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8/14/2019 Fairness in Global Climate Change Finance
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FairnessinGlobal
ClimateChangeFinance
ByAndrewPendletonandSimonRetallack
March2009
ippr2009
InstituteforPublicPolicyResearchChallengingideas Changingpolicy
WWW.IPPR.ORG
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Aboutippr ............................................................................................................................. 3
Acknowledgements ............................................................................................................... 3
Summary................................................................................................................................ 4
Listofabbreviations .............................................................................................................. 9
Introduction......................................................................................................................... 10
1.Estimatingcosts .............................................................................................................. 12
2.Financingproposals......................................................................................................... 15
3.BuildingaNorthSouthfinancepackage....................................................................... 22
4.Allocatingfinancialobligations ....................................................................................... 25
Conclusions.......................................................................................................................... 31References ........................................................................................................................... 33
Contents
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TheInstituteforPublicPolicyResearch(ippr)istheUKsleadingprogressivethinktank,producingcutting-edgeresearchandinnovativepolicyideasforajust,democraticand
sustainableworld.Since1988,wehavebeenattheforefrontofprogressivedebateandpolicymakingintheUK.Throughourindependentresearchandanalysiswedefinenewagendasforchangeandprovidepracticalsolutionstochallengesacrossthefullrangeofpublicpolicyissues.
WithofficesinbothLondonandNewcastle,weensureouroutlookisasbroad-basedaspossible,whileourinternationalandmigrationteamsandclimatechangeprogrammeextendourpartnershipsandinfluencebeyondtheUK,givingusatrulyworld-classreputationforhighqualityresearch.
ippr,30-32SouthamptonStreet,LondonWC2E7RA.Tel:+44(0)2074706100
RegisteredCharityNo.800065
ThispaperwasfirstpublishedinMarch2009.ippr2009
Aboutippr
ipprwouldliketothanktheHeinrichBllFoundationforitskindfundingandsupportforthisproject.
Acknowledgements
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Itisnowwellestablishedthatactiontoavoiddangerousclimatechangemusttakeplaceaccordingtotheprinciplesofresponsibilityandcapability,andtheUNsFramework
ConventiononClimateChange(UNFCCC)subscribestothisview.Morallyandinpoliticaltermsdevelopedcountriesshouldleadglobalmitigationbymakingsignificantdomesticemissionsreductions.Butinaworldoflimitedfinance,reductionsarguablybeundertakenwherevertheycanbemadeforthelowestcost.
Sinceemissionsreductionsindevelopedcountriesareinsufficienttoresolvetheclimateproblemandareoftenmoreexpensivetomakethanindevelopingcountries,theprinciplesofresponsibilityandcapabilitymightmoreproductivelybeappliedtothefinancing ofglobalreductions:thiswouldmeanthatthehigheracountryslevelofresponsibilityandcapability,thegreateritsshareofglobalclimatefinance.Technically,developedcountriesarealreadyobligedtotransferfinancetodevelopingcountries,undertheUNFCCC,whichstatesthatagreedfullincrementalcostsindevelopingcountriesshouldbemetbyfinanceand
technologyfromdevelopedcountries(Article4.3).
Whetherandhowthatobligationshouldbefulfilledisattheheartofthecurrentinternationalnegotiationsaimedatreachingaglobalpost-2012dealatCopenhageninlate2009.Itisfraughtwithdifficulty,largelybecauseofthesizeofthepotentialfinancialliabilitiesinvolvedandtheunpopularitythatwillarisefromaskingtaxpayersandconsumerstomeetthem.
Estimatingcosts
Thevariousestimatesofincrementalmitigationcostsareunsatisfactory.Whilebeingbasedinmanycasesonrigorousanalysis,especiallyofmitigationopportunitiesindifferentcountries,thereisahighdegreeofuncertaintyoverfuturefactorsthatwillhaveasignificantinfluenceoncosts.Inparticularthebehaviourofgovernments,officialsandpopulationsisdeeplyunpredictable;policycostsmayprovesignificantandthemostcost-effectiveroutetodecarbonisationmaynotalwaysbetheonetaken.
Nevertheless,thereisaconvergenceinthemostrecentcostestimationsataroundUS$100billionto$200billionfordevelopingworldcostsandaround$200billionto$400billionforglobalcostsby2020-2030.Adaptationcostswilladdsignificantlytothesesumsandarenowunavoidable.ItisperhapssignificantthatdevelopingcountriesintheUNnegotiationshavecalledforbetween$200billionand$400billionperannum.
AmorepragmaticandresponsiveapproachmaybetobaseestimatesoffuturefinancingofmitigationindevelopingcountriesonplansforNationallyAppropriateMitigationActions
(NAMAs),verifiedbyaninternationalapprovalprocessaccountabletoUNFCCCsignatories.
Financingproposals
Thesumsquotedaboveareseveraltimeslargerthancurrentclimatechangefinance.Thelargestexistingpoolisthe$6.1billionpledgedin2008bytendevelopedcountriestotheWorldBanksClimateInvestmentFunds(CIFs).Fromwherewouldgreatersumsoffinancecapableofmeetingtheneedsestimatedabovebedrawn?
1.Offsetting
ToincreasetheflowofoffsetfinancethroughtheKyotoProtocolsCleanDevelopmentMechanism(CDM),developedcountriescouldrelaxanylimitsontheproportionofdomestic
reductionsthatcanbeoffsetbypurchasingexternalcreditsorsetmoreambitioustargetstodriveamoreaggressiveoffsetmarket.TheUNFCCCestimatesthatby2020,offsettingcouldyieldupto$40.8billion.Butdevelopingcountriesareunlikelytoacceptanincreaseinoffsetsasasoleorevenmajoritysourceoffinanceforlow-carbondevelopment.
Executivesummary
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2.Leveragedorcompulsoryadditionaloffsetting
ForeverytonneofCO2 offsetindevelopedcountries,severalcouldbereducedina
developingcountryatapricerelatedtothemarketpriceofcarbon.Governmentsindevelopedcountrieswouldfirsthavetoagreetobindingemissionsreductiontargetsand
thentoacorrespondingratioatwhichtoleverageoffsets.Iftheytookonanemissionsreductiontargetof40percentbelow1990levelsby2020andoffsetaroundhalfata2:1ratio,thiscouldyield$130billionperyear.Suchamechanismwouldrequiredevelopedcountrieseithertoacceptdeepdomesticemissionsreductiontargetsortoleverageoffsetsathigherratios.Itwouldreplaceratherthanworkwithinexistingoffsetmechanisms.
3.EmissionsTradingSchemelevies
Thereiscurrentlyalevyof2percentonthesaleofpermitsintheCDM,theproceedsofwhichgototheAdaptationFund.Thelevycouldraise$200to$680millionannuallyin2020.BangladeshandBrazilhavebothproposedincreasesandattheUNFCCCCOP14meetinginPoland,developingcountriesproposedthataCDM-typelevybeappliedtoall
emissionstradingschemes.Theproposalwasblockedbydevelopedcountries.
4.Revenuefromdomesticpermitauctions
Developedcountriesareincreasinglyauctioningpermitstoemitundercap-and-tradeschemesupfront,providingarevenuestreamtogovernments.Aproportionoftheserentscouldbesetasidetosupportdevelopingcountrymitigation(andadaptation).IfallAssignedAmountUnits(AAUs)weresubjecttoregimesinwhichtheycouldbeauctioned,thenpost-2012,upwardof$300billioncouldberaised.Revenuesfromauctioning,however,areuncertainbecausethepricepaidbypollutersdependsondemand.Revenuesarealsocapturedbynationaltreasuriesandmaynotbeusedtofundlow-carbonactivitiesindevelopingcountries.
5.Upstreamauctionrevenue(AAUhold-back)
Norwayhasproposedthat2percentofAAUsareheldbackattheinternationallevelratherthanbeingassignedtocountriesandareauctionedtoraisemoneyforaninternationalfund.Thiswouldraise$15-$25billionperyear.OthershaveproposedthathigherpercentagesofAAUsareheldback.TheprinciplestandsahighchanceofbecomingpartoftheEUsnegotiatingofferforCopenhagen.However,holdingbackhigherpercentagesofAAUsorsettingareservepricemayberesistedbydevelopedcountriesbecausecostswouldbepassedontotheirconsumerswhilerentswouldbecapturedinternationally.USCongressviewsinternationalexpropriationoffinanceasunconstitutional.
6.CreditingNationallyAppropriateMitigationActions(NAMAs)
TheRepublicofKoreahasproposedasystemofcarboncreditsforNAMAstoallowforactionstobetakenearlyandfinancedupfrontagainstafuturesaleofcarboncreditsontheinternationalmarket.Thecreditswouldbepurchasedbydevelopedcountries,wheredeeperreductiontargetswouldbeagreed.ItspotentialvaluewoulddependonthescopeandeffectivenessofNAMAplansandontheavailabilityofdevelopedcountryfinancing.CreditingNAMAs,however,mightassistwiththepoliticsofapost-2012agreementasitcouldhelpfinancealreadyplannedlow-carbonstrategiesindevelopingcountries.
