Fairness in Global Climate Change Finance

WWW.IPPR.
ORG
FairnessinGlobal
ClimateChangeFinance
ByAndrewPendletonandSimonRetallack
March2009
©ippr2009
InstituteforPublicPolicyResearch
Challengingideas– Changingpolicy
2 ippr|FairnessinGlobalClimateChangeFinance
Contents
Aboutippr ............................................................................................................................. 3
Acknowledgements ............................................................................................................... 3
Summary................................................................................................................................ 4
Listofabbreviations .............................................................................................................. 9
Introduction......................................................................................................................... 10
1.Estimatingcosts .............................................................................................................. 12
2.Financingproposals......................................................................................................... 15
3.BuildingaNorth–Southfinancepackage ....................................................................... 22
4.Allocatingfinancialobligations ....................................................................................... 25
Conclusions.......................................................................................................................... 31
References ........................................................................................................................... 33
Aboutippr
TheInstituteforPublicPolicyResearch(ippr)istheUK’sleadingprogressivethinktank,
producingcutting-edgeresearchandinnovativepolicyideasforajust,democraticand
sustainableworld.
Since1988,wehavebeenattheforefrontofprogressivedebateandpolicymakinginthe
UK.Throughourindependentresearchandanalysiswedefinenewagendasforchangeand
providepracticalsolutionstochallengesacrossthefullrangeofpublicpolicyissues.
WithofficesinbothLondonandNewcastle,weensureouroutlookisasbroad-basedas
possible,whileourinternationalandmigrationteamsandclimatechangeprogrammeextend
ourpartnershipsandinfluencebeyondtheUK,givingusatrulyworld-classreputationfor
highqualityresearch.
ippr,30-32SouthamptonStreet,LondonWC2E7RA.Tel:+44(0)2074706100
E:info@ippr.orgwww.ippr.org.
RegisteredCharityNo.800065
ThispaperwasfirstpublishedinMarch2009.©ippr2009
Acknowledgements
ipprwouldliketothanktheHeinrichBöllFoundationforitskindfundingandsupportfor
thisproject.
Executivesummary
Itisnowwellestablishedthatactiontoavoiddangerousclimatechangemusttakeplace
accordingtotheprinciplesof‘responsibilityandcapability’,andtheUN’sFramework
ConventiononClimateChange(UNFCCC)subscribestothisview.Morallyandinpolitical
termsdevelopedcountriesshouldleadglobalmitigationbymakingsignificantdomestic
emissionsreductions.Butinaworldoflimitedfinance,reductionsarguablybeundertaken
wherevertheycanbemadeforthelowestcost.
Sinceemissionsreductionsindevelopedcountriesareinsufficienttoresolvetheclimate
problemandareoftenmoreexpensivetomakethanindevelopingcountries,theprinciples
ofresponsibilityandcapabilitymightmoreproductivelybeappliedtothefinancing ofglobal
reductions:thiswouldmeanthatthehigheracountry’slevelofresponsibilityandcapability,
thegreateritsshareofglobalclimatefinance.Technically,developedcountriesarealready
obligedtotransferfinancetodevelopingcountries,undertheUNFCCC,whichstatesthat
‘agreedfullincremental’costsindevelopingcountriesshouldbemetbyfinanceand
technologyfromdevelopedcountries(Article4.3).
Whetherandhowthatobligationshouldbefulfilledisattheheartofthecurrent
internationalnegotiationsaimedatreachingaglobalpost-2012dealatCopenhageninlate
2009.Itisfraughtwithdifficulty,largelybecauseofthesizeofthepotentialfinancial
liabilitiesinvolvedandtheunpopularitythatwillarisefromaskingtaxpayersandconsumers
tomeetthem.
Estimatingcosts
Thevariousestimatesofincrementalmitigationcostsareunsatisfactory.Whilebeingbased
inmanycasesonrigorousanalysis,especiallyofmitigationopportunitiesindifferent
countries,thereisahighdegreeofuncertaintyoverfuturefactorsthatwillhaveasignificant
influenceoncosts.Inparticularthebehaviourofgovernments,officialsandpopulationsis
deeplyunpredictable;‘policycosts’mayprovesignificantandthemostcost-effectiveroute
todecarbonisationmaynotalwaysbetheonetaken.
Nevertheless,thereisaconvergenceinthemostrecentcostestimationsataroundUS$100
billionto$200billionfordevelopingworldcostsandaround$200billionto$400billionfor
globalcostsby2020-2030.Adaptationcostswilladdsignificantlytothesesumsandare
nowunavoidable.ItisperhapssignificantthatdevelopingcountriesintheUNnegotiations
havecalledforbetween$200billionand$400billionperannum.
Amorepragmaticandresponsiveapproachmaybetobaseestimatesoffuturefinancingof
mitigationindevelopingcountriesonplansforNationallyAppropriateMitigationActions
(NAMAs),verifiedbyaninternationalapprovalprocessaccountabletoUNFCCCsignatories.
Financingproposals
Thesumsquotedaboveareseveraltimeslargerthancurrentclimatechangefinance.The
largestexistingpoolisthe$6.1billionpledgedin2008bytendevelopedcountriestothe
WorldBank’sClimateInvestmentFunds(CIFs).Fromwherewouldgreatersumsoffinance
capableofmeetingtheneedsestimatedabovebedrawn?
1.Offsetting
ToincreasetheflowofoffsetfinancethroughtheKyotoProtocol’sCleanDevelopment
Mechanism(CDM),developedcountriescouldrelaxanylimitsontheproportionofdomestic
reductionsthatcanbeoffsetbypurchasingexternalcreditsorsetmoreambitioustargetsto
driveamoreaggressiveoffsetmarket.TheUNFCCCestimatesthatby2020,offsettingcould
yieldupto$40.8billion.Butdevelopingcountriesareunlikelytoacceptanincreasein
offsetsasasoleorevenmajoritysourceoffinanceforlow-carbondevelopment.
2.Leveragedorcompulsoryadditionaloffsetting
ForeverytonneofCO2 offsetindevelopedcountries,severalcouldbereducedina
developingcountryatapricerelatedtothemarketpriceofcarbon.Governmentsin
developedcountrieswouldfirsthavetoagreetobindingemissionsreductiontargetsand
thentoacorrespondingratioatwhichtoleverageoffsets.Iftheytookonanemissions
reductiontargetof40percentbelow1990levelsby2020andoffsetaroundhalfata2:1
ratio,thiscouldyield$130billionperyear.Suchamechanismwouldrequiredeveloped
countrieseithertoacceptdeepdomesticemissionsreductiontargetsortoleverageoffsetsat
higherratios.Itwouldreplaceratherthanworkwithinexistingoffsetmechanisms.
3.EmissionsTradingSchemelevies
Thereiscurrentlyalevyof2percentonthesaleofpermitsintheCDM,theproceedsof
whichgototheAdaptationFund.Thelevycouldraise$200to$680millionannuallyin
2020.BangladeshandBrazilhavebothproposedincreasesandattheUNFCCCCOP14
meetinginPoland,developingcountriesproposedthataCDM-typelevybeappliedtoall
emissionstradingschemes.Theproposalwasblockedbydevelopedcountries.
4.Revenuefromdomesticpermitauctions
Developedcountriesareincreasinglyauctioningpermitstoemitundercap-and-trade
schemesupfront,providingarevenuestreamtogovernments.Aproportionoftheserents
couldbesetasidetosupportdevelopingcountrymitigation(andadaptation).IfallAssigned
AmountUnits(AAUs)weresubjecttoregimesinwhichtheycouldbeauctioned,thenpost-
2012,upwardof$300billioncouldberaised.Revenuesfromauctioning,however,are
uncertainbecausethepricepaidbypollutersdependsondemand.Revenuesarealso
capturedbynationaltreasuriesandmaynotbeusedtofundlow-carbonactivitiesin
developingcountries.
5.Upstreamauctionrevenue(AAUhold-back)
Norwayhasproposedthat2percentofAAUsareheldbackattheinternationallevelrather
thanbeingassignedtocountriesandareauctionedtoraisemoneyforaninternationalfund.
Thiswouldraise$15-$25billionperyear.Othershaveproposedthathigherpercentagesof
AAUsareheldback.TheprinciplestandsahighchanceofbecomingpartoftheEU’s
negotiatingofferforCopenhagen.However,holdingbackhigherpercentagesofAAUsor
settingareservepricemayberesistedbydevelopedcountriesbecausecostswouldbe
passedontotheirconsumerswhilerentswouldbecapturedinternationally.USCongress
viewsinternationalexpropriationoffinanceasunconstitutional.
6.CreditingNationallyAppropriateMitigationActions(NAMAs)
TheRepublicofKoreahasproposedasystemofcarboncreditsforNAMAstoallowfor
actionstobetakenearlyandfinancedupfrontagainstafuturesaleofcarboncreditsonthe
internationalmarket.Thecreditswouldbepurchasedbydevelopedcountries,wheredeeper
reductiontargetswouldbeagreed.Itspotentialvaluewoulddependonthescopeand
effectivenessofNAMAplansandontheavailabilityofdevelopedcountryfinancing.
CreditingNAMAs,however,mightassistwiththepoliticsofapost-2012agreementasit
couldhelpfinancealreadyplannedlow-carbonstrategiesindevelopingcountries.
7.Globaltaxation
Switzerlandhasproposedalevyof$2pertonneatthenationallevelinallcountrieswithper
capitalevelsabove1.5tonnes,withcountriesretainingthefundsdependingontheirlevelof
development:40percentinthecaseofdevelopedcountriesand85percentforthe
poorest.Thiswouldraiseapredictableleveloffinanceof$48.5billionperyearofwhich
$18.4billionwouldbedepositedinaninternationalfund.Butthecostsofaflatcarbonlevy
wouldfallregressively.
8.Otherlevy-basedproposals
Leastdevelopedcountries(LDCs)haveproposedaninternationallevyonaviationwhich
couldraisebetween$4and$10billionannuallyandalevyonbunkerfuelsforaviationand
shipping,whichcouldraisebetween$4and$15billion.Brazilhashintedata100billion
climatefundinvolvinga10percenttaxonrevenuesfromtheproductionandtradingofoil
andcoal.
9.Non-climate-relatedfundingsources
Otherfundingsources,suchasincreasesingeneraloverseasdevelopmentassistance,atax
oncurrencytransactions(TobinTax)ormorebroadlyonfinancialtransactions,revenuefrom
untaxedincomeheldoffshoreandtheuseofsovereignwealthfunds,mayallplayafuture
role.Forexample,$11.5trillionofprivateassetscurrentlyheldinoffshorefinancecentres
wouldyield$225billionannuallyiftaxedataconservativerate.
10.Frontloadingfinance
Frontloadingfinanceusingbondsraisedagainsttheguaranteeoftaxrevenueindeveloped
countriescouldleverageprivatesectorfinanceintomitigationmeasures.Developing
countriesareunderstandablycautiousbuttheEuropeanCommissionhashintedata
propositionwherebydevelopedcountriesguaranteelendingforwell-structureddeveloping
countryprojectsandpolicies.Thisapproachmightalsoremovesomeoftheshort-term
politicalpressureondevelopedcountrygovernments,whosecontributionstoglobalclimate
financingmustotherwisebedrawnfromanincreaseincoststotoday’staxpayersor
consumers.
BuildingaNorth–Southfinancepackage
Withinthecurrentstructureofthenegotiations,agreedfinancingislikelytocomeprimarily
fromKyoto-typesources,especiallywhiledevelopedcountriesremaincommittedtoputting
inplaceandlinking-upnationalorregionalcarbonmarkets.Thereforethechoiceisbetween
differentcombinationsor‘wedges’ofmeasuresthatadduptoanagreedsum.Measures
suchastheCDMandoffsetleveragingareincompatible(offsetleveragingwouldreplacethe
CDM).Others,suchasAAUholdback,canbescaledupbutappearpoliticallylessviablethe
largertheybecome.
DevelopedcountrygovernmentsfacesomethingofaHobson’schoiceastheultimatesource
ofthefinancingisthesameone:developedcountrypopulations.Thismayproveespecially
troublesomeatatimeofeconomichardship.IftheKyoto-styleapproachcontinuesto
pervade,whileasimplerapproachofenhancingonemechanismmaybepreferabletoamore
complexcollectionofmeasures,itmayprovepoliticallymoreattractivetospreadthecost
acrossanumberofmeasures.
Giventhescaleoffinancingrequired(andthelikelyunwillingnessoftaxpayersand
consumersindevelopedcountriestopay),official climatefinancingshouldalso
accommodateotherfinancialflows,suchasadditional,climate-relatedoverseasdevelopment
assistanceandtheuseofdebt-basedinstrumentssuchasfrontloading.
