Money: Struggling to Fund Climate Change Commitments at Durban

November 18, 2011

This week Ernst and Young, reported by Reuters, stated the bleeding obvious: OECD countries don’t have the cash they promised to deliver under climate change negotiations.

The report came out the week that Berlusconi resigned, Spanish bonds hit 7%, and Germany downgraded future solar installation targets.

Agreeing to detail and commitments to funding for greenhouse gas emissions carbon abatement, including renewable energy and forestry investment, plus ‘adaptation’ investment, is a key part of the Durban deal for the successor to the Kyoto Protocol.

You don’t have to be smart to point out that the OECD handing over $100 billion per annum from 2020 to fund further power, forestry and agriculture projects in developing countries is very hard to imagine at this point in time.

At this blog, we wrote about the potentiality of these financial commitments to come unstuck a year ago, and also examined what Australia was going to fund and how here and here.

While the EU has agreed to commit a first tranche of funds of €4.68 bn to ‘Fast Start Finance’, a recent EU Council communique suggests that there may already be some backsliding:

In light of severe fiscal constraints facing many governments, EMPHASISES that a public finance contribution to the commitment made needs to be consistent with sound and sustainable public finances, and sound public financial management through careful evaluation of needs, effective disbursement and an open attitude toward innovative sources of finance and approaches to broaden private sector involvement.

In total, OECD (developed) countries committed to €30 bn in ‘Fast Start Finance’ for 2010-2012.  There is no common transparent reporting format for these commitments – leaving open plenty of wriggle room for evasion.  The WRI has also helpfully provided an overview of the FSF country commitments.  Australia committed $599m over 3 years.

One of the main points is that funding should be additional.  The definition of ‘additional’ therefore becomes interesting.  At Cancun it was agreed that developed country financial commitments should have monitoring, verification and reporting systems enhanced and in a comparable format.  The World Resources Institute has written a good paper on this.  In that the hope is that much of the investment should come from the private sector, the question then is:  through what mechanism?

At the recent warm-up meeting in Cape Town, the outlook for the Second Commitment Period of the Kyoto Protocol was left uncertain.  It remains so for the Durban meeting.  From our perspective, the challenges for a binding global agreement look insurmountable.  This will negatively impact the stringency of obligations that developed countries will seek to apply to their private sectors, in turn impacting flow-on private sector investment in developing countries.  We would be pleased to be proved wrong on this.

Also at Cape Town, participants could not agree on the final structure for the Green Climate Fund (GCF), proposed at Cancun.  Saudi Arabia and the US stepped in to bar final resolution.  It will again be picked up in Durban.  Completion will be very difficult.  The GCF is supposed to be a central element of the climate financing tools.

Where on earth will countries with long-term deep-seated structural financial problems, coupled with domestic spending constraints, find $100 bn a year?  In a good paper, Frank Jotzo and friends at Australian National University examine this issue for Australia.

While the recent IEA 2011 World Energy Outlook warns us of impending irreversible climate damage from runaway  greenhouse gas emissions, the political and financial capacity of nations to meet the challenge through provision of the committed finance looks seriously impaired.

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One Comment leave one →
  1. November 24, 2011 12:13 pm

    Update:

    This week, Trevor Houser and Jason Selfe released a Working Paper at the Peterson Institute for International Economics in Washington: ‘Delivering on US Climate Finance Commitments’.

    Their finding echoes our own thinking:

    “Raising new public funds for climate finance will be extremely challenging in the current fiscal environment and that many of the politically attractive alternatives are not realistically available absent a domestic cap-and-trade program or other regime for pricing carbon. Washington’s best hope is to use limited public funds to leverage private sector investment through bilateral credit agencies and multilateral development banks.”

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