7.Globaltaxation
Switzerlandhasproposedalevyof$2pertonneatthenationallevelinallcountrieswithpercapitalevelsabove1.5tonnes,withcountriesretainingthefundsdependingontheirlevelof
development:40percentinthecaseofdevelopedcountriesand85percentforthepoorest.Thiswouldraiseapredictableleveloffinanceof$48.5billionperyearofwhich$18.4billionwouldbedepositedinaninternationalfund.Butthecostsofaflatcarbonlevywouldfallregressively.
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8.Otherlevy-basedproposals
Leastdevelopedcountries(LDCs)haveproposedaninternationallevyonaviationwhichcouldraisebetween$4and$10billionannuallyandalevyonbunkerfuelsforaviationandshipping,whichcouldraisebetween$4and$15billion.Brazilhashintedata100billion
climatefundinvolvinga10percenttaxonrevenuesfromtheproductionandtradingofoilandcoal.
9.Non-climate-relatedfundingsources
Otherfundingsources,suchasincreasesingeneraloverseasdevelopmentassistance,ataxoncurrencytransactions(TobinTax)ormorebroadlyonfinancialtransactions,revenuefromuntaxedincomeheldoffshoreandtheuseofsovereignwealthfunds,mayallplayafuturerole.Forexample,$11.5trillionofprivateassetscurrentlyheldinoffshorefinancecentreswouldyield$225billionannuallyiftaxedataconservativerate.
10.Frontloadingfinance
Frontloadingfinanceusingbondsraisedagainsttheguaranteeoftaxrevenueindevelopedcountriescouldleverageprivatesectorfinanceintomitigationmeasures.DevelopingcountriesareunderstandablycautiousbuttheEuropeanCommissionhashintedatapropositionwherebydevelopedcountriesguaranteelendingforwell-structureddevelopingcountryprojectsandpolicies.Thisapproachmightalsoremovesomeoftheshort-termpoliticalpressureondevelopedcountrygovernments,whosecontributionstoglobalclimatefinancingmustotherwisebedrawnfromanincreaseincoststotodaystaxpayersorconsumers.
BuildingaNorthSouthfinancepackage
Withinthecurrentstructureofthenegotiations,agreedfinancingislikelytocomeprimarilyfromKyoto-typesources,especiallywhiledevelopedcountriesremaincommittedtoputtinginplaceandlinking-upnationalorregionalcarbonmarkets.Thereforethechoiceisbetweendifferentcombinationsorwedgesofmeasuresthatadduptoanagreedsum.MeasuressuchastheCDMandoffsetleveragingareincompatible(offsetleveragingwouldreplacetheCDM).Others,suchasAAUholdback,canbescaledupbutappearpoliticallylessviablethelargertheybecome.
DevelopedcountrygovernmentsfacesomethingofaHobsonschoiceastheultimatesourceofthefinancingisthesameone:developedcountrypopulations.Thismayproveespeciallytroublesomeatatimeofeconomichardship.IftheKyoto-styleapproachcontinuestopervade,whileasimplerapproachofenhancingonemechanismmaybepreferabletoamorecomplexcollectionofmeasures,itmayprovepoliticallymoreattractivetospreadthecost
acrossanumberofmeasures.Giventhescaleoffinancingrequired(andthelikelyunwillingnessoftaxpayersandconsumersindevelopedcountriestopay),official climatefinancingshouldalsoaccommodateotherfinancialflows,suchasadditional,climate-relatedoverseasdevelopmentassistanceandtheuseofdebt-basedinstrumentssuchasfrontloading.
Thereisalsotheequallypoliticallychargeddiscussionconcerningthestructureandmechanismbywhichthefundingmightbegoverned,allocated,channelled,monitoredandverified.Therearetwochoice.ThefirstisasingleWorldClimateChangeFundapproach,asproposedbyMexico,towhichallcountrieswouldcontributeaccordingtotheirlevelofcumulativeemissions,populationandabilitytopay,butdevelopingcountrieswouldbenetrecipients.ItissupportedbytheEuropeanCommissionbutfacestwopoliticalobstacles:it
requirescontributionsfromdevelopingaswellasdevelopedcountries,somethingtheG77hasstaunchlyresisted,anddevelopedcountriesaretypicallyoftheviewthatanewfundcouldbeinefficient,wastefulandcostly.
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Conclusion
Thecostsofreducingglobalemissionsarelikelytobemet(iftheyaremetatall),forsoundeconomicandinescapablepoliticalreasons,fromavarietyofdifferentsourcesandviadifferentmechanismsandchannels;thismaybeespeciallytrueduringadeep,global
recession.Suchaneclecticpictureofglobalclimatefinancepointstotheneedforaninternationalarbiteroffairnessandgoodpractice:aformallymandatedbodythatwouldsetthestandardsforandverifymitigationactions,policiesandplans,keepaninventoryofdevelopeddevelopingcountryfinancialflows,developedbestpractice,makepolicyrecommendations,andreportbacktotheCommitteeofthePartiestotheUNFCCC.
Designingaclimatefinanceregimethatisdemonstrablyfairandbasedonclearindicatorsofequitycanhelpbothduringthisyearsnegotiationsandinpost-Copenhagendomesticdebatesindevelopedanddevelopingcountriesalike.AnindexofresponsibilityandcapabilityofthetypeusedintheGreenhouseDevelopmentRightsframeworkcanprovideareferenceforobserversandnegotiators,asubstantivebasisfornegotiationandareal-worldmethodologyforsharingoutagreedfinancialobligations.
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AAU AssignedAmountUnits
BAU Businessasusual
CDM CleanDevelopmentMechanism
CER CertifiedEmissionsReductions
CIF ClimateInvestmentFund
COP ConferenceofParties
CO2e Carbondioxideequivalent
Gt Gigatonne
REDD ReducedEmissionsfromDeforestationandDegradation
ETS EmissionstradingschemeEUA 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
Listofabbreviations
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Itisnowwellestablishedinpoliticalrhetoric,inthecampaignsofdevelopingworld-focusedorganisationsandintheUnitedNationsFrameworkConventiononClimateChange
thatactiontoavoiddangerousclimatechangemusttakeplaceaccordingtotheprinciplesofresponsibilityandcapability.Thisrulehashithertotypicallybeenappliedtomitigationaction,suggestingthattheburdenofglobalreductionsinemissionsshouldfallontheshouldersofthosecountriesmostliableintermsofcontributiontotheatmosphericstockofgreenhousegasesandmostabletopay.
However,witheverypassingday,asgloballevelsofemissionsincrease(Sheehan2008,AndersonandBows2008),thisargumentbecomesmoredifficulttoimplementasdevelopedworldemissionsareproportionatelylessthanthosefromthedevelopingworldwhoserateisincreasingrapidly.TheemissionsofthosecountriesinAnnex1oftheKyotoProtocol(developedcountries)andeventhetotalemissionsfromtheOECD(OrganisationforEconomicCooperationandDevelopment)couldbeeliminatedentirelyanddangerous
climatechangewouldnotbeavoided(EcoEquity2008).Absoluteemissionsreductionsmustnowtakeplaceindevelopingcountriestoo;emissionsreductionsmustbeglobalifdangerousclimatechangeistobeavoided.
Morallyandinpoliticaltermsdevelopedcountriesshouldleadglobalmitigationwithsignificantdomesticemissionsreductionsanddevelopingcountriesoftenstatetheirdesiretoseelow-carbonapproachesdemonstratedfirst.Butinaworldoflimited(andwaning)finance,reductionsarguablyshouldbeundertakenwherevertheycanbemadeforthelowestcost.Thissuggeststhat,sinceemissionsreductionsindevelopedcountriesareinsufficientinquantitytoresolvetheclimateproblemandareoftenmoreexpensive,theprinciplesofresponsibilityandcapabilitymightmoreproductivelybeappliedtothefinancingofglobalreductions.
InthetechnicalandlegaldebatesurroundingthecurrentUNnegotiations,developedcountriesalsofindthemselvesobligedtotransferfinancetodevelopingcountries.Article4.3oftheUNFCCC(1992),towhichallnegotiatingcountriesaresignatories,statesthatagreedfullincrementalcostsindevelopingcountriesshouldbemetbyfinanceandtechnologyfromdevelopedcountries.Ifthiscommitmentistobefulfilled,oratleastadevelopedtodevelopingcountryfinancialpackageofsomesortistobeagreed,thenthecostburdenoughttofallprogressivelybetween(andwithin)developedcountries(astheUNFCCCalsostates).