Thereisalsotheequallypoliticallychargeddiscussionconcerningthestructureand
mechanismbywhichthefundingmightbegoverned,allocated,channelled,monitoredand
verified.Therearetwochoice.ThefirstisasingleWorldClimateChangeFundapproach,as
proposedbyMexico,towhichallcountrieswouldcontributeaccordingtotheirlevelof
cumulativeemissions,populationandabilitytopay,butdevelopingcountrieswouldbenet
recipients.ItissupportedbytheEuropeanCommissionbutfacestwopoliticalobstacles:it
requirescontributionsfromdevelopingaswellasdevelopedcountries,somethingtheG77
hasstaunchlyresisted,anddevelopedcountriesaretypicallyoftheviewthatanewfund
couldbeinefficient,wastefulandcostly.
Onepossiblealternativeisanewinternationalbodytoapproveandverifydeveloping
countryNAMAsandtomonitor,reportonandverifyfinanceflowsfromdeveloped
countries.AbodyofthissortmightbuildontheexperienceoftheCDMboard.
Allocatingfinancialobligations
IfdevelopedcountriesaretofulfiltheirUNFCCCobligationsandinamannerthatis
measurable,reportableandverifiable,sharingoutfinancingcommitmentsfairlyand
accordingtoaclear,defensiblemethodologywillbenecessary.Theconceptsof
‘responsibility’and‘capability’attheheartoftheUNFCCCcouldformthebasisofsuch
anapproach.
TheGreenhouseDevelopmentRightsFramework(GDRs),anequity-based,burden-
sharingproposal,isuniqueinthatitquantifies‘responsibility’and‘capability’.GDRs
allocatesmitigationeffortandadaptationcostaccordingtoaglobalresponsibilityand
capabilityindex(RCI).Responsibilityiscalculatedbytakingintoaccountcumulative
emissionspercapitasince1990andcapabilityismeasuredasPPP-adjustedGDPper
capitaaboveanincomethresholdof$7,500.Thetwoindicatorsarecombinedwithequal
valuetoarriveatasingleindexwhich,whilecurrentlyappliedtoemissionsallocations,
couldbeusedtodeterminefinancialobligations.Suchanindexmightbeusedinoneor
moreofthefollowingways:
1.Globalfund
TheRCIcanbeusedtocalculatefairsharesinaMexican-styleWorldClimateChange
Fund.UsingGDRs,ina$250billionperyearglobalfund,theUS’ssharewouldbe$82.7
billionin2010;China’scontributionwouldbe$13.75billion;theEU15’ssharewouldbe
$57.4billion;whileIndia’ssharewouldbe$1.3billion.ThedynamismoftheRCI,taking
intoaccountchangingsharesofresponsibilityfortheatmosphericstockofgreenhouse
gasesandrelativeGDPgrowth,isanaddedadvantage.
2.Article4.3(AnnexII)fund
TheRCIcouldalsobeusedtodistributethefinancialburdenaroundKyotoAnnexII
countriesonly,weredevelopingcountriessuccessfulinnegotiatingthefull
implementationoftheUNFCCC’sArticle4.Foradevelopingworldfinancingfundof
$100billion,theEU15andtheUSareclearlyliableforthelion’sshare:$33.9billionand
$47.7billionrespectively.
3.AAUauctionoroffsetaggregator
TheRCIcouldalsobeappliedtoascaledupversionofNorway’sproposaltoholdback
developedcountries’AAUs.Wereanoverallhold-backtargetof10percentofAAUs
agreed,ratherthaneachcountrysacrificingaflat10percentofitsAAUs,eachwouldbe
givenadifferentproportionrelativetoitsRCIranking.CountrieshigheruptheRCIwould
havemorethan10percentheldbackandvice-versa.TheRCIcouldalsobeappliedtoa
leveragedoffsettoweightthedegreeofleveragingrequiredaccordingtothedifferent
RCIrankingsofdevelopedcountries.
4.RCIasthebasisforaglobalinventory
Thepoliticsofafinancingsystemthatreliesheavilyonasinglemechanismmayprove
prohibitivenotleastbecauseitwouldinvolveconspicuouslylargesumsoffinance
flowingtodevelopingcountriesfromahandfulofdevelopedones.Amoreeclectic,
multi-channelapproachtoclimatefinancingmightbethequid-pro-quofordeveloped
countries’fulfilmentofagreedfinancingobligations,withaCOP-accountableexecutive
bodytokeepthefinance-mitigationglobalbalancesheet.AnRCIcouldbeusedasthe
accountingmethodology.
Conclusion
Thecostsofreducingglobalemissionsarelikelytobemet(iftheyaremetatall),forsound
economicandinescapablepoliticalreasons,fromavarietyofdifferentsourcesandvia
differentmechanismsandchannels;thismaybeespeciallytrueduringadeep,global
recession.Suchaneclecticpictureofglobalclimatefinancepointstotheneedforan
internationalarbiteroffairnessandgoodpractice:aformallymandatedbodythatwouldset
thestandardsforandverifymitigationactions,policiesandplans,keepaninventoryof
developed–developingcountryfinancialflows,developedbestpractice,makepolicy
recommendations,andreportbacktotheCommitteeofthePartiestotheUNFCCC.
Designingaclimatefinanceregimethatisdemonstrablyfairandbasedonclearindicatorsof
equitycanhelpbothduringthisyear’snegotiationsandinpost-Copenhagendomestic
debatesindevelopedanddevelopingcountriesalike.Anindexofresponsibilityand
capabilityofthetypeusedintheGreenhouseDevelopmentRightsframeworkcanprovidea
referenceforobserversandnegotiators,asubstantivebasisfornegotiationandareal-world
methodologyforsharingoutagreedfinancialobligations.
Listofabbreviations
AAU AssignedAmountUnits
BAU Businessasusual
CDM CleanDevelopmentMechanism
CER CertifiedEmissionsReductions
CIF ClimateInvestmentFund
COP ConferenceofParties
CO2e Carbondioxideequivalent
Gt Gigatonne
REDD ReducedEmissionsfromDeforestationandDegradation
ETS Emissionstradingscheme
EUA EUemissionallowance
GDP GrossDomesticProduct
GDRs GreenhouseDevelopmentRightsframework
GEF GlobalEnvironmentFacility
GNP GrossNationalProduct
IPCC IntergovernmentalPanelonClimateChange
LDCs Leastdevelopedcountries
NAMA NationallyAppropriateMitigationAction
OECD OrganisationforEconomicCooperationandDevelopment
ODA Official/overseasdevelopmentassistance
ppm Partspermillion
QUELROs QuantifiedEmissionLimitationandReductionObligations
RCI Responsibilityandcapabilityindex
UNFCCC UnitedNationsFrameworkConventiononClimateChange
Introduction
Itisnowwellestablished–inpoliticalrhetoric,inthecampaignsofdevelopingworld-
focusedorganisationsandintheUnitedNation’sFrameworkConventiononClimateChange
–thatactiontoavoiddangerousclimatechangemusttakeplaceaccordingtotheprinciples
of‘responsibilityandcapability’.Thisrulehashithertotypicallybeenappliedtomitigation
action,suggestingthattheburdenofglobalreductionsinemissionsshouldfallonthe
shouldersofthosecountriesmostliableintermsofcontributiontotheatmosphericstockof
greenhousegasesandmostabletopay.
However,witheverypassingday,asgloballevelsofemissionsincrease(Sheehan2008,
AndersonandBows2008),thisargumentbecomesmoredifficulttoimplementasdeveloped
worldemissionsareproportionatelylessthanthosefromthedevelopingworldwhoserateis
increasingrapidly.TheemissionsofthosecountriesinAnnex1oftheKyotoProtocol
(developedcountries)andeventhetotalemissionsfromtheOECD(Organisationfor
EconomicCooperationandDevelopment)couldbeeliminatedentirelyanddangerous
climatechangewouldnotbeavoided(EcoEquity2008).Absoluteemissionsreductionsmust
nowtakeplaceindevelopingcountriestoo;emissionsreductionsmustbeglobalif
dangerousclimatechangeistobeavoided.
Morallyandinpoliticaltermsdevelopedcountriesshouldleadglobalmitigationwith
significantdomesticemissionsreductionsanddevelopingcountriesoftenstatetheirdesireto
seelow-carbonapproachesdemonstratedfirst.Butinaworldoflimited(andwaning)
finance,reductionsarguablyshouldbeundertakenwherevertheycanbemadeforthe
lowestcost.Thissuggeststhat,sinceemissionsreductionsindevelopedcountriesare
insufficientinquantitytoresolvetheclimateproblemandareoftenmoreexpensive,the
principlesofresponsibilityandcapabilitymightmoreproductivelybeappliedtothefinancing
ofglobalreductions.
InthetechnicalandlegaldebatesurroundingthecurrentUNnegotiations,developed
countriesalsofindthemselvesobligedtotransferfinancetodevelopingcountries.Article4.3
oftheUNFCCC(1992),towhichallnegotiatingcountriesaresignatories,statesthat
‘…agreedfullincremental…’costsindevelopingcountriesshouldbemetbyfinanceand
technologyfromdevelopedcountries.Ifthiscommitmentistobefulfilled,oratleasta
developedtodevelopingcountryfinancialpackageofsomesortistobeagreed,thenthe
costburdenoughttofallprogressivelybetween(andwithin)developedcountries(asthe
UNFCCCalsostates).
Whileconceptuallysimple–thehigheracountry’slevelofresponsibilityandcapability,the
greateritsshareofglobalclimatefinance–applyingtheUNFCCC’sequityprinciplesto
financeis,inpractice,fraughtwithdifficulty.Suchaconceptassumesthelevelsoffinance
necessary,measuredinhundredsofbillionsofdollarsperyear,arereadilyavailable;theyare
manifestlynot.Eveniftheywere,whatmethodologywouldbeusedfordeterminingwho
payswhatamount?Wereresourcesavailableandamethodologyagreed,pastattemptslarge
andsmalltotransfersuchresourcesfromdevelopedtodevelopingcountrieshaveoften
provenunpopularwithoneorotherpartyandarguablyalsoineffective.1
Settingasidesomeoftheseperniciousproblems,itisclearfromthecurrentstateof
internationalclimatechangenegotiationsthatafinancialpackageofsomesortwillbe
necessaryifthewayforwardpost-2012istobemappedoutattheforthcomingCopenhagen
1.Thereisasizeableliteratureontheeffectivenessorotherwiseofaidandonaid‘conditionality’andits
effects.Effortsinrecentyearsbydonorcountriestocoordinatebetter,tountieaidfromdonorcountry
goodsandservicesandtosupportrecipientcountrygovernmentbudgetsdirectlyhaveallbeenintended
toincrease‘aideffectiveness’.
COP(ConferenceoftheParties).AsChina’srecentsubmissiontotheUNFCCCsecretariat
said,‘DevelopedcountryPartiesshalltakesubstantiveactiontoprovidefinancialresources
mainlyfromtheirpublicfinanceongrantandconcessionalbasisfordevelopingcountry
parties,inaccordancewithArticle4.3,4.4,4.5,4.8,4.9andArticle11oftheUNFCCC’
(FCCC/AWGLCA/2008/MISC.5).
Mitigationcosts,thoughhighlycomplextoforecastbecauseofhugeeconomic,socialand
politicaluncertainties,aresimplythedifferencebetweencarbon-intensiveenergy,industrial
andlandusepracticesandtheirlow-carbonalternative.2 Inaddition,mitigationinmany
casesdemandslarge,upfrontcapitalexpenditurescommontoandinmanycasesnogreater
thancomparableinfrastructuralendeavoursandastrongfocusonthedevelopmentofnew
technology,whichrequiresaconstantflowoffinance.
Countriesbothdevelopedanddevelopinghavebeenreluctantandslowtopursuelow
carbonapproaches,inpartbecauseofthisincrementalcostbarrier.3 Inlieuofany
mechanismtoreducethisdifferential,governmentshavebeenunderstandablyreluctantto
visithighercosts–especiallyforenergysupply–ontheirpeopleandindustriestostaveof
whatappearstomostadistantandintangiblethreat.
Focusingonthefinancialcostofemissionsreductions,ratherthantheemissionsreductions
themselves,alsoopensuptheimportantdebateaboutwhopays.Developingcountrieswill
notcommitthemselvestoemissionsreductionsbecausedoingsoexposesthemtosignificant
financialliabilities;thisisalsothereasonwhydevelopedcountrieshavebeenreluctantto
extendtheiremissionsreductioncommitmentsinafurtherphaseoftheKyotoProtocol.