Whileconceptuallysimplethehigheracountryslevelofresponsibilityandcapability,thegreateritsshareofglobalclimatefinanceapplyingtheUNFCCCsequityprinciplesto
financeis,inpractice,fraughtwithdifficulty.Suchaconceptassumesthelevelsoffinancenecessary,measuredinhundredsofbillionsofdollarsperyear,arereadilyavailable;theyaremanifestlynot.Eveniftheywere,whatmethodologywouldbeusedfordeterminingwhopayswhatamount?Wereresourcesavailableandamethodologyagreed,pastattemptslargeandsmalltotransfersuchresourcesfromdevelopedtodevelopingcountrieshaveoften
provenunpopularwithoneorotherpartyandarguablyalsoineffective.1
Settingasidesomeoftheseperniciousproblems,itisclearfromthecurrentstateofinternationalclimatechangenegotiationsthatafinancialpackageofsomesortwillbenecessaryifthewayforwardpost-2012istobemappedoutattheforthcomingCopenhagen
Introduction
1.Thereisasizeableliteratureontheeffectivenessorotherwiseofaidandonaidconditionalityanditseffects.Effortsinrecentyearsbydonorcountriestocoordinatebetter,tountieaidfromdonorcountrygoodsandservicesandtosupportrecipientcountrygovernmentbudgetsdirectlyhaveallbeenintendedtoincreaseaideffectiveness.
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COP(ConferenceoftheParties).AsChinasrecentsubmissiontotheUNFCCCsecretariatsaid,DevelopedcountryPartiesshalltakesubstantiveactiontoprovidefinancialresourcesmainlyfromtheirpublicfinanceongrantandconcessionalbasisfordevelopingcountryparties,inaccordancewithArticle4.3,4.4,4.5,4.8,4.9andArticle11oftheUNFCCC
(FCCC/AWGLCA/2008/MISC.5).Mitigationcosts,thoughhighlycomplextoforecastbecauseofhugeeconomic,socialandpoliticaluncertainties,aresimplythedifferencebetweencarbon-intensiveenergy,industrial
andlandusepracticesandtheirlow-carbonalternative.2 Inaddition,mitigationinmany
casesdemandslarge,upfrontcapitalexpenditurescommontoandinmanycasesnogreaterthancomparableinfrastructuralendeavoursandastrongfocusonthedevelopmentofnewtechnology,whichrequiresaconstantflowoffinance.
Countriesbothdevelopedanddevelopinghavebeenreluctantandslowtopursuelow
carbonapproaches,inpartbecauseofthisincrementalcostbarrier.3 Inlieuofany
mechanismtoreducethisdifferential,governmentshavebeenunderstandablyreluctanttovisithighercostsespeciallyforenergysupplyontheirpeopleandindustriestostaveofwhatappearstomostadistantandintangiblethreat.
Focusingonthefinancialcostofemissionsreductions,ratherthantheemissionsreductionsthemselves,alsoopensuptheimportantdebateaboutwhopays.Developingcountrieswillnotcommitthemselvestoemissionsreductionsbecausedoingsoexposesthemtosignificantfinancialliabilities;thisisalsothereasonwhydevelopedcountrieshavebeenreluctanttoextendtheiremissionsreductioncommitmentsinafurtherphaseoftheKyotoProtocol.Especiallywhilemarket-basedmechanismscap-and-tradeorcarbontaxationarefavouredbypolicymakers,costswillultimatelyfalltotaxpayersandconsumers,whichis
likelytoproveunpopular.4
AimsofthepaperThispaperlooksatfairnessinmeetingcostsassociatedwithmitigatingandadaptingtoclimatechange.Itexaminesvariousassessmentsofcostandproposalsforhowtoraiseandchannelinternationalclimatechangefinance.ItalsousesthebestavailablemethodologytheindexofresponsibilityandcapabilityintheGreenhouseDevelopmentRightsFrameworktoanalysehowthefinancialburdenshouldfallinprinciple.Itthendiscussessomeofthepoliticalandpolicyimplicationsofthesharingoutoftheglobalfinancialburdenandtheraisingandchannellingoffinance.
2.Thispaperalsoconsidersadaptationcostsandmakespassingmentionofreducingemissionsfromdeforestationanddegradation(REDD),butitsfocusismitigationbecauseitscorethesisisthatburdensharingofmitigationeffortcanbetransferredeasilytoburdensharingofmitigationcostindeeditcouldbearguedthattheburdenofmitigationisacostburden.3.Therearemanyotherbarrierstothedeploymentoflow-carbontechnologies,suchasalackofregulatorymeasuresandashortageofskillsandtechnicalknow-how.
4.Carboncap-and-tradeschemes,suchastheEmissionsTradingSchemeintheEU,willincreasinglyoperatebyauctioningemissionsupfront(ratherthangrandfatheringallocatingthemtopollutersforfree).Thisauctioningprocessisadefacto taxonpolluters,thecostofwhichispassedontoconsumersthroughincreasedprices,especiallyofenergy.
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LordNicholasSterninhisreviewoftheeconomiccostsofclimatechangewasoneofthefirsttoattemptacomprehensive,globaleconomicanalysisofthecostsofdecarbonisation
(HMGoverment2006).ThenowfamousSternReviewestimatedthattheannualeconomiccostofstabilisingatmosphericconcentrationofCO2e(carbondioxideequivalent)at550
partspermillion(ppm)wouldbearound1percentofglobalGDP.Sternhassincedoubledthisestimateto2percentofglobalGDPfor500ppmstabilisation,principallyinlightoftheUNIntergovernmentalPanelonClimateChangesFourthAssessmentReport(IPCC2007)andbecausestabilisationat550ppmnowlackscredibilityasalevellowenoughtoavoiddangerousclimatechange(LondonSchoolofEconomics2008).2percentofglobalGDPat
2007levelsisaroundUS$1.3trillion.5,6
TheIPCCinitsfourthassessmentreportassessmentsurveyeddifferentmitigationcostestimationsofatmosphericstabilisationbetween445ppmand710ppmCO2e(IPCC2007).
Thecostsassociatedwiththisrangedfromaround3percentofglobalGDPtoaround-1.2
percent(soasmallincreaseinglobalGDP)between2012and2030.Therefore,stabilisation
at445ppmwould,intheIPCCsview,costaround$2trillionat2007levels(ibid).7
Thereare,astheIPCCobserves,majormethodologicaldifferencesbetweentop-down,wholeeconomystudiessuchastheSternReviewandstudiesbasedonabottom-upassessmentof
themitigationpotentialindifferentcountriesofarangeoftechnologies.8 Arecentbottom-
upstudybyMcKinseyandCompanyfindsthatannualincremental economiccostscouldbebetween200billionand350billion($273to$478billion)andin2030fora35percentreductioninglobalemissions:lessthan1percentofprojectedglobalGDP.Upfrontfinancing(capitalexpenditure)costscouldbe530billionperyearin2020and810billionperyearin2030(McKinseyandCompany2009).
EstimatesbytheUNFCCCsuggestthatin2030,additionalmitigationfinancingandinvestmentflowsof$200to$210wouldbeneededtoreduceglobalemissionsbymorethan30gigatonnesCO2e,with$76to$77billionofthecostsfallingindevelopingcountries
(UNFCCC2007).Thishassubsequentlybeenrevisedupduetohigherprojectedcapitalcosts,especiallyintheenergysectorinafurtherreport,requestedbytheAd-HocWorkingGrouponLongTermCooperationatCOP13inBali(UNFCCC2008).Itsnewmitigationcostestimatesare170percenthigherasaresult;around$350globallyperyearin2030,approximately$130ofwhichwouldfallindevelopingcountries.
TosupportitsrecentCommunicationontheCopenhagennegotiations,theEuropeanCommissionsJointResearchCentrehasalsocompletedaglobalcostsanalysisusingitsPOLESmodel.Itconcludesthattheannualcostofabatementreaches152billion($207billion)in2020inenergyandindustry(81indevelopedcountriesand71indevelopingcountries)or175billion($239billion)ifagricultureandavoideddeforestationareincluded.Thisisbasedondevelopedcountriesreducingemissionsby30percentin2020comparedto1990levelsandanincreaseindevelopingcountriesof20percentinthesameperiod(asignificantreductionagainstbusinessasusual[BAU]).
1.Estimatingcosts
5.AccordingtotheWorldBanksWorldDevelopmentIndicators,September2008,globalGDPadjustedforpurchasingpowerparityin2007wasUS$65.5trillion.6.TheEconomistIntelligenceUnitsForesight2020(2006)suggestedglobalPPP-adjustedGDPwouldincreaseatanaverageannualrateof3.5percentbetween2005and2020,totalgrowthoftwo-thirds.AccordingtotheWorldBank,globalGDPwasaround$60trillionin2005.7.ibid,WorldBank20088.Forafulldiscussionofthedifferencesandsimilaritiesbetweentop-downandbottom-upstudies,seeIPCC2007,althoughtheIPCCsassessmentofthevariouscoststudiesdoesnotincludemanyoftherecentstudiesmentionedinthispaper.
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Comparingcostestimatesisdifficultduetothemanydifferentsetsofassumptionsthatunderliethem(differenttechnicaldata,differentmitigationtargetsandbaselines,differenttime-sets,globalversusdevelopedanddevelopingworld,andsoon).Theaveragealthoughmoreorlessmeaninglessbecauseofthemixedmethodologiesandvarying
assumptionsfallsataround$670billionperannum.Figure1showsinsteadanaverageofthreerecentstudies:MckinseyandCompany;UNFCCC;andECJRCwhichsums$289billionperyear(in2020to2030).
TheCatalystProject9 estimatesthatfora450ppmCO2estabilisation10,globalemissionsneed
tohavebeenreducedby17GtCO2ein2020againstBAUprojects:5GtCO2einthe
developedworldand12GtCO2einthedevelopingworld.EstimatesbyitsCarbonFinance
WorkingGroupsuggestthedevelopingworldcostwilltotalanaverageofbetween80and115billion($109to$157billion)peryearbetweennowand2020.However,thisbreaksdownfurthertomitigationcostsofbetween55and80billion,10billionforR&Dand15to25billionforadaptation.
Developingcountries,throughtheG77andindividually,haveproposedthattofulfiltheirobligationsunderArticle4.3oftheUNFCCCdevelopedcountriesshouldcommitfinancingindevelopingcountriesequivalenttobetween0.5and1percentoftheirGNP$200400
billion.11 Thisislikelyintendedonlyasanindicationofscaleratherthantoimplyanylinkto
thelong-promisedandlargelyunmetOECDoverseasdevelopmentassistancetargetof0.7percentofGNP.
Adaptationcostestimatesalsovarywidely.TheWorldBanks(2006)oftenquotedestimate
of$10to$40billionin2020hasbeenjoinedmorerecentlybyOxfams(2007)estimateofmorethan$50billionannuallyandtheUNDevelopmentProgrammes(2007)estimateofannualadaptationinvestmentof$86billionperyearin2015.
Eventhoughcostassessmentssuchasthesehavebeenusefulthusfarinshowing
governmentsthevalueofearlyaction(evenifnottopersuadethemtoact)12,eachisbased
0
500
1,000
1,500
2,000
2,500
Stern
1
Stern
2
IPCC
high
McK
insey
low
McK
insey
high
UNFC
CC2007
UNFC
CC2008
ECJR
C
Aver
age*
*Average of bars 4 to 8 only
$
billions
Figure1.Globalcostestimates
9.TheCatalystProjecthasbeenestablishedbytheClimateWorksFoundationtoprovidetechnicaladviceandexpertisetonegotiatorsintheUNFCCCprocess.Seewww.catalystproject.info/10.UndertheCatalystProjectsworkingscenario,atmosphericemissionsconcentrationwouldinfactpeakat510ppm,returningtoordippingbelow450ppmlater.11.AccordingtotheUNStatisticsDivision,thecombinedGDPofAnnexIPartiesin2007was$40,217billion.
12.Governmentsinsomedevelopedcountries,suchastheUK,havebuilttheirownmodelstoweighupthecostsofdifferentoptionsastheyevolveinnegotiations.Developingtoolsofthisnatureonanopenaccessbasis,forinstancethroughopensourcesoftware,toallowallcountriestomakesuchjudgementsmayassistnegotiatorsfromcountrieswithfewerresourcestobetterjudgeoptions.
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onarangeofpotentiallyhighlyvariableassumptions.Forinstance,mitigationcostestimatesuseoilpriceprojections.Oilprices,asrecentexperiencehasshown,arepronetohighvolatility.Eachalsoassumesthatclimatechangepolicyespeciallythatwhichreliesheavilyonmarketmechanismswillplotthecheapestroutetoabatement.Forinstance,inits
executivesummary,theMcKinseyreportsprefixesitscostestimatesbystatingthatitsassumptionswouldholdifthemosteconomicallyrationalabatementopportunitiesarepursuedtotheirfullpotential(McKinseyandCompany2009).
However,inarecentcritiqueofclimatechangepolicytodate,economistDieterHelmidentifiespolicycostsasamajorpotentialflawintheeconomiclogicofmarginalabatement.Helmsuggeststhatgovernmentfailure,regulatorycapture,andtheimpactofrent-seekingbehaviourwithinthepolicyprocessarelikelytoleadtoanincreaseincosts
whentheabatementisundertakenintherealworld(Helm2008).13 Costsarethereforelikely
tobehigher,althoughbyhowmuchitisdifficulttosaybecausepolicycostsaredrivenbypoliticalandnoteconomicfactors.
Thereisawealthofliteratureexploringthereasonswhylow,neutralornegativecostabatementopportunities(no-regretsorwin-win)arenottakenup(forinstance,seeSorrelletal2004).Muchofwhathasbeenwrittentodateexplorestheproblemsoflackoftake-upofwin-winopportunitiesinindustrialisedeconomies,oftenatthehouseholdlevel(forinstance,seeNERAEconomicConsulting2007).Butitisclearthatitwouldbeamistaketoassumethatevennegative-cost(money-saving)abatementhappensautomatically:suchopportunitiesarebynomeansfullyexploitedevenindevelopedcountrieswithproactiveapproachesalreadyintrain.
Theconclusion,therefore,ofabriefscanoftheexistingestimatesofthecostsofmitigatingclimatechangeisthatallareatbestonlybroadlyindicativeandeachdifferentfromthelastorthenext.AfurtherproblemisthatmitigationpotentialmostadequatelysurveyedinMcKinseyandCo(2009)isinitselfadynamicconcept.Forinstance,ifmoreattentionwerepaidearlyontolow-carboninnovation,mitigationpotentialinthefuturemayincrease.Similarly,iffinancewerefrontloaded(andprobablysignificantlyscaled-up)toacceleratelarge-scaledeploymentofavailableornearmarkettechnology,inadditiontoagradualpressureonthefinancialacceleratorthroughcap-and-trade,futuredeploymentmightbecheapersooner.
Futurefinancingbydevelopedcountriesofmitigationindevelopingcountries,necessaryinordertosecureglobalactioninthenextdecadeortwo,mightthereforebebuiltupondevelopingcountryplansforNationallyAppropriateMitigationActions(NAMAs).Thesecouldincludedecarbonisationprojects,low-carbondevelopmentpoliciesandmeasuresandnational(orregional)sectoralapproachesandcouldpassthroughaninternationalapproval
processperhapsatechnicalbodyorsetofregionalpanelsaccountabletotheCOP(thatis,allUNFCCCsignatories)andbeperiodicallyreviewedtotakeaccountofthedynamicnatureofdecarbonisation.ThiscouldbeviewedasbeinginkeepingwiththeBaliDecision(UNFCCC2007),whichcallsfor:
nationallyappropriatemitigationactionsbydevelopingcountryPartiesin
thecontextofsustainabledevelopment,supportedandenabledby
technology,financingandcapacity-building,inameasurable,reportableand
verifiablemanner.
NAMAplanscouldthenbefinancedeitherthroughanew,globalfundorbyusingarangeofchannelsmonitoredandevaluatedbyanewexpertortechnicalbody(seeSection4below).
13.Forinstance,nationaltreasuriesinEUmembercountriesarecurrentlyunwillingtoearmarkall,orinsomecasesany,ofthemoneycapturedfromtheauctioningofemissionstradingpermitsforspendingonlow-carbonmeasures.Sowhiletheywillspendthismoneyonsomethingtheoveralleconomiccostofauctioningshouldbezeroitmaynotbeclimatechangemitigationmeasuresthatbenefit.
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Wherealltheaboveestimatesconvergeisonthenotionthatasaproportionoffuturewealth,mitigationcostswillbetrivial.However,viewedinabsolutetermsandonan
annualbasis,theyareanythingbut.Article4.3oftheUNFCCCnotwithstanding,anyreasonablemeasureoffairnessinthedistributionofthesecostswouldseethelionssharelikelytobebornebydevelopedcountries.However,thesumsconcernedareat
leastasbigascurrentflowsofofficialdevelopmentassistance(ODA). 14
Thesumsquotedabovearealsoseveraltimeslargerthancurrentclimatechangefinance.Thelargestexistingpoolisthe$6.1+billionpledgedlastyearby10developedcountriestotheWorldBanksbraceoffinancingmechanismsknownastheClimateInvestmentFunds(CIFs).Whiledevelopingcountriesmayyetcooperatewithandparticipateinthegovernanceofthesefunds,theG77maintainsthattheycannotbecountedasa
fulfilmentofAnnex1(AnnexII 15)Article4.3obligationssincetheywerenotagreed
underorchannelledthroughtheUNFCCC.
Inaddition,thereareseveralfundsforadaptation,threeofwhichareunderthegovernanceoftheGlobalEnvironmentFacility,aWorldBanktrustfund,andtheothertheAdaptationFundgovernedbyanewly-establishedBoardundertheCOP.TheAdaptationFundisfinancedbyalevyonCleanDevelopmentMechanismtransactionsandothercontributions(seebelow).TheGEFadaptationfundsaredrawnfromvoluntarycontributionsbydevelopedcountriesandcollectivelyamounttoaround$300million(UNFCCC2008)(asatOctober2008).
Fromwherewouldgreatersumsoffinancecapableofmeetingtheneedsestimatedabovebedrawn?Post-KyotoProtocol,theanswerisafamilyoffinancingproposalsrelatedtotheallocationofemissionsreductioncommitmentstoProtocolcountries
(presumablyincludingtheUnitedStatesseebelow),theoffsettingofthesereductionselsewhereintheworldandthesaleoftheseemissionsallowancesbygovernmentsorattheinternationalleveltopolluters.