Especiallywhilemarket-basedmechanisms–cap-and-tradeorcarbontaxation–are
favouredbypolicymakers,costswillultimatelyfalltotaxpayersandconsumers,whichis
likelytoproveunpopular.4
Aimsofthepaper
Thispaperlooksatfairnessinmeetingcostsassociatedwithmitigatingandadaptingto
climatechange.Itexaminesvariousassessmentsofcostandproposalsforhowtoraiseand
channelinternationalclimatechangefinance.Italsousesthebestavailablemethodology–
theindexofresponsibilityandcapabilityintheGreenhouseDevelopmentRightsFramework
–toanalysehowthefinancialburdenshouldfallinprinciple.Itthendiscussessomeofthe
politicalandpolicyimplicationsofthesharingoutoftheglobalfinancialburdenandthe
raisingandchannellingoffinance.
2.Thispaperalsoconsidersadaptationcostsandmakespassingmentionofreducingemissionsfrom
deforestationanddegradation(REDD),butitsfocusismitigationbecauseitscorethesisisthatburden
sharingofmitigationeffortcanbetransferredeasilytoburdensharingofmitigationcost–indeedit
couldbearguedthattheburdenofmitigationisacostburden.
3.Therearemanyotherbarrierstothedeploymentoflow-carbontechnologies,suchasalackof
regulatorymeasuresandashortageofskillsandtechnicalknow-how.
4.Carboncap-and-tradeschemes,suchastheEmissionsTradingSchemeintheEU,willincreasingly
operatebyauctioningemissionsupfront(ratherthan‘grandfathering’–allocatingthemtopollutersfor
free).Thisauctioningprocessisadefacto taxonpolluters,thecostofwhichispassedontoconsumers
throughincreasedprices,especiallyofenergy.
1.Estimatingcosts
LordNicholasSterninhisreviewoftheeconomiccostsofclimatechangewasoneofthe
firsttoattemptacomprehensive,globaleconomicanalysisofthecostsofdecarbonisation
(HMGoverment2006).ThenowfamousSternReviewestimatedthattheannualeconomic
costofstabilisingatmosphericconcentrationofCO2e(carbondioxideequivalent)at550
partspermillion(ppm)wouldbearound1percentofglobalGDP.Sternhassincedoubled
thisestimateto2percentofglobalGDPfor500ppmstabilisation,principallyinlightofthe
UNIntergovernmentalPanelonClimateChange’sFourthAssessmentReport (IPCC2007)
andbecausestabilisationat550ppmnowlackscredibilityasalevellowenoughtoavoid
dangerousclimatechange(LondonSchoolofEconomics2008).2percentofglobalGDPat
2007levelsisaroundUS$1.3trillion.5,6
TheIPCCinitsfourthassessmentreportassessmentsurveyeddifferentmitigationcost
estimationsofatmosphericstabilisationbetween445ppmand710ppmCO2e(IPCC2007).
Thecostsassociatedwiththisrangedfromaround3percentofglobalGDPtoaround-1.2
percent(soasmallincreaseinglobalGDP)between2012and2030.Therefore,stabilisation
at445ppmwould,intheIPCC’sview,costaround$2trillionat2007levels(ibid).7
Thereare,astheIPCCobserves,majormethodologicaldifferencesbetweentop-down,whole
economystudiessuchastheSternReviewandstudiesbasedonabottom-upassessmentof
themitigationpotentialindifferentcountriesofarangeoftechnologies.8 Arecentbottom-
upstudybyMcKinseyandCompanyfindsthatannualincremental economiccostscouldbe
between200billionand350billion($273to$478billion)andin2030fora35percent
reductioninglobalemissions:lessthan1percentofprojectedglobalGDP.Upfront
financing(capitalexpenditure)costscouldbe530billionperyearin2020and810billion
peryearin2030(McKinseyandCompany2009).
EstimatesbytheUNFCCCsuggestthatin2030,additionalmitigationfinancingand
investmentflowsof$200to$210wouldbeneededtoreduceglobalemissionsbymorethan
30gigatonnesCO2e,with$76to$77billionofthecostsfallingindevelopingcountries
(UNFCCC2007).Thishassubsequentlybeenrevisedup‘duetohigherprojectedcapital
costs,especiallyintheenergysector’inafurtherreport,requestedbytheAd-HocWorking
GrouponLongTermCooperationatCOP13inBali(UNFCCC2008).Itsnewmitigationcost
estimatesare170percenthigherasaresult;around$350globallyperyearin2030,
approximately$130ofwhichwouldfallindevelopingcountries.
TosupportitsrecentCommunicationontheCopenhagennegotiations,theEuropean
Commission’sJointResearchCentrehasalsocompletedaglobalcostsanalysisusingits
POLESmodel.Itconcludesthattheannualcostofabatementreaches152billion($207
billion)in2020inenergyandindustry(81indevelopedcountriesand71indeveloping
countries)or175billion($239billion)ifagricultureandavoideddeforestationareincluded.
Thisisbasedondevelopedcountriesreducingemissionsby30percentin2020comparedto
1990levelsandanincreaseindevelopingcountriesof20percentinthesameperiod(a
significantreductionagainstbusinessasusual[BAU]).
5.AccordingtotheWorldBank’sWorldDevelopmentIndicators,September2008,globalGDPadjusted
forpurchasingpowerparityin2007wasUS$65.5trillion.
6.TheEconomistIntelligenceUnit’sForesight2020(2006)suggestedglobalPPP-adjustedGDPwould
increaseatanaverageannualrateof3.5percentbetween2005and2020,totalgrowthoftwo-thirds.
AccordingtotheWorldBank,globalGDPwasaround$60trillionin2005.
7.ibid,WorldBank2008
8.Forafulldiscussionofthedifferencesandsimilaritiesbetweentop-downandbottom-upstudies,see
IPCC2007,althoughtheIPCC’sassessmentofthevariouscoststudiesdoesnotincludemanyofthe
recentstudiesmentionedinthispaper.
Comparingcostestimatesisdifficultduetothemanydifferentsetsofassumptionsthat
underliethem(differenttechnicaldata,differentmitigationtargetsandbaselines,different
time-sets,globalversusdevelopedanddevelopingworld,andsoon).Theaverage–
althoughmoreorlessmeaninglessbecauseofthemixedmethodologiesandvarying
assumptions–fallsataround$670billionperannum.Figure1showsinsteadanaverageof
threerecentstudies:MckinseyandCompany;UNFCCC;andECJRCwhichsums$289billion
peryear(in2020to2030).
Figure1. 2,500
Globalcost
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TheCatalystProject9 estimatesthatfora450ppmCO2estabilisation10,globalemissionsneed
tohavebeenreducedby17GtCO2ein2020againstBAUprojects:5GtCO2einthe
developedworldand12GtCO2einthedevelopingworld.EstimatesbyitsCarbonFinance
WorkingGroupsuggestthedevelopingworldcostwilltotalanaverageofbetween80and
115billion($109to$157billion)peryearbetweennowand2020.However,thisbreaks
downfurthertomitigationcostsofbetween55and80billion,10billionforR&Dand
15to25billionforadaptation.
Developingcountries,throughtheG77andindividually,haveproposedthattofulfiltheir
obligationsunderArticle4.3oftheUNFCCCdevelopedcountriesshouldcommitfinancingin
developingcountriesequivalenttobetween0.5and1percentoftheirGNP–$200–400
billion.11 Thisislikelyintendedonlyasanindicationofscaleratherthantoimplyanylinkto
thelong-promisedandlargelyunmetOECDoverseasdevelopmentassistancetargetof0.7
percentofGNP.
Adaptationcostestimatesalsovarywidely.TheWorldBank’s(2006)oftenquotedestimate
of$10to$40billionin2020hasbeenjoinedmorerecentlybyOxfam’s(2007)estimateof
morethan$50billionannuallyandtheUNDevelopmentProgramme’s(2007)estimateof
annualadaptationinvestmentof$86billionperyearin2015.
Eventhoughcostassessmentssuchasthesehavebeenusefulthusfarinshowing
governmentsthevalueofearlyaction(evenifnottopersuadethemtoact)12,eachisbased
9.TheCatalystProjecthasbeenestablishedbytheClimateWorksFoundationtoprovidetechnicaladvice
andexpertisetonegotiatorsintheUNFCCCprocess.Seewww.catalystproject.info/
10.UndertheCatalystProject’sworkingscenario,atmosphericemissionsconcentrationwouldinfact
peakat510ppm,returningtoordippingbelow450ppmlater.
11.AccordingtotheUNStatisticsDivision,thecombinedGDPofAnnexIPartiesin2007was$40,217
billion.
12.Governmentsinsomedevelopedcountries,suchastheUK,havebuilttheirownmodelstoweighup
thecostsofdifferentoptionsastheyevolveinnegotiations.Developingtoolsofthisnatureonanopen
accessbasis,forinstancethroughopensourcesoftware,toallowallcountriestomakesuchjudgements
mayassistnegotiatorsfromcountrieswithfewerresourcestobetterjudgeoptions.
onarangeofpotentiallyhighlyvariableassumptions.Forinstance,mitigationcostestimates
useoilpriceprojections.Oilprices,asrecentexperiencehasshown,arepronetohigh
volatility.Eachalsoassumesthatclimatechangepolicy–especiallythatwhichreliesheavily
onmarketmechanisms–willplotthecheapestroutetoabatement.Forinstance,inits
executivesummary,theMcKinseyreportsprefixesitscostestimatesbystatingthatits
assumptionswouldhold‘…ifthemosteconomicallyrationalabatementopportunitiesare
pursuedtotheirfullpotential’(McKinseyandCompany2009).
However,inarecentcritiqueofclimatechangepolicytodate,economistDieterHelm
identifies‘policycosts’asamajorpotentialflawintheeconomiclogicofmarginal
abatement.Helmsuggeststhat‘governmentfailure,regulatorycapture,andtheimpactof
rent-seekingbehaviourwithinthepolicyprocess’arelikelytoleadtoanincreaseincosts
whentheabatementisundertakenintherealworld(Helm2008).13 Costsarethereforelikely
tobehigher,althoughbyhowmuchitisdifficulttosaybecause‘policycosts’aredrivenby
politicalandnoteconomicfactors.
Thereisawealthofliteratureexploringthereasonswhylow,neutralornegativecost
abatementopportunities(no-regretsorwin-win)arenottakenup(forinstance,seeSorrell
etal2004).Muchofwhathasbeenwrittentodateexplorestheproblemsoflackoftake-up
ofwin-winopportunitiesinindustrialisedeconomies,oftenatthehouseholdlevel(for
instance,seeNERAEconomicConsulting2007).Butitisclearthatitwouldbeamistaketo
assumethatevennegative-cost(money-saving)abatementhappensautomatically:such
opportunitiesarebynomeansfullyexploitedevenindevelopedcountrieswithproactive
approachesalreadyintrain.
Theconclusion,therefore,ofabriefscanoftheexistingestimatesofthecostsofmitigating
climatechangeisthatallareatbestonlybroadlyindicativeandeachdifferentfromthelast
orthenext.Afurtherproblemisthatmitigationpotential–mostadequatelysurveyedin
McKinseyandCo(2009)–isinitselfadynamicconcept.Forinstance,ifmoreattention
werepaidearlyontolow-carboninnovation,mitigationpotentialinthefuturemayincrease.
Similarly,iffinancewerefrontloaded(andprobablysignificantlyscaled-up)toaccelerate
large-scaledeploymentofavailableornearmarkettechnology,inadditiontoagradual
pressureonthefinancialacceleratorthroughcap-and-trade,futuredeploymentmightbe
cheapersooner.
Futurefinancingbydevelopedcountriesofmitigationindevelopingcountries,necessaryin
ordertosecureglobalactioninthenextdecadeortwo,mightthereforebebuiltupon
developingcountryplansforNationallyAppropriateMitigationActions(NAMAs).These
couldincludedecarbonisationprojects,low-carbondevelopmentpoliciesandmeasuresand
national(orregional)sectoralapproachesandcouldpassthroughaninternationalapproval
process–perhapsatechnicalbodyorsetofregionalpanelsaccountabletotheCOP(thatis,
allUNFCCCsignatories)–andbeperiodicallyreviewedtotakeaccountofthedynamic
natureofdecarbonisation.ThiscouldbeviewedasbeinginkeepingwiththeBaliDecision
(UNFCCC2007),whichcallsfor:
‘…nationallyappropriatemitigationactionsbydevelopingcountryPartiesin
thecontextofsustainabledevelopment,supportedandenabledby
technology,financingandcapacity-building,inameasurable,reportableand
verifiablemanner.’
NAMAplanscouldthenbefinancedeitherthroughanew,globalfundorbyusingarangeof
channelsmonitoredandevaluatedbyanewexpertortechnicalbody(seeSection4below).