Thusmostpost-2012financingproposalstodatepresupposeaKyotoProtocol-stylesystemwithexpandeddevelopedcountrycap-and-tradeschemesastheprincipleinstrumentsofclimatechangepolicy.Itisworthnoting,however,thatthisisasignificantpresupposition.TheUS,thoughrapidlychangingdirectiononclimatechangepolicyaftereightyearsofisolationism,andlikelytointroducedomesticcap-and-tradelegislationsoonifnotthisyear,isbynomeanscertaintoratifyafutureinternationalagreement.
Moreover,thepresumptionthatKyoto-relatedmechanismsshouldbethosefromwhichfinancetosupportglobalmitigationandadaptationissourcedisalsocontestable.Othersourcesoffinance,mechanismsandapproachesareopentopolicymakersandthebiggestfillipforclimatechangemitigationhithertoislikelytocomenotfrommechanismsrelatedtointernationalclimateagreementsbuteitherfromgovernmentsdomesticfiscalstimulusprogrammes,whichareprimarilydesignedtoincreaseeconomicproductioninthefaceofrecession,orfromregulation,suchasthatusedsuccessfullyinCalifornia.
2.Financingproposals
14.AccordingtotheOECDsDevelopmentAssistanceCommittee,ODAin2007stoodat$103.5billion.SeeAidTargetsSlippingOutofReach? (OECD2008).ThesamereportalsoobserveshowOECDcountriesareofftrackinmeetingtargetssetin2005forincreasingODAfrom$80billionin2004to$130billionin
2010.15.AnnexIIoftheUNFCCCliststhoseAnnex1countriesgenerallyOECDexcludingthetransitioneconomiestowhichArticle4applies.Seehttp://unfccc.int/essential_background/convention/background/items/1348.php
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Potentialsourcesoffinancing
Belowisabriefsurveyofpotentialfinancingsources,beginningwiththeKyotoProtocol-relatedfamily,thenconsideringarangeofotherfundingproposalsandsourcesandfinishingwithabriefdiscussionoffrontloadingordebt-basedfinancing.
1.Offsetting
TheprincipleofoffsettingiswellestablishedinthecurrentKyotoProtocolthroughtheCleanDevelopmentMechanism.Asitstandsalthoughhighlylikelytobereformedinanypost-2012agreementtheCDMisprojectbased,allowingindustryincountriesoperatingunderKyotoemissionslimitationandreductionobligations(QUELROs)topurchasecreditsissuedagainstabatementprojectsindevelopingcountries.
Someemissionstradingschemes(theEUsandAustralias)limittheproportionofdomesticreductionsthatcanbeoffsetbypurchasingexternalcredits.Toincreasetheflowofoffsetfinance,schemescouldeitherrelaxorremovethislimitorsetmoreambitioustargetswiththeaimofdrivingamoreaggressiveoffsetmarket.
Offsettinghasalreadyprovidedasteadyifsmall(relativetotheabovecostestimates)streamoffinancefromdevelopedtodevelopingcountriesthathasbroughtaboutsomesignificantgreenhousegasabatement.Whilecap-and-tradeschemesremainpopularandindeedproliferateasapolicyinstrumentforreducingemissionsindevelopedcountries,offsettingwillprovideareliablestreamoffinancetodevelopingcountriesandasimilarlyreliablesupplyofcheapreductionstodevelopedcountries.
Inenvironmentalterms,offsettingdoesnotprovideadditionalmitigation.Unlessthereweredeeperreductiontargetsindevelopedcountries,ineffectdeepenoughtoincorporatebothdevelopedanddevelopingcountryreductionsoveragivenperiod,thenoffsetswouldnotdrivemitigationinadditiontothatagreedbydevelopedcountryreductions.Andyetthe
avoidanceofdangerousclimatechangenowreliesonmitigationinbothdevelopedanddevelopingcountries(GlobalClimateNetwork2008).
Developedcountrieswillarguetheyneedtooffset,especiallyastheydeepentargetsinsecondandthirdKyotocommitmentperiods;offsettingisinevitablewhilemarketmechanismspersist.Developingcountriesareunlikelytoacceptanincreaseinoffsetsasasoleorevenmajoritysourceoffinanceforlow-carbondevelopment.
Potentialvalue:Itdependsonthedepthofdevelopedcountryemissionsreductiontargets,buttheUNFCCCestimatesthatby2020,offsettingof0.4to1.4GtCO2eatanaverageprice
of$24pertonneofCO2ecouldyieldbetween$9.6and$40.8billion.Withthecarbonprice
currentlydepressedthroughoversupply,CERshaverecentlybeentradingatlessthanhalf
thisprice.16
2.Leveragedorcompulsoryadditionaloffsetting
TheCatalystProjectsfinanceworkinggrouphassuggestedthatoffsetscouldbeleveraged;foreveryonetonneofCO2eoffsetindevelopedcountries,severalwouldbereducedina
developingcountryatapricerelatedtothemarketpriceofcarbon.Governmentsindevelopedcountrieswould,ineffect,beobligedtobuyanagreednumberofthesehigh-pricedoffsetstomakeupthedifferencebetweentheirpost-2012obligationsandtheiractualdomesticemissionsreductions.Similarproposalshavebeenmadethat,forinstance,suggestdevelopedcountriesshouldprocureagreedquantitiesofCERsfromdevelopingcountriesandretirethem,ratherthanusethemtooffsetdomesticemissions(Mllerand
Ghosh2008).
16.EUemissionallowance(EUA)priceshavebeenconsistentlybelow10pertonnesinceAutumn2008.TheCERpriceisnecessarilybelowtheEUAprice.Seewww.pointcarbon.com
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otherfactors.Forinstance,sinceAutumn2008,thecarbonpriceinEuropehasfallenduetoweakeconomicoutput.Revenuesarealsocapturedbynationaltreasuriesandmaynotbeusedtofundlow-carbonactivitiesletalonethoseactivitiesindevelopingcountries.
Potentialvalue:IfallAssignedAmountUnits(AAUs)circa16billionweresubjectto
regimesinwhichtheycouldbeauctioned,thenpost-2012,dependingonthecarbonprice,upwardof$300billioncouldberaisedbynationalgovernments.However,asanindicationthatfullauctioningofallpermitsissomewayaway,theEUwillnotauction100percentofitsETSpermits(whichinturnisonlyaproportionofitstotalAAUs)until2027.In2020theETSauctionisexpectedtoraise30billionannually,muchofwhichislikelytoberetainedbynationalgovernmentsandusedforgeneralexpenditure,withperhaps50percentusedtocovermitigationcosts(Buchan2008).Onlyaproportion,ifany,ofthisislikelytogotosupportactionindevelopingcountries.
5.Upstreamauctionrevenue(AAUhold-back)
Norwayhasproposedthat2percentofAAUsareheldbackattheinternationallevelrather
thanbeingassignedtocountries(withQUELROs)andareauctionedtoraisemoneyforaninternationalfund,primarilyforadaptationandavoideddeforestation.OthershaveproposedsimilarschemeswithhigherpercentagesofAAUsheldbackattheinternationallevelformoregeneralmitigationandadaptationfinancing(Spratt2009)orproposedsimilarprinciplesbutwithoutspecifyingthequantityofAAUstobeheldback(EC2009).
AAUhold-backoffersthepotentialforcaptureofaproportionoftherentsfromauctioningattheinternationallevel,yieldingaflowoffinancetothedevelopingworld(asopposedtoleavingthistothediscretionofindividualgovernments).Indeed,itcouldbearguedthattoavoidcaptureofrentsbynationalgovernments,allAAUsshouldbeauctionedattheinternationallevelratherthanattheregionalornationallevel.
ThevolumeoffinancethiswouldyieldwouldremainuncertainasthepricepaidfortheAAUsheldbackwouldbedeterminedbytheinternationalcarbonmarket.Toovercomethisflaw,areservepricecouldbesetusingamethodologysimilartothatusedbysomenationalgovernmentsinauctionsofETSpermitsinordertoguaranteeaminimumleveloffinance.
TheprincipleofAAUhold-backisincludedintherecentECCommunicationandstandsagoodchanceofbecomingpartoftheEUsnegotiatingofferforCopenhagen.However,reservepricesorhigherpercentagesofAAUsheldbacktoyieldgreaterand/ormorepredictablelevelsoffinancewillberesistedbydevelopedcountrygovernmentsbecausecostswouldbepassedontotheirconsumerswhilerentswouldbecapturedelsewhere.
Potentialvalue: TheUNFCCCestimatesNorwaysproposedauctionof2percentofAAUswouldraise$15-$25billionperyear(UNFCCC2007).StampOutPoverty,aUKdevelopment
financecampaigninggroup,proposestheauctionof8percentofAAUstoraise$56billionperyear(Spratt2009).TheCatalystProjecthascalculatedthateitherselling13percentofAAUsat30pertonneorlevyinga4pertonnechargeon100percentofAAUswouldyield70billion(CatalystProject2009).
6.CreditingNationallyAppropriateMitigationActions(NAMAs)
AproposalbytheRepublicofKoreacallsforasystemofcarboncreditsforNAMAstoallowforactionstobetakenearly(UNFCCC2008)andfinancedupfrontagainstafuturesaleofcarboncreditsontheinternationalmarket.Thecreditswouldbepurchasedbydevelopedcountries,wheredeeperreductiontargetswouldbeagreed(sodrivinggreateroffsettingactivity).
KoreascreditingNAMAsproposalfitswellinprinciplewiththeProjectCatalystproposalaboveforleveragingoffsets(ineffect,creatingdeeperdevelopingcountrymitigationtargetsthroughcreatinganoffsetratioofgreaterthan1:1).However,NAMAscouldintheorybecreditedbyanystreamoffinanceandevenbydebt-basedmechanisms.
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Aswellasprovidinganincentiveforearlyactionandkeepingtheglobalcostsofmitigationlow,creditingNAMAsmightassistwiththepoliticsofapost-2012agreementasitcouldhelpfinancealreadyplannedlow-carbonstrategiesindevelopingcountries.
Potentialvalue:ThiswoulddependverymuchonthescopeandeffectivenessofNAMA
plansdrawnupbydevelopingcountriesandontheavailabilityofdevelopedcountryfinancingthroughadeepeningofmitigationcommitment.
7.Globaltaxation
Switzerlandhasproposedalevyof$2pertonneofCO2eatthenationallevelinallcountries
withpercapitalevelsabove1.5tonnes,withcountriesretainingdifferentproportionsofthefundsdependingontheirlevelofdevelopment;40percentinthecaseofdevelopedcountriesand85percentforthepoorest.
Theappealofaglobalcarbontaxofthissortisthatitwouldleadtoapredictableleveloffinance,whichcouldbedepositedinaninternationalfund.NotwithstandingthepercapitathresholdintheSwissproposal,thecostsofaflatcarbonlevywouldfallregressively,althoughclearly,developingcountrieswouldretainagreaterproportionoftherentscollectedthanwoulddevelopedcountries.Thiscouldbeaddressedbybuildinginfurthermeasuresofdevelopmentandthereforeexcludingfromthelevyaproportionofsomecountriesemissionsbelowagivenpercapitalevel(inotherwords,athresholdmethodologycouldbeintroducedforallcountriesorthetaxableratecouldbehigherindevelopedcountries).
Potentialvalue: $2pertonnelevyonemissionsofallcountrieswithpercapitalevelsabove1.5tonneswouldraise$48.5billionperyearofwhich$18.4billionwouldbepassedontoaninternationalfund,accordingtotheGovernmentofSwitzerland(2008).
8.Otherlevy-basedproposals
Thereareseveralproposalsforleviesonemissions.
Leastdevelopedcountries(LDCs)haveproposedaninternationallevyonaviation(IATAL),whichcouldraisebetween$4and$10billionannually(UNFCCC2008).
LDCshavealsoproposedalevyonbunkerfuelsforaviationandshipping,whichcouldraisebetween$4and$15billionannually(UNFCCC2008).
ThePacificnationofTuvaluhasproposedthatpermitsfortheemissionsofinternationalaviationandshippingareauctioned,raising$28billionperyear(UNFCCC2008).
Brazilhasalsorecentlyhintedata100billionclimatefundproposalinvolvinganincreaseintheCDMlevyanda10percenttaxonrevenuesfromtheproductionandtradingofoiland
coal(PointCarbon2009).
9.Non-climate-relatedfundingsources
Otherfundingsources,suchasgeneraloverseasdevelopmentassistance(ODA),ataxoncurrencytransactions(TobinTax)ormorebroadlyonfinancialtransactions,revenuefromuntaxedincomeheldoffshoreandtheuseofsovereignwealth,mayallplayafutureroleinclimatechangemitigation.Forinstance,theTaxJusticeNetworkestimatesthat$11.5trillionofprivateassetsarecurrentlyheldinoffshorefinancecentres,whichwouldyieldanannualincomeof$225billioniftaxedataconservativeannualrate(TaxJusticeNetwork2005).Sovereignwealthfundsworldwidecurrentlyholdalmost$3.2trillion(Balin2008)asaresultoftaxingnaturalresourceextraction,transferringforeignexchangereservesandsovereign
debtdisbursement.Developedcountriesmaypreferafinancingarrangementthatwouldseethemchannelclimatefinancingthroughgeneraldevelopmentassistanceprogrammes,targetedatthe
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poorestcountries.Forthenegotiations,asidefromthepoliticaldifficultiesassociatedwithperpetuatingwhatdevelopingcountriesperceiveasadonor-recipientrelationship,workingourpreciselywhatisadditionaltoODAisdifficultwhendevelopedcountrieshaveyettoreachtheir0.7percentofGNPtargetandwillnotdosoforsomeyears.
Recentstimuluspackagesannouncedinupwardof15countriesworthalmost$2.8trillionhaveanestimatedclimatechange-relatedcontentof$430billion(HSBC2009).21 TheUnited
NationsEnvironmentProgrammehasproposedthatone-thirdofstimuluspackagesbespentonclimatechangemitigationorenvironment-relatedactivities.Mostifnotallstimuluspackagefinancewillbespentdomesticallybythegovernmentsconcerned,althoughtheWorldBankhasproposedavulnerabilityfundintowhichcountrieswouldpay0.7percentoftheirvalue(WorldBankNews&Broadcast2009).
10.Frontloadingfinance
TheECinitsrecentCommunicationhasproposedaGlobalClimateFinancingMechanism,whichwouldbedesignedtofrontloadclimatefinancing,especiallyforadaptationmeasures.
ItissimilartotheInternationalFinanceFacilityforimmunization,inwhichdevelopedcountriesissuebondsagainstfuturedevelopment(ODA)spendinginordertofrontload
financing.22
AlthoughintheCommissionswordsThesefundswouldinparticularallowforanimmediatereactiontourgentadaptationneeds,frontloadingusingbondsraisedagainsttheguaranteeoftaxrevenueindevelopedcountriescouldbeaveryusefulmeansofleveragingprivate
sectorfinanceintoawholerangeofmitigationmeasuresandintoREDD,too.23 Indeed
whereasadaptationmeasuresmayofferalimitedprospectofreturnsoninvestmentsandsogovernmentborrowingwouldberepaidbytaxpayers,mitigationmeasuresespeciallyenergysavingandenergyefficiencyinvestments,butalsoenergyinfrastructurecouldproveprofitable.
Developingcountriesareunderstandablycautiousaboutdebt-basedfinancinginstruments;ahangoverperhapsfrompastdebtcrises.However,theECsGlobalClimateFinancingMechanismhintsataninterestingpropositionwherebydevelopedcountriesguaranteelendingforwellstructureddevelopingcountryprojectsandpolicies.Thisapproachcouldprovideanotherperhapssignificantincrementtowardsthefulfilmentofdevelopedcountryobligations.
Thecostoffinancethroughgovernmentbondsisdeterminedbythecreditratingoftheissuinggovernment,governmentsororganisation.IfthebondisissuedbytheWorldBank,whichhasanAAArating,orbyAAA-ratedgovernmentsonly,thenfinancingischeaperbecauseitisjudgedbyinvestorstobelessrisky(inotherwords,robustpublicfinances
guaranteethatevenifaprojectfails,investorswillnotlosetheirmoney).However,evenanEU-widebondwouldbemoreexpensive;inpractice,thereareonlyahandfulofgovernmentsandthedevelopmentbanksthatcouldissuesuchbonds.
Also,wereanysignificantfundsbuiltupattheinternationallevelthroughanyoracombinationoftheabovemechanisms(thatis,AAUorpermitauctions,leviesortaxes),thefundcouldbeusedtosupplyconcessionallendinginadditiontogrants-basedfinance.Again,thisapproachwouldbeparticularlyappropriateforfinancingthenegativecostmeasuresdevelopingcountriesmighttake.
21.Someofthemeasuresincludedinthe$430billionfigure,suchasspendingonimprovementstorailwaysalargeproportionofChinasstimuluspackagewouldnotnecessarilybecountedaslow-
carbonactivityin,forinstance,McKinseyandCompany2009.22.Seewww.iff-immunisation.org/01_about_iffim.html23.ThePrincesRainforestProjectarguesthatmostdeforestationwilltakeplacebeforeglobalcarbonmarketsarefullyfunctioningandthereforefrontloadedfinancewillbenecessarytoensureearlyactiontoreducedeforestationemissionstakesplace.SeePrincesRainforestProject(2008).
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Anotherappealisthatdebt-basedmechanismsessentiallyborrowlongtermfromfuture,presumablywealthier,generationswhomightbegladtoseeclimatechangemitigation
measurestakennow.24 Thismightremovesomeoftheshort-termpoliticalpressureon
developedcountrygovernments,whosecontributionstoglobalclimatefinancingmust
otherwisebedrawnfromanincreaseincoststotodaystaxpayersorconsumers(Foley2007),measuresthatarelikelytoproveincreasinglyunpopulardomestically(LockwoodandPendleton2009).