13.Forinstance,nationaltreasuriesinEUmembercountriesarecurrentlyunwillingtoearmarkall,orin
somecasesany,ofthemoneycapturedfromtheauctioningofemissionstradingpermitsforspendingon
low-carbonmeasures.Sowhiletheywillspendthismoneyonsomething–theoveralleconomiccostof
auctioningshouldbezero–itmaynotbeclimatechangemitigationmeasuresthatbenefit.
2.Financingproposals
Wherealltheaboveestimatesconvergeisonthenotionthatasaproportionoffuture
wealth,mitigationcostswillbetrivial.However,viewedinabsolutetermsandonan
annualbasis,theyareanythingbut.Article4.3oftheUNFCCCnotwithstanding,any
reasonablemeasureoffairnessinthedistributionofthesecostswouldseethelion’s
sharelikelytobebornebydevelopedcountries.However,thesumsconcernedareat
leastasbigascurrentflowsofofficialdevelopmentassistance(ODA).14
Thesumsquotedabovearealsoseveraltimeslargerthancurrentclimatechangefinance.
Thelargestexistingpoolisthe$6.1+billionpledgedlastyearby10developedcountries
totheWorldBank’sbraceoffinancingmechanismsknownastheClimateInvestment
Funds(CIFs).Whiledevelopingcountriesmayyetcooperatewithandparticipateinthe
governanceofthesefunds,theG77maintainsthattheycannotbecountedasa
fulfilmentofAnnex1(AnnexII15)Article4.3obligationssincetheywerenotagreed
underorchannelledthroughtheUNFCCC.
Inaddition,thereareseveralfundsforadaptation,threeofwhichareunderthe
governanceoftheGlobalEnvironmentFacility,aWorldBanktrustfund,andtheother–
theAdaptationFund–governedbyanewly-establishedBoardundertheCOP.The
AdaptationFundisfinancedbyalevyonCleanDevelopmentMechanismtransactions
andothercontributions(seebelow).TheGEFadaptationfundsaredrawnfromvoluntary
contributionsbydevelopedcountriesandcollectivelyamounttoaround$300million
(UNFCCC2008)(asatOctober2008).
Fromwherewouldgreatersumsoffinancecapableofmeetingtheneedsestimated
abovebedrawn?Post-KyotoProtocol,theanswerisafamilyoffinancingproposals
relatedtotheallocationofemissionsreductioncommitmentstoProtocolcountries
(presumablyincludingtheUnitedStates–seebelow),theoffsettingofthesereductions
elsewhereintheworldandthesaleoftheseemissionsallowancesbygovernmentsorat
theinternationalleveltopolluters.
Thusmostpost-2012financingproposalstodatepresupposeaKyotoProtocol-style
systemwithexpandeddevelopedcountrycap-and-tradeschemesastheprinciple
instrumentsofclimatechangepolicy.Itisworthnoting,however,thatthisisasignificant
presupposition.TheUS,thoughrapidlychangingdirectiononclimatechangepolicyafter
eightyearsofisolationism,andlikelytointroducedomesticcap-and-tradelegislation
soonifnotthisyear,isbynomeanscertaintoratifyafutureinternationalagreement.
Moreover,thepresumptionthatKyoto-relatedmechanismsshouldbethosefromwhich
financetosupportglobalmitigationandadaptationissourcedisalsocontestable.Other
sourcesoffinance,mechanismsandapproachesareopentopolicymakersandthe
biggestfillipforclimatechangemitigationhithertoislikelytocomenotfrom
mechanismsrelatedtointernationalclimateagreementsbuteitherfromgovernments’
domesticfiscalstimulusprogrammes,whichareprimarilydesignedtoincreaseeconomic
productioninthefaceofrecession,orfromregulation,suchasthatusedsuccessfullyin
California.
14.AccordingtotheOECD’sDevelopmentAssistanceCommittee,ODAin2007stoodat$103.5billion.
SeeAidTargetsSlippingOutofReach?(OECD2008).ThesamereportalsoobserveshowOECDcountries
areofftrackinmeetingtargetssetin2005forincreasingODAfrom$80billionin2004to$130billionin
2010.
15.AnnexIIoftheUNFCCCliststhoseAnnex1countries–generallyOECDexcludingthetransition
economies–towhichArticle4applies.See
http://unfccc.int/essential_background/convention/background/items/1348.php
Potentialsourcesoffinancing
Belowisabriefsurveyofpotentialfinancingsources,beginningwiththeKyotoProtocol-
relatedfamily,thenconsideringarangeofotherfundingproposalsandsourcesandfinishing
withabriefdiscussionoffrontloadingordebt-basedfinancing.
1.Offsetting
TheprincipleofoffsettingiswellestablishedinthecurrentKyotoProtocolthroughtheClean
DevelopmentMechanism.Asitstands–althoughhighlylikelytobereformedinanypost-
2012agreement–theCDMisprojectbased,allowingindustryincountriesoperatingunder
Kyotoemissionslimitationandreductionobligations(QUELROs)topurchasecreditsissued
againstabatementprojectsindevelopingcountries.
Someemissionstradingschemes(theEU’sandAustralia’s)limittheproportionofdomestic
reductionsthatcanbeoffsetbypurchasingexternalcredits.Toincreasetheflowofoffset
finance,schemescouldeitherrelaxorremovethislimitorsetmoreambitioustargetswith
theaimofdrivingamoreaggressiveoffsetmarket.
Offsettinghasalreadyprovidedasteadyifsmall(relativetotheabovecostestimates)stream
offinancefromdevelopedtodevelopingcountriesthathasbroughtaboutsomesignificant
greenhousegasabatement.Whilecap-and-tradeschemesremainpopularandindeed
proliferateasapolicyinstrumentforreducingemissionsindevelopedcountries,offsetting
willprovideareliablestreamoffinancetodevelopingcountriesandasimilarlyreliablesupply
ofcheapreductionstodevelopedcountries.
Inenvironmentalterms,offsettingdoesnotprovideadditionalmitigation.Unlesstherewere
deeperreductiontargetsindevelopedcountries,ineffectdeepenoughtoincorporateboth
developedanddevelopingcountryreductionsoveragivenperiod,thenoffsetswouldnot
drivemitigationinadditiontothatagreedbydevelopedcountryreductions.Andyetthe
avoidanceofdangerousclimatechangenowreliesonmitigationinbothdevelopedand
developingcountries(GlobalClimateNetwork2008).
Developedcountrieswillarguetheyneedtooffset,especiallyastheydeepentargetsin
secondandthirdKyotocommitmentperiods;offsettingisinevitablewhilemarket
mechanismspersist.Developingcountriesareunlikelytoacceptanincreaseinoffsetsasa
soleorevenmajoritysourceoffinanceforlow-carbondevelopment.
Potentialvalue:Itdependsonthedepthofdevelopedcountryemissionsreductiontargets,
buttheUNFCCCestimatesthatby2020,offsettingof0.4to1.4GtCO2eatanaverageprice
of$24pertonneofCO2ecouldyieldbetween$9.6and$40.8billion.Withthecarbonprice
currentlydepressedthroughoversupply,CERshaverecentlybeentradingatlessthanhalf
thisprice.16
2.Leveragedorcompulsoryadditionaloffsetting
TheCatalystProject’sfinanceworkinggrouphassuggestedthatoffsetscouldbeleveraged;
foreveryonetonneofCO2eoffsetindevelopedcountries,severalwouldbereducedina
developingcountryatapricerelatedtothemarketpriceofcarbon.Governmentsin
developedcountrieswould,ineffect,beobligedtobuyanagreednumberofthesehigh-
pricedoffsetstomakeupthedifferencebetweentheirpost-2012obligationsandtheir
actualdomesticemissionsreductions.Similarproposalshavebeenmadethat,forinstance,
suggestdevelopedcountriesshouldprocureagreedquantitiesofCERsfromdeveloping
countriesandretirethem,ratherthanusethemtooffsetdomesticemissions(Müllerand
Ghosh2008).
16.EUemissionallowance(EUA)priceshavebeenconsistentlybelow10pertonnesinceAutumn2008.
TheCERpriceisnecessarilybelowtheEUAprice.Seewww.pointcarbon.com
Suchamechanismhasthepotentialtodelivergreateremissionsreductionsandsignificant
financingtodevelopingnations.Itisalsosimilarinnaturetosomemarket-basedReduced
EmissionsfromDeforestationandDegradation(REDD)proposals.17 Itwould,however,
requireagreementfromdevelopedcountrieseithertoacceptingdeeperdomesticemissions
reductiontargetsortoleveragingoffsetsathigherratios.
Theappealofoffsettingisaccesstocheapermeansofachievinggrossdomesticreductions,
sothisproposalmaysufferfromdiminishedpoliticalappeal.Itwouldalsoreplaceratherthan
workwithinexistingoffsetmechanisms,withtheCDMperhapsoperatingonlyinleast
developedcountries.
Potentialvalue:ProjectCatalystcalculatesthatifdevelopedcountriesweretotakeonan
emissionsreductiontargetof40percentbelow1990levelsby2020–atotalof11GtCO2e
–andoffsetaroundhalfata2:1ratio(thatis,foreverytonneoffsetinadevelopedcountry,
twowouldbereducedinadevelopingcountry),thiswouldyieldfinancialflowsto
developingcountriesof95billionperyear,whichwouldinturnpayforreductionsofa
further6GtCO2e.18
3.Emissiontradingschemelevies
Thereiscurrentlyalevyof2percentonthesaleofpermits(CERs)intheCDM,the
proceedsofwhichgototheAdaptationFund.Thisislikelytocontinueifthedesignofthe
CDMremainsthesame,andatCOP14inPoland,inDecember2008,developingcountries
proposedthataCDM-typelevybeappliedtoallETSs.Theproposalwasblockedby
developedcountries.
Potentialvalue:TheCDMlevycouldraisebetween$200and$680millionannuallyin2020.
Bangladeshhasproposedthatitbeincreasedtobetween3and5percent,whichcouldraise
upto$1.7billion.Brazilhasrecentlyhintedatafinancingproposalthatwouldseethelevy
onCDMtradesbeingraisedto10percent(seePointCarbon2009).
4.Domesticauctionrevenue
Ratherthangrandfatheringemissionsallocationsinacap-and-tradescheme,developed
countriesareincreasinglyauctioningpermitsupfront,whichbothhelpsestablishthepriceof
carbonandprovidesarevenuestreamtogovernments;itisadefacto carbontax(although
onewherebytherevenuestreamisdeterminedbythemarketratherthanbyagovernment-
setrate).Althoughtherentsfromauctioningarecapturedbydevelopedcountry
governments,itisargued19 thataproportionofthesecouldbesetasidetosupport
developingcountrymitigation(andadaptation).
Auctionrevenuescanbeusedtopurchasemitigationmeasuresinexcessofthosetakenon
bydevelopedcountries.Also,governmentsareshowinganincreasedappetiteforauctioning
permitsinschemes,forinstancetheEUrecentlyagreedtoauctionthemajority,althoughnot
allpermitsinPhase3ofitsEmissionsTradingScheme.
Revenuesfromauctioningare,however,uncertainbecausethepricepaidbypolluterswill
dependonwhetherdemandforpermitsishigh20,whichinturnisdependentonaseriesof
17.Forinstance,seeGreenpeace’sTropicalDeforestationEmissionsReductionMechanism(Hareand
Macey2007)andJohannEliasch’sreportfortheUKGovernment(Eliasch2008)
18.ProjectCatalystestimatesthattostayontrackforastabilisationat450ppmCO2e,the2020global
mitigationtargetshouldbe17GtCO2e,5indevelopedand12indevelopingcountries.
19.ForinstancebytheClimateInstituteinAustralia,whichproposedthat10percentofauction
revenuesfromthecountry’scap-and-tradeschemeshouldbedirectedtosupportmitigationin
developingcountries.
20.Europeangovernmentsarepermittedtoestablishareservepriceforpermitsatauction.IntheUK’s
case,forinstance,thisisdeterminedby‘applyingadiscountrateandmarkdowntotheprevalent
secondarymarketpricebeforethecloseofthebiddingwindow.’SeeDEFRA(2009)
otherfactors.Forinstance,sinceAutumn2008,thecarbonpriceinEuropehasfallendueto
weakeconomicoutput.Revenuesarealsocapturedbynationaltreasuriesandmaynotbe
usedtofundlow-carbonactivitiesletalonethoseactivitiesindevelopingcountries.
Potentialvalue:IfallAssignedAmountUnits(AAUs)–circa16billion–weresubjectto
regimesinwhichtheycouldbeauctioned,thenpost-2012,dependingonthecarbonprice,
upwardof$300billioncouldberaisedbynationalgovernments.However,asanindication
thatfullauctioningofallpermitsissomewayaway,theEUwillnotauction100percentof
itsETSpermits(whichinturnisonlyaproportionofitstotalAAUs)until2027.In2020the
ETSauctionisexpectedtoraise30billionannually,muchofwhichislikelytoberetained
bynationalgovernmentsandusedforgeneralexpenditure,withperhaps50percentusedto
covermitigationcosts(Buchan2008).Onlyaproportion,ifany,ofthisislikelytogoto
supportactionindevelopingcountries.