24.Currentfinancecrisisnotwithstanding,globalGDPisprojectedtogrowbeyond$100trillionannuallyby2020.
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BreakingtheimpasseattheheartoftheongoingUNFCCCnegotiationsreliesonthefulfilmentoftwoareasoftheConventionthatareofparticularimportancetodeveloping
countries,whoseparticipationinlong-termcooperativeactionisessentialiftheoverallobjectiveoftheConventionistoberealised.Theseareequity,andtheobligationsofdevelopedcountries,aslistedinArticle4.
ThepreambleoftheConventioncallsforthewidestpossiblecooperationbyallcountriesandtheirparticipationinaneffectiveandappropriateinternationalresponse,inaccordancewiththeircommonbutdifferentiatedresponsibilitiesandrespectivecapabilitiesandtheirsocialandeconomicconditions.ThereiscurrentlynoagreedmeansattheConventionlevelbywhichtoquantifyandthereforedifferentiatebetweenlevelsofactionbeyondacrude
divisionofdevelopedorAnnex1countriesanddevelopingornon-Annex1countries.25
Relatedtothis,thesecondimportantareaoftheConventionfordevelopingcountriesisits
Article4,whichliststheobligationsofdevelopedcountries.Inparticular,Article4.3statesthatdevelopedcountriesshallprovidenewandadditionalfinancialresourcestomeettheagreedfullcostsincurredbydevelopingcountryPartiesincomplyingwiththeirobligations.Thekeywordsareagreedfullcostsasitstatesthatthefullincrementalcostsofmitigationandadaptationindevelopingcountriesshouldbepaidbydevelopedcountriesbutalsoimpliesthatthevolumeofthesemustbeagreed.
Whiledevelopingcountrymitigationcostsare,byallestimations,asmallfractionofcurrentandfuturedevelopedcountrywealth,thebillthesameormorethanthecurrentsumofOECDcountriesODAoutlayislargeand,whiletheKyoto-typeapproachpredominates,mustbepaidbyconsumersandtaxpayersindevelopedcountries.Thereisaveryrealthreatofapoliticalbacklashfromdevelopedcountrypopulationsshouldgovernmentscommit
themtointernationalaswellasnationalincrementalcosts(LockwoodandPendleton2009).Thismayproveespeciallytroublesomeatatimeofeconomichardship.
Nevertheless,withinthecurrentstructureofthenegotiations,the agreedfinancingislikelytocomeprimarilyfromKyoto-typesources,especiallywhiledevelopedcountriesremaincommittedtoputtinginplaceandlinkingupnationalorregionalcarbonmarkets.Therefore,thechoiceisbetweenanumberofdifferentcombinationsorwedgesofmeasuresthatadduptoanagreed sum(seeFigure2below).Some,suchastheCDMandoffsetleveraging,
3.BuildingaNorthSouthfinancepackage
0
50
100
150
200
250
Mixed
sources
Upscaled
AAU holdback
Offset
leveraging
$
billions
Leveraged offsets
13% AAU
holdback
2% AAU
holdback
CDM
CDM levy
Earmarked A1
auction revenue
Levies on bunkers
Figure2.Financingwedges
26.DevelopedcountriesboundbytheKyotoProtocolhavedifferentiatedtargetsaslaidoutinitsAnnexB.DifferentiationintermsofmitigationefforthasalsotakenplaceinsidetheEuropeanbubble.FurtherdifferentiationbetweenEuropeannationsaccordingtolevelsofemissions,GDP,populationandabatementeffortstodateisproposedintheCommissionsrecentCommunication.
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Whiledevelopedcountriesarelikelytobecautiousintheirapproachtotheestablishmentofanew,globalfund,theEuropeanCommissioninitsrecentcommunication(EC2009)hashighlightedanapproachinthestyleoftheMexicanproposal.Therearealsoprecedentsforinternationalfundsthatarenotwhollywithinthedevelopmentbankstructures:
TheGlobalEnvironmentFacility,takenoutofWorldBankgovernancein1994,administersfinancialflowsunderexistingenvironmentaltreaties,suchastheConventiononBiodiversityandexistingUNFCCCmonies.Furtherchangeswouldberequiredtoitsgovernance,butitisaprovenoperatorofenvironmentalfinancialtransfers.(Seewww.gefweb.org)
TheGlobalFundtofightAIDS,TBandMalariahasdisbursed$11.4billionsince2002,butitsstructure,whichusestheWorldBankasatrusteeonly,establishesausefulprecedent.TheGlobalFundhasaboardmadeupofdonors,recipients,NGOsandrepresentativesfromaffectedcommunitiesandanindependenttechnicalreviewpanelthatguidestheboardonfundingdecisions.(Seewww.theglobalfund.org)
OneofthereasonswhytheEuropeanCommissionmayfavouraMexican-stylefundis
becauseEuropeanmemberstatescurrentlypayintotheEuropeanStructuralandCohesionFunds,whichareconceptuallysimilar.ThepurposeofthefundsistoassistpoorerregionsandmemberstatesandtobetterintegrateEuropeaninfrastructure;theyaccountformorethanone-thirdoftheEUsbudget.Mostnotably,whileallmemberstatescontributetothefunds,somereceivemoreassistancethanothers.
Thealternativetoaglobalfundisanewinternationalbody29 toapproveandverify
developingcountryNAMAsandtomonitor,reportonandverifyfinanceflowsfromdevelopedcountries.Suchanauthoritywouldkeepaglobalinventoryofmeasurable,reportableandverifiable(MRV)developedcountryfinanceanddevelopingcountrymitigationactions.Thereisnoprecedentforabodyofthissort,butitmightbuildonthe
experienceoftheCDMboard.However,itwouldalsoneedteethanditisnotatallclearwhatsanctionswouldbesufficienttoensuredevelopedcountriesmetagreedfinancingobligations.Theglobalfundmodelalsosuffersfromthisproblem.
29.Althoughtheglobalfundmodelwouldalsoneedabodytoapplystandardstomitigation.
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Fairness(orequity,inthewordsoftheUNFCCC)willbeakeycomponentofclimatechangepolicyandofaframeworkattheinternationallevel,aswellasinnationalpolicy.Itis
arguablyeasiertoapportioncostsprogressively,especiallyatthenationallevel,thanitistoshareoutremaininggreenhousegasemissions.30 Attheinternationallevel,theconceptsof
responsibilitycurrentandpastcontributionstotheatmosphericstockofemissionsandcapabilitythecapacityofanationtocontributetowardsthemitigationoffutureemissionsattheheartoftheUNFCCCcouldformthebasisofamethodologicalapproachtofairness.
Whiletheseprincipleshavebeenappliedtodeterminefairsharesofmitigationeffort(througheffortsharing,suchascurrentlyinAnnexBoftheKyotoProtocolorwithintheEuropeanUnionKyotobubble),theyareyettobeusedtodeterminefairsharesintermsofthecostsofmitigation.However,suchprinciplesespeciallythoseconcerningabilitytopay
areapplicabletofinancialeffort-sharing,too.31 Further,ifdevelopedcountriesaretofulfil
theirUNFCCCobligationsandtodosoinamannerthatismeasurable,reportableandverifiable,astheBaliDecisionstates(UNFCCC2007),thensharingoutArticle4.3financingcommitmentsaccordingtoaclear,defensiblemethodologywillbenecessary.
Avarietyofexistingproposalsforpost-2012climateframeworksorregimestakeintoaccountmeasuresofequity.Forinstance,therecentCarbonBudgetingproposaldevelopedbytheChineseAcademyofSocialSciencesadjustspercapitaemissionstotakecumulativepastandfutureemissions,naturalresourceendowmentandotherfactorsintoaccount.Otherframeworks,suchasKyoto2,whichisaproposalforupstreamcarbontrading,andothermarket-basedproposalsdealwithequityex-post,bydistributingtheproceedsoftradesinaprogressivefashion(seewww.kyoto2.org).
TheGreenhouseDevelopmentRightsFramework(GDRsseeEcoEquity2008),awell-known,equity-based,burden-sharingclimatechangeframeworkproposal,isperhapsuniqueinthatitquantifiesresponsibilityandcapability,theConventionsequityprinciples.GDRsallocatesmitigationeffortandadaptationcostaccordingtoaglobalresponsibilityandcapabilityindex(RCI).Responsibilityiscalculatedbytakingintoaccountcumulativeemissionspercapitasince1990andcapabilityismeasuredasPPP-adjustedGDPpercapitaaboveanincomethresholdof$7,500.Thetwoindicatorsarecombinedwithequalvalue
(1:1)toarriveatasingleindex.32
Table1showsthesharesofglobalmitigationeffort(inpercentageterms)countriesandgroupsofcountriesareassignedonceflatnationalsharesareadjustedtotakeintoaccountresponsibilityandcapability.NotethatwhileAnnex1countrieshavealessthanone-fifth
shareofglobalpopulation(andnowemitlessthanhalfofgrossannualemissions)theyareassigned77percentoftheglobalmitigationburdenin2010declining,becauseofassumedincreasedwealthandrisingemissionsinthedevelopingworld,to69percentin2030and61percentin2030.