5.Upstreamauctionrevenue(AAUhold-back)
Norwayhasproposedthat2percentofAAUsareheldbackattheinternationallevelrather
thanbeingassignedtocountries(withQUELROs)andareauctionedtoraisemoneyforan
internationalfund,primarilyforadaptationandavoideddeforestation.Othershaveproposed
similarschemeswithhigherpercentagesofAAUsheldbackattheinternationallevelfor
moregeneralmitigationandadaptationfinancing(Spratt2009)orproposedsimilar
principlesbutwithoutspecifyingthequantityofAAUstobeheldback(EC2009).
AAUhold-backoffersthepotentialforcaptureofaproportionoftherentsfromauctioning
attheinternationallevel,yieldingaflowoffinancetothedevelopingworld(asopposedto
leavingthistothediscretionofindividualgovernments).Indeed,itcouldbearguedthatto
avoidcaptureofrentsbynationalgovernments,allAAUsshouldbeauctionedatthe
internationallevelratherthanattheregionalornationallevel.
Thevolumeoffinancethiswouldyieldwouldremainuncertainasthepricepaidforthe
AAUsheldbackwouldbedeterminedbytheinternationalcarbonmarket.Toovercomethis
flaw,areservepricecouldbesetusingamethodologysimilartothatusedbysomenational
governmentsinauctionsofETSpermitsinordertoguaranteeaminimumleveloffinance.
TheprincipleofAAUhold-backisincludedintherecentECCommunicationandstandsa
goodchanceofbecomingpartoftheEU’snegotiatingofferforCopenhagen.However,
reservepricesorhigherpercentagesofAAUsheldbacktoyieldgreaterand/ormore
predictablelevelsoffinancewillberesistedbydevelopedcountrygovernmentsbecause
costswouldbepassedontotheirconsumerswhilerentswouldbecapturedelsewhere.
Potentialvalue: TheUNFCCCestimatesNorway’sproposedauctionof2percentofAAUs
wouldraise$15-$25billionperyear(UNFCCC2007).StampOutPoverty,aUKdevelopment
financecampaigninggroup,proposestheauctionof8percentofAAUstoraise$56billion
peryear(Spratt2009).TheCatalystProjecthascalculatedthateitherselling13percentof
AAUsat30pertonneorlevyinga4pertonnechargeon100percentofAAUswould
yield70billion(CatalystProject2009).
6.CreditingNationallyAppropriateMitigationActions(NAMAs)
AproposalbytheRepublicofKoreacallsforasystemofcarboncreditsforNAMAstoallow
foractionstobetakenearly(UNFCCC2008)andfinancedupfrontagainstafuturesaleof
carboncreditsontheinternationalmarket.Thecreditswouldbepurchasedbydeveloped
countries,wheredeeperreductiontargetswouldbeagreed(sodrivinggreateroffsetting
activity).
Korea’screditingNAMAsproposalfitswellinprinciplewiththeProjectCatalystproposal
aboveforleveragingoffsets(ineffect,creatingdeeperdevelopingcountrymitigationtargets
throughcreatinganoffsetratioofgreaterthan1:1).However,NAMAscouldintheorybe
creditedbyanystreamoffinanceandevenbydebt-basedmechanisms.
Aswellasprovidinganincentiveforearlyactionandkeepingtheglobalcostsofmitigation
low,creditingNAMAsmightassistwiththepoliticsofapost-2012agreementasitcould
helpfinancealreadyplannedlow-carbonstrategiesindevelopingcountries.
Potentialvalue:ThiswoulddependverymuchonthescopeandeffectivenessofNAMA
plansdrawnupbydevelopingcountriesandontheavailabilityofdevelopedcountry
financingthroughadeepeningofmitigationcommitment.
7.Globaltaxation
Switzerlandhasproposedalevyof$2pertonneofCO2eatthenationallevelinallcountries
withpercapitalevelsabove1.5tonnes,withcountriesretainingdifferentproportionsofthe
fundsdependingontheirlevelofdevelopment;40percentinthecaseofdeveloped
countriesand85percentforthepoorest.
Theappealofaglobalcarbontaxofthissortisthatitwouldleadtoapredictablelevelof
finance,whichcouldbedepositedinaninternationalfund.Notwithstandingthepercapita
thresholdintheSwissproposal,thecostsofaflatcarbonlevywouldfallregressively,
althoughclearly,developingcountrieswouldretainagreaterproportionoftherents
collectedthanwoulddevelopedcountries.Thiscouldbeaddressedbybuildinginfurther
measuresofdevelopmentandthereforeexcludingfromthelevyaproportionofsome
countries’emissionsbelowagivenpercapitalevel(inotherwords,athresholdmethodology
couldbeintroducedforallcountriesorthetaxableratecouldbehigherindeveloped
countries).
Potentialvalue: $2pertonnelevyonemissionsofallcountrieswithpercapitalevelsabove
1.5tonneswouldraise$48.5billionperyearofwhich$18.4billionwouldbepassedontoan
internationalfund,accordingtotheGovernmentofSwitzerland(2008).
8.Otherlevy-basedproposals
Thereareseveralproposalsforleviesonemissions.
Leastdevelopedcountries(LDCs)haveproposedaninternationallevyonaviation(IATAL),
whichcouldraisebetween$4and$10billionannually(UNFCCC2008).
LDCshavealsoproposedalevyonbunkerfuelsforaviationandshipping,whichcouldraise
between$4and$15billionannually(UNFCCC2008).
ThePacificnationofTuvaluhasproposedthatpermitsfortheemissionsofinternational
aviationandshippingareauctioned,raising$28billionperyear(UNFCCC2008).
Brazilhasalsorecentlyhintedata100billionclimatefundproposalinvolvinganincreasein
theCDMlevyanda10percenttaxonrevenuesfromtheproductionandtradingofoiland
coal(PointCarbon2009).
9.Non-climate-relatedfundingsources
Otherfundingsources,suchasgeneraloverseasdevelopmentassistance(ODA),ataxon
currencytransactions(TobinTax)ormorebroadlyonfinancialtransactions,revenuefrom
untaxedincomeheldoffshoreandtheuseofsovereignwealth,mayallplayafuturerolein
climatechangemitigation.Forinstance,theTaxJusticeNetworkestimatesthat$11.5trillion
ofprivateassetsarecurrentlyheldinoffshorefinancecentres,whichwouldyieldanannual
incomeof$225billioniftaxedataconservativeannualrate(TaxJusticeNetwork2005).
Sovereignwealthfundsworldwidecurrentlyholdalmost$3.2trillion(Balin2008)asaresult
oftaxingnaturalresourceextraction,transferringforeignexchangereservesandsovereign
debtdisbursement.
Developedcountriesmaypreferafinancingarrangementthatwouldseethemchannel
climatefinancingthroughgeneraldevelopmentassistanceprogrammes,targetedatthe
poorestcountries.Forthenegotiations,asidefromthepoliticaldifficultiesassociatedwith
perpetuatingwhatdevelopingcountriesperceiveasadonor-recipientrelationship,working
ourpreciselywhatis‘additional’toODAisdifficultwhendevelopedcountrieshaveyetto
reachtheir0.7percentofGNPtargetandwillnotdosoforsomeyears.
Recentstimuluspackagesannouncedinupwardof15countriesworthalmost$2.8trillion
haveanestimatedclimatechange-relatedcontentof$430billion(HSBC2009).21 TheUnited
NationsEnvironmentProgrammehasproposedthatone-thirdofstimuluspackagesbespent
onclimatechangemitigationorenvironment-relatedactivities.Mostifnotallstimulus
packagefinancewillbespentdomesticallybythegovernmentsconcerned,althoughthe
WorldBankhasproposeda‘vulnerabilityfund’intowhichcountrieswouldpay0.7percent
oftheirvalue(WorldBankNews&Broadcast2009).
10.Frontloadingfinance
TheECinitsrecentCommunicationhasproposedaGlobalClimateFinancingMechanism,
whichwouldbedesignedtofrontloadclimatefinancing,especiallyforadaptationmeasures.
ItissimilartotheInternationalFinanceFacilityforimmunization,inwhichdeveloped
countriesissuebondsagainstfuturedevelopment(ODA)spendinginordertofrontload
financing.22
AlthoughintheCommission’swords‘Thesefundswouldinparticularallowforanimmediate
reactiontourgentadaptationneeds’,frontloadingusingbondsraisedagainsttheguarantee
oftaxrevenueindevelopedcountriescouldbeaveryusefulmeansofleveragingprivate
sectorfinanceintoawholerangeofmitigationmeasuresandintoREDD,too.23 Indeed
whereasadaptationmeasuresmayofferalimitedprospectofreturnsoninvestmentsandso
governmentborrowingwouldberepaidbytaxpayers,mitigationmeasures–especially
energysavingandenergyefficiencyinvestments,butalsoenergyinfrastructure–could
proveprofitable.
Developingcountriesareunderstandablycautiousaboutdebt-basedfinancinginstruments;a
hangoverperhapsfrompastdebtcrises.However,theEC’sGlobalClimateFinancing
Mechanismhintsataninterestingpropositionwherebydevelopedcountriesguarantee
lendingforwellstructureddevelopingcountryprojectsandpolicies.Thisapproachcould
provideanother–perhapssignificant–incrementtowardsthefulfilmentofdeveloped
countryobligations.
Thecostoffinancethroughgovernmentbondsisdeterminedbythecreditratingofthe
issuinggovernment,governmentsororganisation.IfthebondisissuedbytheWorldBank,
whichhasanAAArating,orbyAAA-ratedgovernmentsonly,thenfinancingischeaper
becauseitisjudgedbyinvestorstobelessrisky(inotherwords,robustpublicfinances
guaranteethatevenifaprojectfails,investorswillnotlosetheirmoney).However,evenan
EU-widebondwouldbemoreexpensive;inpractice,thereareonlyahandfulof
governmentsandthedevelopmentbanksthatcouldissuesuchbonds.
Also,wereanysignificantfundsbuiltupattheinternationallevelthroughanyora
combinationoftheabovemechanisms(thatis,AAUorpermitauctions,leviesortaxes),the
fundcouldbeusedtosupplyconcessionallendinginadditiontogrants-basedfinance.
Again,thisapproachwouldbeparticularlyappropriateforfinancingthenegativecost
measuresdevelopingcountriesmighttake.
21.Someofthemeasuresincludedinthe$430billionfigure,suchasspendingonimprovementsto
railways–alargeproportionofChina’sstimuluspackage–wouldnotnecessarilybecountedaslow-
carbonactivityin,forinstance,McKinseyandCompany2009.
22.Seewww.iff-immunisation.org/01_about_iffim.html
23.ThePrince’sRainforestProjectarguesthatmostdeforestationwilltakeplacebeforeglobalcarbon
marketsarefullyfunctioningandthereforefrontloadedfinancewillbenecessarytoensureearlyaction
toreducedeforestationemissionstakesplace.SeePrince’sRainforestProject(2008).
Anotherappealisthatdebt-basedmechanismsessentiallyborrowlongtermfromfuture,
presumablywealthier,generationswhomightbegladtoseeclimatechangemitigation
measurestakennow.24 Thismightremovesomeoftheshort-termpoliticalpressureon
developedcountrygovernments,whosecontributionstoglobalclimatefinancingmust
otherwisebedrawnfromanincreaseincoststotoday’staxpayersorconsumers(Foley
2007),measuresthatarelikelytoproveincreasinglyunpopulardomestically(Lockwoodand
Pendleton2009).
24.Currentfinancecrisisnotwithstanding,globalGDPisprojectedtogrowbeyond$100trillionannually
by2020.
3.BuildingaNorth–Southfinancepackage
BreakingtheimpasseattheheartoftheongoingUNFCCCnegotiationsreliesonthe
fulfilmentoftwoareasoftheConventionthatareofparticularimportancetodeveloping
countries,whoseparticipationin‘long-termcooperativeaction’isessentialiftheoverall
objectiveoftheConventionistoberealised.Theseareequity,andtheobligationsof
developedcountries,aslistedinArticle4.
ThepreambleoftheConventioncallsfor‘…thewidestpossiblecooperationbyallcountries
andtheirparticipationinaneffectiveandappropriateinternationalresponse,inaccordance
withtheircommonbutdifferentiatedresponsibilitiesandrespectivecapabilitiesandtheir
socialandeconomicconditions.’ThereiscurrentlynoagreedmeansattheConventionlevel
bywhichtoquantifyandthereforedifferentiatebetweenlevelsofactionbeyondacrude
divisionofdevelopedor‘Annex1’countriesanddevelopingor‘non-Annex1’countries.25
Relatedtothis,thesecondimportantareaoftheConventionfordevelopingcountriesisits
Article4,whichliststheobligationsofdevelopedcountries.Inparticular,Article4.3states
thatdevelopedcountries‘…shallprovidenewandadditionalfinancialresourcestomeetthe
agreedfullcostsincurredbydevelopingcountryPartiesincomplyingwiththeir
obligations…’.Thekeywordsare‘agreedfullcosts’asitstatesthatthefullincremental
costsofmitigationandadaptationindevelopingcountriesshouldbepaidbydeveloped
countriesbutalsoimpliesthatthevolumeofthesemustbeagreed.
Whiledevelopingcountrymitigationcostsare,byallestimations,asmallfractionofcurrent
andfuturedevelopedcountrywealth,thebill–thesameormorethanthecurrentsumof
OECDcountries’ODAoutlay–islargeand,whiletheKyoto-typeapproachpredominates,
mustbepaidbyconsumersandtaxpayersindevelopedcountries.Thereisaveryrealthreat
ofapoliticalbacklashfromdevelopedcountrypopulationsshouldgovernmentscommit
themtointernationalaswellasnationalincrementalcosts(LockwoodandPendleton2009).
Thismayproveespeciallytroublesomeatatimeofeconomichardship.
Nevertheless,withinthecurrentstructureofthenegotiations,the agreedfinancingislikely
tocomeprimarilyfromKyoto-typesources,especiallywhiledevelopedcountriesremain
committedtoputtinginplaceandlinkingupnationalorregionalcarbonmarkets.Therefore,
thechoiceisbetweenanumberofdifferentcombinationsor‘wedges’ofmeasuresthatadd
uptoanagreed sum(seeFigure2below).Some,suchastheCDMandoffsetleveraging,
Figure2. Leveraged offsets

Financing 250
‘wedges’ 13% AAU
200 holdback
2% AAU
150 holdback
$ billions
CDM
100
CDM levy
50
Earmarked A1
0 auction revenue
Mixed Upscaled Offset Levies on bunkers
sources AAU holdback leveraging
26.DevelopedcountriesboundbytheKyotoProtocolhavedifferentiatedtargetsaslaidoutinitsAnnex
B.DifferentiationintermsofmitigationefforthasalsotakenplaceinsidetheEuropean‘bubble’.Further
differentiationbetweenEuropeannationsaccordingtolevelsofemissions,GDP,populationand
abatementeffortstodateisproposedintheCommission’srecentCommunication.
areincompatible(offsetleveragingwouldreplacetheCDM).Others,suchasAAUhold-back,
canbescaledupbutbegintoappearpoliticallylessviablethelargertheybecome.
Whatthisillustratesisthatamoresignificantsumispossiblebyemphasisingonetypeof
financingwithinthemix.However,thechoicepresentedinFigure2issomethingofa
Hobson’schoicefordevelopedcountrygovernmentsastheultimatesourceofthefinancing
isthesameone,asarguedabove.Giventhis,developedcountrygovernmentsmaydecide
thesimplerapproachofenhancingonemechanismispreferabletoamorecomplexcollection
ofmeasures.
Mexico26 hasproposedthataWorldClimateChangeFundbeestablished.Allcountrieswould
contributetothefundaccordingtotheirlevelofcumulativeemissions,populationand
abilitytopay,butdevelopingcountrieswouldbenetrecipients.TheEC’sCommunication
(2009)alsocontainsaproposalbasedonMexico’s,withcountriescontributingtoafund
accordingtoanagreedformula.
Theseproposalsaremorestructuralandinstitutionalthanconcerningthesourceoffinance
but,linkedtootherfundingproposals,couldprovideameansbywhichfinanceischannelled
andcouldbelinkedtoequityprinciples.Themoneychannelledthroughsuchafundcould
thenbespentonbothdevelopedanddevelopingcountryactions,withaweightingtowards
thelatter.Inaddition,Mexico’sproposalcontainsaninherentincentiveforcontributors
(whichisstrongerinthecaseofdevelopingthandevelopedcountries);ifcountrieschoseto
optoutofmakingcontributionstothefund,theywouldnotreceivefinance.
TheMexicanproposalfacestwopoliticalobstacles.Thefirstisthatitrequirescontributions
fromdevelopingaswellasdevelopedcountries,somethingtheG77enmassehasstaunchly
resisted,citingArticle4.3oftheUNFCCC.27 Thesecondistheambivalenceofdeveloped
countriestowardstheestablishmentofanewfund.Typicallytheirviewisthatitcouldbe
inefficientandwastefulandrisksincurringtransactioncosts,diminishingthevalueofthe
financeraised.
Giventhis,andthesheerscaleoffinancingrequired(andtheunwillingnessoftaxpayersand
consumersindevelopedcountriestoeffectivelymorethandoubletheamountoffinancial
assistancetheygivetodevelopingcountries),officialclimatefinancing–whatiscountedas
afulfilmentofdevelopedcountryfinancingobligations–shouldaccommodateavarietyof
agreedfinancialflows.Thismightincludeadditional,climate-relatedODA,suchasthat
currentlyflowingthroughtheWorldBank’sClimateInvestmentFunds28.Itmightalsoinclude
theuseofdebt-basedinstrumentssuchasfrontloadingthroughaclimate-relatedfinance
facilityandgovernmentbackedclimatebonds.
Entangledwiththedecisionabouthow tofinanceclimatechangemitigationinternationally
istheequallypoliticallychargeddiscussionconcerningthestructureandmechanismby
whichthefundingmightbegoverned,allocated,channelled,monitoredandverified(which
hassofardoggedthesettingupoftheAdaptationFund).Thisdiscussionalsocentresona
choicebetweentwodifferentmodels:thesingleMexican-orG77-fundapproachversusa
moreeclecticsystemwithsomeformofclearinternationalverificationoffinanceflowsand
oftheprojects,policiesandmeasuresimplementedindevelopingcountries.
26.NotethatMexicoisanon-Annex1countrybutthatitisanOECDandnotaG77member
27.Article4.3statesthatdevelopedcountriesshouldmeetthe‘…agreedfullcostsincurredby
developingcountries…’
28.However,therehasbeenaheateddebateconcerningwhetherornotthatfinanceisadditional,since
muchofitcomesfromcountriesthatareyettomeettheirpromisedODAlevelof0.7percentofnational
wealth.
Whiledevelopedcountriesarelikelytobecautiousintheirapproachtotheestablishmentof
anew,globalfund,theEuropeanCommissioninitsrecentcommunication(EC2009)has
highlightedanapproachinthestyleoftheMexicanproposal.Therearealsoprecedentsfor
internationalfundsthatarenotwhollywithinthedevelopmentbankstructures:
•TheGlobalEnvironmentFacility,takenoutofWorldBankgovernancein1994,
administersfinancialflowsunderexistingenvironmentaltreaties,suchasthe
ConventiononBiodiversityandexistingUNFCCCmonies.Furtherchangeswouldbe
requiredtoitsgovernance,butitisaprovenoperatorofenvironmentalfinancial
transfers.(Seewww.gefweb.org)
•TheGlobalFundtofightAIDS,TBandMalariahasdisbursed$11.4billionsince2002,
butitsstructure,whichusestheWorldBankasatrusteeonly,establishesauseful
precedent.TheGlobalFundhasaboardmadeupofdonors,recipients,NGOsand
representativesfromaffectedcommunitiesandanindependenttechnicalreviewpanel
thatguidestheboardonfundingdecisions.(Seewww.theglobalfund.org)
OneofthereasonswhytheEuropeanCommissionmayfavoura‘Mexican-style’fundis
becauseEuropeanmemberstatescurrentlypayintotheEuropeanStructuralandCohesion
Funds,whichareconceptuallysimilar.Thepurposeofthefundsistoassistpoorerregions
andmemberstatesandtobetterintegrateEuropeaninfrastructure;theyaccountformore
thanone-thirdoftheEU’sbudget.Mostnotably,whileallmemberstatescontributetothe
funds,somereceivemoreassistancethanothers.
Thealternativetoaglobalfundisanewinternationalbody29 toapproveandverify
developingcountryNAMAsandtomonitor,reportonandverifyfinanceflowsfrom
developedcountries.Suchanauthoritywouldkeepaglobalinventoryofmeasurable,
reportableandverifiable(MRV)developedcountryfinanceanddevelopingcountry
mitigationactions.Thereisnoprecedentforabodyofthissort,butitmightbuildonthe
experienceoftheCDMboard.However,itwouldalsoneedteethanditisnotatallclear
whatsanctionswouldbesufficienttoensuredevelopedcountriesmetagreedfinancing
obligations.Theglobalfundmodelalsosuffersfromthisproblem.
29.Althoughtheglobalfundmodelwouldalsoneedabodytoapplystandardstomitigation.
4.Allocatingfinancialobligations
Fairness(orequity,inthewordsoftheUNFCCC)willbeakeycomponentofclimatechange
policyandofaframeworkattheinternationallevel,aswellasinnationalpolicy.Itis
arguablyeasiertoapportioncostsprogressively,especiallyatthenationallevel,thanitisto
shareoutremaininggreenhousegasemissions.30 Attheinternationallevel,theconceptsof
‘responsibility’–currentandpastcontributionstotheatmosphericstockofemissions–and
‘capability’–thecapacityofanationtocontributetowardsthemitigationoffuture
emissions–attheheartoftheUNFCCCcouldformthebasisofamethodologicalapproach
tofairness.
Whiletheseprincipleshavebeenappliedtodeterminefairsharesofmitigationeffort
(througheffortsharing,suchascurrentlyinAnnexBoftheKyotoProtocolorwithinthe
EuropeanUnionKyoto‘bubble’),theyareyettobeusedtodeterminefairsharesintermsof
thecostsofmitigation.However,suchprinciples–especiallythoseconcerningabilitytopay
–areapplicabletofinancialeffort-sharing,too.31 Further,ifdevelopedcountriesaretofulfil
theirUNFCCCobligationsandtodosoinamannerthatismeasurable,reportableand
verifiable,astheBaliDecisionstates(UNFCCC2007),thensharingoutArticle4.3financing
commitmentsaccordingtoaclear,defensiblemethodologywillbenecessary.
Avarietyofexistingproposalsforpost-2012climateframeworksorregimestakeinto
accountmeasuresofequity.Forinstance,therecentCarbonBudgetingproposaldeveloped
bytheChineseAcademyofSocialSciencesadjustspercapitaemissionstotakecumulative
pastandfutureemissions,naturalresourceendowmentandotherfactorsintoaccount.Other
frameworks,suchasKyoto2,whichisaproposalforupstreamcarbontrading,andother
market-basedproposalsdealwithequityex-post,bydistributingtheproceedsoftradesina
progressivefashion(seewww.kyoto2.org).
TheGreenhouseDevelopmentRightsFramework(‘GDRs’–seeEcoEquity2008),awell-
known,equity-based,burden-sharingclimatechangeframeworkproposal,isperhapsunique
inthatitquantifies‘responsibility’and‘capability’,theConvention’sequityprinciples.GDRs
allocatesmitigationeffortandadaptationcostaccordingtoaglobalresponsibilityand
capabilityindex(RCI).Responsibilityiscalculatedbytakingintoaccountcumulative
emissionspercapitasince1990andcapabilityismeasuredasPPP-adjustedGDPpercapita
aboveanincomethresholdof$7,500.Thetwoindicatorsarecombinedwithequalvalue
(1:1)toarriveatasingleindex.32
Table1showsthesharesofglobalmitigationeffort(inpercentageterms)countriesand
groupsofcountriesareassignedonce‘flat’nationalsharesareadjustedtotakeintoaccount
responsibilityandcapability.NotethatwhileAnnex1countrieshavealessthanone-fifth
shareofglobalpopulation(andnowemitlessthanhalfofgrossannualemissions)theyare
assigned77percentoftheglobalmitigationburdenin2010declining,becauseofassumed
increasedwealthandrisingemissionsinthedevelopingworld,to69percentin2030and61
percentin2030.
30.Forinstance,ithasbeennotedthatpoorerpeopleindevelopedcountriesmayhavehigh
emissionsbutmayalsofacegreaterbarrierstoreducingthem.Equally,poorerpeopleindeveloping
countriesdonotneedaccesstoagrowingemissionsbudgetiftheyhaveaccesstolow-carbonenergy
technology.
31.Thecostsofmitigationgloballyvarysignificantlyfromcountrytocountryandsomitigationcost
allocationisnotadirectproxyforemissionsallocation.However,thispaperlargelyfocuseson
mitigationcostsindevelopingcountriesonly(asidefrominthesectionsfocusingonglobalfund-
basedproposals)andthereforeassumestheGDRsburden-sharingapproachwouldbeadequate
withoutsignificantrevision.
32.RCI=aC+bRwhereaandbsum1andeachhavea0.5value.
Table1.GDRsresultsforrepresentativecountriesandgroups
Year 2010 2020 2030
Population GDPpercap. Capacity Responsibility RCI[1] RCI RCI
(%ofglobal) (US$PPP) (%ofglobal) (%ofglobal) (%ofglobal) (%ofglobal) (%ofglobal)
EU27 7.3 30,472 28.8 22.6 25.7 22.9 19.6
EU15[2] 5.8 33,754 26.1 19.8 22.9 19.9 16.7
EU12[3] 1.5 17,708 2.7 2.8 2.7 3.0 3.0
UnitedStates 4.5 45,640 29.7 36.4 33.1 29.1 25.5
Japan 1.9 33,422 8.3 7.3 7.8 6.6 5.5
Russia 2.0 15,031 2.7 4.9 3.8 4.3 4.6
China 19.7 5,899 5.8 5.2 5.5 10.4 15.2
India 17.2 2,818 0.7 0.3 0.5 1.2 2.3
Brazil 2.9 9,442 2.3 1.1 1.7 1.7 1.7
SouthAfrica 0.7 10,117 0.6 1.3 1.0 1.1 1.2
Mexico 1.6 12,408 1.8 1.4 1.6 1.5 1.5
LDCs[4] 11.7 1,274 0.1 0.04 0.1 0.1 0.1
AnnexI 18.7 30,924 75.8 78.0 77 69 61
Non-AnnexI 81.3 5,096 24.2 22.0 23 31 39
Highincome 15.5 36,488 76.9 77.9 77 69 61
Middleincome 63.3 6,226 22.9 21.9 22 30 38
Lowincome 21.2 1,599 0.2 0.2 0.2 0.3 0.5
World 100 9,929 100% 100% 100% 100% 100%
Notes:[1]Responsibilityandcapabilityindex;[2]The15countriesthatmadeuptheEUbeforeMay2004;[3]The12countriesthat
joinedtheEUin2004and2007;[4]Leastdevelopedcountries
SincetheRCIissensitivetonationalper-capitawealthitcanbeconsideredindicativeofthe
capacityofacountrytocontributetotheglobalcostsofmitigating(andadaptingto)
climatechange.Itthereforelendsitselfwelltofinancialburdensharing.However,inorderto
applytheRCItothefinancialobligationsofdevelopedcountriesunderArticle4.3ofthe
UNFCCC,itisusefulalsotoconsiderhowfinancingwouldbesharedamongonlydeveloped
countrieswithobligationsundertheConvention(thatis,AnnexII)andtoremovefromthe
indexnon-Annex1andtransitioneconomiesandredistributetheRCIaroundAnnexII
countries.
Table2.RCIForAnnexIIonly(AIIcountriesprovide100%offinancebetween2010and2020)
Year 2010
Pop’n(%ofglobal) GDPpercap.($USPPP) RCI(%ofaII)
EU15[1] 5.8 33,754 32.9
Germany 1.20 34,812 7.8
UK 0.9 34,953 5.3
France 0.91 33,953 4.6
UnitedStates 4.5 45,640 47.7
Japan 1.9 33,422 11.2
Others 1.0 38,149 8.2
AnnexII 13.2 30,924 100
Note:[1]TheEU’s12accessioncountriesarenotlistedinAnnexIIbutprobablyexposedtoArticle4.3
obligationsasaresultoftheirEUmembership.However,becauseoftheirrelativelymarginalimpactonthebig
pictureinthistable,theyarenotincludedinthecalculation.
TheRCIinTable2,adjustedfromtheoriginalintheGDRsframework,thereforeprovidesa
progressive(equitable)formulathatcanbeusedtoshareoutAnnexIIcountries’Article4.3
obligations(thatis,wherecountrieslistedinAnnexIIpayforallagreednewandadditional
developingcountrycosts).Asanindicationofthesumsinvolved,theright-handRCIcolumn
alsoservesastherelativesharesofa$100billiondevelopingworldfinancingpackage(the
samenumbersrepresentingbillionsofUSdollarsratherthanpercentagesharesoftheRCI).
IntheoriginalGDRsframeworktheRCIisusedtodivideemissionsreductions.Thisofcourse
impliesthatdevelopedcountriesfinancemitigationbeyondtheirownborders,since
adjustingobligationsaccordingtotheRCIcreatesdevelopedcountrytargetsthatprobably
gobeyondtechnicalfeasibilityand,atsomepoint,mayamounttomorethan100percent
oftheiremissions.AGDRsfinancingframeworkwouldmakethisexplicit;theRCIwould
applytofinancingbydevelopedcountriesin developingcountries,ineffectasaproxyfor
emissionsreductions.
Waysofusingaresponsibilityandcapabilityindex
AnRCIofthissort–eitheranall-countryorAnnexII-onlyindex–couldbeusedindifferent
ways:
1.Globalfund
TheRCIinTable1canbeusedtocalculatefairsharesinaMexican-styleWorldClimate
ChangeFundorsomethingalongthoselines(aglobalclimatechangestructuralfund,
perhaps).AswiththeEU,allcountriescontributetosuchafundwiththeircontributions
beingsetonthebasisofRCIshares.Allcountrieswouldalsoreceivefinancefromthefund33,
butthosewithalowerRCIwouldreceivemore,withdevelopingcountriesbeingnet
recipientsandleastdevelopedcountriesreceivingseveraltimesthesumtheycontribute.
TheRCIinTable1illustratestherelativescaleofdifferentcountries’annualcontributions.
Forinstance,ina$250billionglobalfund34,theUS’ssharewouldbe$82.7billionin2010
andwouldfallto$72.75billionin2020.China’scontribution,ontheotherhand,wouldbe
$13.75billionin2010andwouldincreaseto$26billionin2020.Similarly,theEU15’sshare
in2010wouldbe$57.4billion,fallingto$48.8billionin2020whileIndia’ssharein2010
wouldbe$1.3billion,increasingto$3billionin2020.ThedynamismoftheRCI,takinginto
accountchangingsharesofresponsibilityfortheatmosphericstockofgreenhousegasesand
relativeGDPgrowth,isanaddedadvantage.
However,financialflowsinto thefundareonlyhalfthestory.Countriescouldalsoreceive
financingonthebasisoftheRCI.Unliketheinflows,thefund’sdisbursementwouldbe
basedonarangeoffactors,includingnationallyappropriatepolicies,programmesand
projectsinnationalactionplans,mitigationpotentialandcostpertonneofabatement.
However,theRCIwouldalsoberequiredtoguidedisbursementandwouldneedtobe
broadlyindicativeofthenetlevelsoffundingacountrywouldreceive,withcountriesat
differentlevelsofdevelopmentbeingplacedindisbursement‘bands’.
ItissignificantthatthismodelhasbeenincludedintheEuropeanCommission’srecent
CommunicationonitsCopenhagennegotiatingposition(EC2009).TheECproposed,asone
oftwoalternativesforinnovativefinancing,afundtowhichcontributionsare‘basedona
combinationofthepolluterpaysprinciple(i.e.totalamountofallowedemissions)andits
33.Mexico’ssubmissiontotheUNFCCCregardingitsWorldClimateChangeFundproposalstatesthat‘In
principle,allcountries,developedanddeveloping,couldbenefitfromtheFund.’
34.Estimatesoftheincrementalcostsofglobalmitigationsuggestthataminimumofaround$250billion
peryearwouldberequired,notablyMcKinseyandCo2009.SeeSection1ofthispaper.
abilitytopay(i.e.GDP/capita)’.Further,theECCommunicationusesfourindicatorstoarrive
ataburden-sharingformulaforAnnex1countrymitigation.Thesefourindicators–GDPper
capita,emissionsintensityrelativetoGDP,earlyactiononemissionsabatement,and
populationgrowth–couldconceivablyalsobeused,alongwithaclearer‘responsibility’
measure,asthebasisofweightedcontributionstoafund.
2.Article4.3(AnnexII)fund
Table2illustrateshowtheRCIwoulddistributethefinancialburdenaroundAnnexII
countriesonly,weredevelopingcountriessuccessfulinnegotiatingthefullimplementation
oftheConvention’sArticle4.TheRCIshowsthefairsharescontributionsthatwouldbe
requiredfromdifferentAnnexIIcountriestowardsadevelopingworldfinancingtotalof$100
billion.
TheEU15(thatis,theUnionwithoutitsnewestentrants)andtheUS,underthisversionof
aglobalfund,areclearlyliableforthelion’sshareofcontributions:$33.9billionand$47.7
billionrespectively.Thesesumsrepresentanettransferfromdevelopedtodeveloping
countriesasunderthismodelcontributingcountriesthemselveswouldreceivenothingfrom
thefund.
DisbursementsfromafundtowhichonlyAnnexIIcountriescontributedcouldstillbemade
accordingtoasetofcriteria,includingnationallyappropriateactionsandplans,mitigation
potentialandcostpertonneofabatementandrecipientcountriescouldstillbebanded
accordingtotheirRCI,whichwoulddeterminetheapproximateoverallleveloffundingthey
wouldreceive.
3.AssignedAmountUnits(AAUs)auctionoroffsetaggregator
TheRCIcouldalsobeappliedtoAnnexBcountries,inpracticethesameasAnnex1.35
AnnexBcountries,however,havequantifiedtargetstoreduceemissionsandwhetherthey
haveratifiedtheKyotoProtocolornot(theUShasnot),eachisassignedaquantityof
reductionsoveraperiodoftime,intheoryifnotinpractice.Currenttargetsexpirein2012;
Protocolsignatoriesarecurrentlydiscussingpost-2012targets.
Norwayhasproposedthehold-backof2percentoftheAnnexBAAUsattheinternational
level(seeSection2above).Asalreadydiscussed,thisrelativelysmallAAUhold-backwould
notraiseasufficientlylargesumalone.However,werethisproposalscaledup,assomehave
suggesteditshouldbe,thenitcouldraisesufficientfinancetosupplyaglobalfund.
SincewithAAUhold-back,countrieswouldnotbeprovidingdirectfinance,butsacrificinga
proportionofthepermitstheywouldotherwiseauctionatthenationallevelforinternational
auction,theRCIcouldbeappliedoncetheoveralltargetforhold-backwasagreed.Sowere
anoverallhold-backtargetagreedof10percentofAAUs,thenratherthaneachcountry
sacrificingaflat10percentofitsAAUs,eachwouldbegivenadifferentproportionrelative
toitsRCIrankingandsocountrieshigheruptheRCIwouldhavemorethan10percentof
theirAAUsheldbackandvice-versa.36 AproposalbyAprodev(2009)proposesholdingback
25percentofAAUsoverallandusingtheGDRsRCItodecidewhichAnnex1countries
sacrificewhatproportionoftheirAAUs.
35.AnnexBoftheKyotoProtocollistscountries’quantifiedemissionsreductionandlimitation
obligations.Inpractice,anRCIforAnnexBincludesallAnnex1countriesexceptBelarusandTurkey.See
http://unfccc.int/kyoto_protocol/items/3145.php
36.AprecisecalculationofthisisdifficultbecausetheproportionofAAUscountrieswouldsacrifice
relativetotheheadlineAnnex1percentageheld-backwoulddependonhowcomparabilityofeffortwas
agreedamongAnnex1countries.Arguably,theRCIcouldbedeployedbothforafairAnnexmitigation
burdenshareandthentodetermineeachcountries’proportionateAAUsacrifice.
Alliedto,butstructurallydifferentfrom,theAAUhold-backproposalisthenotionof
leveragingoffsets,alsodiscussedabove.TheRCIcouldalsobeappliedtoaleveragedoffset
toweightthedegreeofleveragingrequiredaccordingtothedifferentRCIrankingsofAnnex
1countries,particularlyifAnnex1countryreductiontargetsdidnotadequatelyreflect
inequitiesfromonetoanother.Forinstance,projectcatalystcalculatesthatifAnnex1
countriescollectivelysharea2020reductiontargetof40percentrelativeto1990and
offsetaroundhalf–6GtCO2e–thentheywouldneedtoleverageataratioof2:1toensure
developingworldreductionsof12GtCO2e.
Thus,aswithAAUhold-back,beneathaheadlineagreementbyAnnex1countriesto
purchase2tonnesofdevelopingworldreductionsforeachtonneoffset(thusachieving
developingworldreductionsinadditionto,ratherthaninsteadof,developedworld
reductions)some,suchasthoseintheEU15ortheUS,mightberequiredtoleverageat4:1
andothersmightmerelyoffset.
4.Responsibilityandcapabilityindexasthebasisforaglobalinventory
Thepoliticsofafinancingsystemthatreliesheavilyonasinglemechanism,suchasAAU
hold-backoroffsetleveraging,andonanRCItoprovideitsorientationmayprove
prohibitive,notleastbecauseitwouldinvolve–bydefinition–conspicuouslylargesumsof
financeflowingtodevelopingcountriesfromahandfulofdevelopedcountries.Thisisinpart
thepoint:climateequitybyanyreasonablemeasureinvolvesthecommitmentofsignificant
financialsupportonthepartofthosemostresponsibleandmostabletopay.
Butifagrandbargainistobestruckagainstthebackdropofextremefinancialconstraint,
thenthemechanicsmayneedtobemorecomplexinordertoaccommodatearangeof
sourcesandexploitarangeofchannels,existingandnew.Andwhileitmightbeseenas
unsatisfactorybysomenegotiatorsandobservers,amoreeclectic,multi-channelapproach
toclimatefinancing–significantlyonethatismorecomprehensiveandrobustthantheEC’s
proposedFacilitativeMechanismforMitigationSupport–mightbethequid-pro-quofor
developedcountries’fulfilmentofagreedfinancingobligations.
Ratherthanasinglefundforclimatefinanceorthescalingupofmechanismsexplored
above,negotiatorscouldinsteadfocusondevelopinganinstitutionalstructurecapableof
measuring,reportingandverifyingfinancialflowsfromavarietyofdevelopedcountry
sources.ThiscouldtaketheformofaCOP-accountableexecutivebodytokeepthefinance-
mitigationglobalbalancesheet.Suchabodycould:measure,reportonandverifyfinancial
flowsthroughavarietyofagreedchannels;measure,reportonandverifyreductionsmadein
developingcountriesasaresultoffinance;agreepolicyandactasafocalpointforthe
developmentofbestpractice;reportfrequentlytotheCOPoncompliance;andmake
recommendationsforpolicydevelopment.
Suchabodywouldneedtocaptureandrecordallagreed(i.e.thatwhichislistedas
admissibleinafutureagreement)withinthebilateralandmultilateralfinancingofclimate
changemitigation.Thismightinclude:CDMoritssuccessor(theCOPalreadyhasoversight
throughtheExecutiveBoard);additionalbilateralormultilateralODAforclimatechange
mitigation;auctionrevenueschannelledoverseas;flowsfromleviesandtaxes;government-
backedinternationalclimatebonds;otherdebt-basedflows.Itwouldalsosupportthe
developmentofandapprovenon-Annex1countryNAMAplans,monitortheir
implementationandhelpmatchupdifferentflowsoffinanceanddifferentmitigation
actions.
Insuchasystem,anRCIwouldbeusedastheaccountingmethodology.Agreedfinancein
thespiritofArticle4.3oftheUNFCCCwouldthereforenotonlyapplytoanoverallsumbut
alsotodevelopedcountrynationalfinancingtargetswhosevolume(i.e.asaproportionof
theoverallagreedvolume)wouldbedeterminedbyanRCI.Agreementwouldalsobe
neededoverwhattypesoffinancewouldqualify;onlythesewouldthenbemeasured,
reportedonandverifiedbythenewinternationalbody.
AmoreeclecticfinancingsystemtolerantofawidevarietyoffinanceflowsandwithCOP
oversightviaanexecutivebodymightalsofitwellwithothersuggestedbodies,suchasa
TechnologyDevelopmentExecutive(E3G2008)andproposalsforREDD.Bothoftheseareas
–eachalsocriticaltoapost-2012agreement–requirefinanceandmightthereforebe
accountedforandverifiedthroughtheexecutivebody.Indeed,amoreeclecticsystemthat
aggregatedfinancefromavarietyofsourcesandwascapableofmonitoringandverifyinga
numberoffinancingchannelsmightbebetterequippedthanasinglesourceorfundat
respondingtothevarietyofchallengeswithintheUNFCCCnegotiatingmandate.The
diagrambelowoutlineshowsuchabodymightfitwithinanagreed,multisource-multi
channelfinancingarrangement.
COP
Executive Body
Agreed finance NAMAs
Central Fund Trustee
International carbon
accounting instrument
incorporating RCI
Developed Developing
country country
finance actions
(Offsets, proceeds
from auctions,
levies, bonds,
etc.)
Conclusions
Financewillplayacriticalroleinthemitigationofandadaptationtoclimatechange.
Withoutflowsofadditionalfinance,theupfrontcostsofnewinvestments,indeploymentof
low-carbontechnologyandinR&Dandtheongoingincrementalcostdifferencebetween
carbon-intensiveandlow-carbonapproacheswillnotbemet.
Thevariousestimatesofincrementalcostsareunsatisfactory.Whilebeingbasedinmany
casesonrigorousanalysis,especiallyofmitigationopportunitiesindifferentcountries,there
isahighdegreeofuncertaintyoverfuturefactorsthatwillhaveasignificantinfluenceon
costs.Inparticularthebehaviourofgovernments,officialsandpopulationsisdeeply
unpredictable;‘policycosts’mayprovesignificantandthemostcost-effectiverouteto
decarbonisationmaynotbetheonetaken.
Nevertheless,thereisaconvergenceincostestimationsaround$100billionto$200billion
fordevelopingworldcostsandaround$200billionto$400billionforglobalcosts.
Adaptationcostswilladdsignificantlytothesesumsandarenowunavoidableregardlessof
thepaceanddepthofmitigation.
Aplethoraoffundingproposals,eachmeretriciousinitsownright,maskswhatisessentially
achoicebetweenKyotoProtocol-stylemechanismsreliantonthedevelopmentofthe
existingregimeontheonehandandproposalsthattapintoothertypesoffinanceonthe
other.Themostdevelopedoftheseproposals–leveragingoffsets,AAUhold-backandup-
anddownstreamauctioning–appearthemostrelevantbecausetheydockwithexisting
internationalclimatepolicy.However,theseareallbasedontheassumptionofanexpansion
ofcarbontrading,whichmayproveoptimistic.ProfoundproblemswiththeEuropean
EmissionsTradingScheme,theonlydevelopedworldschemecurrentlyupandrunning,have
proveddifficulttoaddress.
ThecostburdeninKyotoProtocol-relatedmechanismsessentiallyfallsontheshouldersof
consumersindevelopedcountries.Already,asaresultofvolatileenergypricesandexisting
policiestoreduceemissionsandincreaselow-carbonenergyuse,consumersaresensitiveto
furtherleviesonconsumption.Increasedcostsasaresultofmeetinginternational
obligations,ontopofdomesticeffortstodecarbonise,mayprovedifficultfordeveloped
countrygovernmentstojustifyindomesticpolitics.
Nevertheless,theUNFCCCinletterdemandsthatagreementbereachedonthescaleofnew
andadditionalcostsandthatthesearemetbydevelopedcountry–specificallyAnnexII–
parties.Itremainstobeseenwhetherdevelopedcountrieswillacquiescetothis.Iftheydo,
thenforpoliticalsustainabilitypolicymakersmightdowelltoconsiderablendoffinancing
optionsbothrelatedtoexistingmechanismsandthatareinnovative.Thiscouldinvolvea
balancebetweenmechanismsthatimposecostsontoday’sconsumersandtaxpayersand
frontloadingfinancethroughtheuseofbondsandotherdebtinstrumentstodepreciate
costsovertime.Government-leddebtfinancemayalsohelpattractgreaterparticipationin
developingcountrylow-carbonfinancebyprivate-sectorinvestors.
Developingcountriesclearlyfavouranew,globalfundundertheCOP,butbaulkatthe
notionthattheyshouldalsocontributetothesefunds.Thereisevidencethatdeveloped
countriesmightaccommodateaMexican-stylefund,butwillwantdevelopingcountriesto
financelow-costmitigationthemselves(EC2009).Theymayalsowanttouseexisting
channels,suchastheWorldBank,andcontinuetopinmostoftheirhopesontheexpansion
anddevelopmentofcarbonmarketsastheprinciplesourceoffinance.Intheabsenceof
developingcountrycommitmentsormeasurestoleverageoffsetting,financialflowswould
bethroughoffsets,achievingnomitigationadditionality.
Almostregardlessoftheapproachtakentofinancing,theRCIintheGreenhouseDevelopment
RightsFrameworkcanprovideagoodbasisfordeterminingormeasuringtheproportionof
totalfinancedifferentcountriesshouldbecommitting.TheRCIwasdesignedtoallocate
mitigationeffortbutcan,withlittleifanymodification,beusedtoallocatefinancialeffort.
Inthecaseofaglobalfund,theRCIistheidealindicatorforthecontributionlevelsofall
countriesandindicatesthatsome,largerdevelopingeconomieswouldbedonorsaswellas
recipientsoffinance.TheRCIcanequallybeusedasameanstodeterminethesumthat
differentdevelopedcountrieswouldbeobligedtoprovidetosuchafundtomeettheir
existingUNFCCCobligations.
Inthecaseofanexpandedsinglemechanism,suchasholdingbackandauctioninga
proportionofdevelopedcountries’AAUsattheinternationallevelorleveragingoffsets,the
RCIcouldalsobeusedoradaptedtoillustraterelativelevelsoffinancingrequiredfrom
differentcountries.Forinstance,anadaptedRCIcouldbeusedtodeterminewhat
percentageofacountry’sAAUswasheldbackinternationally.
TheRCIcanalsobeusedasthemethodologyforaglobalaccountingmechanism.Rather
thanmandatingaglobalfund,thisapproachwouldrequiretheCOPtoestablishanew
executivebody,orperhapsexpandtheCDMExecutiveBoard’smandate,tomeasure,report
onandverifydevelopedcountriescompliancewithagreedlevelsoffinance,keepingtrackof
avarietyofagreedparallelfinancingchannels.Thesamebodycouldalsomonitor,reporton
andverifynationallyappropriatemitigationactionsbydevelopingcountriesandcould
operatealongsideoroverseetechnologyandREDDmechanisms.
Asever,thepoliticalchallengesarethemostprofound.Iftherewasanappetitetotransfer
financefromdevelopedtodevelopingcountriesbeforethefinancecrisisandresulting
recession,itislikelytohavebeenlostamidbankbailoutsandtheunderwritingoftoxic
assets.However,itisdifficulttoconceiveofagreementinCopenhagenwithoutsuchfinance
flows;ifdevelopedcountriesaretoagreethenwhatwilltheydemandinreturn?Itcouldbe
thattheUSmightwanttoseeother,non-climatemeasures,suchasarevaluationofthe
ChineseYuanagainsttheUSdollar.37 Suchmeasuresmayindeedbenecessarytodressupa
newclimateagreementinotherclothestohelpimproveitsdomesticpoliticalacceptabilityin
developedcountries.Thusotherforums,suchastheG8andG20processes,areimportant.
Similarly,whatwillbedevelopingcountries’priceandwillvolumeoffinancebemore
importantthanthemechanismsandchannelsbywhichitistransferredandthegovernance
oftheinstitutionsthataregivenoversight?ThedebateconcerningtheAdaptationFundand
itsgovernancehasillustratedthatthelatterisatleastasimportantastheformer.
Thispaperthereforeconcludesthatitisimportanttobalancetheobviouspracticalandpolitical
needforfinanceflowsfromdevelopedtodevelopingcountriesandtheconcernofdeveloped
countriessurroundinguseoffinanceandthecostssuchapproachesmayimposeondeveloped
populations.Thissuggestsaneclecticapproachcoupledwitharobustsystemof
standardisationandaccountingisneeded.Forsuchasystemtoformaviablepartofafuture
climatechangeframeworkitwouldneedthefullagreementofdevelopedanddeveloping
countries.Whiletolerantofavarietyofsourcesandchannelsoffinanceandofarangeof
mitigationactions,itwouldalsoneedtobedemonstrablyfair,transparentandrobustinits
methodsandtohaverecoursetotheCommitteeofPartiestotheUNFCCCforenforcement.
Whateverpoliticalconsiderationsdominatenegotiationsandshapethefinaloutcome,
designingaclimatefinanceregimethatmeetsthesecriteria–especiallyonethatisbasedon
clearindicatorsofequity–canhelpbothduringthisyear’snegotiationsandinpost-
Copenhagendomesticdebatesindevelopedanddevelopingcountriesalike.Anindexof
responsibilityandcapabilityofthetypeusedintheGreenhouseDevelopmentRights
frameworkisquiteclearlycapableofprovidingareferenceforobserversandnegotiatorsand
asubstantivebasisfornegotiation.
37.OnthenewUSadministration’sseconddayinoffice,TimGeithner,Obama’sTreasurySecretary,
indicatedhisconcernoverthevaluationoftheYuaninrelationtotheDollarinawrittenstatementtothe
Senate’sFinanceCommittee.
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