4.Allocatingfinancialobligations
30.Forinstance,ithasbeennotedthatpoorerpeopleindevelopedcountriesmayhavehighemissionsbutmayalsofacegreaterbarrierstoreducingthem.Equally,poorerpeopleindevelopingcountriesdonotneedaccesstoagrowingemissionsbudgetiftheyhaveaccesstolow-carbonenergytechnology.31.Thecostsofmitigationgloballyvarysignificantlyfromcountrytocountryandsomitigationcostallocationisnotadirectproxyforemissionsallocation.However,thispaperlargelyfocusesonmitigationcostsindevelopingcountriesonly(asidefrominthesectionsfocusingonglobalfund-basedproposals)andthereforeassumestheGDRsburden-sharingapproachwouldbeadequatewithoutsignificantrevision.32.RCI=aC+bRwhereaandbsum1andeachhavea0.5value.
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SincetheRCIissensitivetonationalper-capitawealthitcanbeconsideredindicativeofthecapacityofacountrytocontributetotheglobalcostsofmitigating(andadaptingto)climatechange.Itthereforelendsitselfwelltofinancialburdensharing.However,inordertoapplytheRCItothefinancialobligationsofdevelopedcountriesunderArticle4.3oftheUNFCCC,itisusefulalsotoconsiderhowfinancingwouldbesharedamongonlydevelopedcountrieswithobligationsundertheConvention(thatis,AnnexII)andtoremovefromtheindexnon-Annex1andtransitioneconomiesandredistributetheRCIaroundAnnexIIcountries.
Table1.GDRsresultsforrepresentativecountriesandgroups
Year 2010 2020 2030
Population GDPpercap. Capacity Responsibility RCI[1] RCI RCI(%ofglobal) (US$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
Table2.RCIForAnnexIIonly(AIIcountriesprovide100%offinancebetween2010and2020)Year 2010
Popn(%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 100Note:[1]TheEUs12accessioncountriesarenotlistedinAnnexIIbutprobablyexposedtoArticle4.3
obligationsasaresultoftheirEUmembership.However,becauseoftheirrelativelymarginalimpactonthebig
pictureinthistable,theyarenotincludedinthecalculation.
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TheRCIinTable2,adjustedfromtheoriginalintheGDRsframework,thereforeprovidesaprogressive(equitable)formulathatcanbeusedtoshareoutAnnexIIcountriesArticle4.3obligations(thatis,wherecountrieslistedinAnnexIIpayforallagreednewandadditionaldevelopingcountrycosts).Asanindicationofthesumsinvolved,theright-handRCIcolumn
alsoservesastherelativesharesofa$100billiondevelopingworldfinancingpackage(thesamenumbersrepresentingbillionsofUSdollarsratherthanpercentagesharesoftheRCI).
IntheoriginalGDRsframeworktheRCIisusedtodivideemissionsreductions.Thisofcourseimpliesthatdevelopedcountriesfinancemitigationbeyondtheirownborders,sinceadjustingobligationsaccordingtotheRCIcreatesdevelopedcountrytargetsthatprobablygobeyondtechnicalfeasibilityand,atsomepoint,mayamounttomorethan100percentoftheiremissions.AGDRsfinancingframeworkwouldmakethisexplicit;theRCIwouldapplytofinancingbydevelopedcountriesin developingcountries,ineffectasaproxyforemissionsreductions.
Waysofusingaresponsibilityandcapabilityindex
AnRCIofthissorteitheranall-countryorAnnexII-onlyindexcouldbeusedindifferentways:
1.Globalfund
TheRCIinTable1canbeusedtocalculatefairsharesinaMexican-styleWorldClimateChangeFundorsomethingalongthoselines(aglobalclimatechangestructuralfund,perhaps).AswiththeEU,allcountriescontributetosuchafundwiththeircontributions
beingsetonthebasisofRCIshares.Allcountrieswouldalsoreceivefinancefromthefund33,
butthosewithalowerRCIwouldreceivemore,withdevelopingcountriesbeingnetrecipientsandleastdevelopedcountriesreceivingseveraltimesthesumtheycontribute.
TheRCIinTable1illustratestherelativescaleofdifferentcountriesannualcontributions.
Forinstance,ina$250billionglobalfund34,theUSssharewouldbe$82.7billionin2010andwouldfallto$72.75billionin2020.Chinascontribution,ontheotherhand,wouldbe$13.75billionin2010andwouldincreaseto$26billionin2020.Similarly,theEU15ssharein2010wouldbe$57.4billion,fallingto$48.8billionin2020whileIndiassharein2010wouldbe$1.3billion,increasingto$3billionin2020.ThedynamismoftheRCI,takingintoaccountchangingsharesofresponsibilityfortheatmosphericstockofgreenhousegasesandrelativeGDPgrowth,isanaddedadvantage.
However,financialflowsinto thefundareonlyhalfthestory.CountriescouldalsoreceivefinancingonthebasisoftheRCI.Unliketheinflows,thefundsdisbursementwouldbebasedonarangeoffactors,includingnationallyappropriatepolicies,programmesand
projectsinnationalactionplans,mitigationpotentialandcostpertonneofabatement.However,theRCIwouldalsoberequiredtoguidedisbursementandwouldneedtobebroadlyindicativeofthenetlevelsoffundingacountrywouldreceive,withcountriesatdifferentlevelsofdevelopmentbeingplacedindisbursementbands.
ItissignificantthatthismodelhasbeenincludedintheEuropeanCommissionsrecentCommunicationonitsCopenhagennegotiatingposition(EC2009).TheECproposed,asoneoftwoalternativesforinnovativefinancing,afundtowhichcontributionsarebasedonacombinationofthepolluterpaysprinciple(i.e.totalamountofallowedemissions)andits
33.MexicossubmissiontotheUNFCCCregardingitsWorldClimateChangeFundproposalstatesthatInprinciple,allcountries,developedanddeveloping,couldbenefitfromtheFund.34.Estimatesoftheincrementalcostsofglobalmitigationsuggestthataminimumofaround$250billionperyearwouldberequired,notablyMcKinseyandCo2009.SeeSection1ofthispaper.
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abilitytopay(i.e.GDP/capita).Further,theECCommunicationusesfourindicatorstoarriveataburden-sharingformulaforAnnex1countrymitigation.ThesefourindicatorsGDPpercapita,emissionsintensityrelativetoGDP,earlyactiononemissionsabatement,andpopulationgrowthcouldconceivablyalsobeused,alongwithaclearerresponsibility
measure,asthebasisofweightedcontributionstoafund.
2.Article4.3(AnnexII)fund
Table2illustrateshowtheRCIwoulddistributethefinancialburdenaroundAnnexIIcountriesonly,weredevelopingcountriessuccessfulinnegotiatingthefullimplementationoftheConventionsArticle4.TheRCIshowsthefairsharescontributionsthatwouldberequiredfromdifferentAnnexIIcountriestowardsadevelopingworldfinancingtotalof$100billion.
TheEU15(thatis,theUnionwithoutitsnewestentrants)andtheUS,underthisversionofaglobalfund,areclearlyliableforthelionsshareofcontributions:$33.9billionand$47.7billionrespectively.Thesesumsrepresentanettransferfromdevelopedtodeveloping
countriesasunderthismodelcontributingcountriesthemselveswouldreceivenothingfromthefund.
DisbursementsfromafundtowhichonlyAnnexIIcountriescontributedcouldstillbemadeaccordingtoasetofcriteria,includingnationallyappropriateactionsandplans,mitigationpotentialandcostpertonneofabatementandrecipientcountriescouldstillbebandedaccordingtotheirRCI,whichwoulddeterminetheapproximateoverallleveloffundingtheywouldreceive.
3.AssignedAmountUnits(AAUs)auctionoroffsetaggregator
TheRCIcouldalsobeappliedtoAnnexBcountries,inpracticethesameasAnnex1.35
AnnexBcountries,however,havequantifiedtargetstoreduceemissionsandwhetherthey
haveratifiedtheKyotoProtocolornot(theUShasnot),eachisassignedaquantityofreductionsoveraperiodoftime,intheoryifnotinpractice.Currenttargetsexpirein2012;Protocolsignatoriesarecurrentlydiscussingpost-2012targets.
Norwayhasproposedthehold-backof2percentoftheAnnexBAAUsattheinternationallevel(seeSection2above).Asalreadydiscussed,thisrelativelysmallAAUhold-backwouldnotraiseasufficientlylargesumalone.However,werethisproposalscaledup,assomehavesuggesteditshouldbe,thenitcouldraisesufficientfinancetosupplyaglobalfund.
SincewithAAUhold-back,countrieswouldnotbeprovidingdirectfinance,butsacrificingaproportionofthepermitstheywouldotherwiseauctionatthenationallevelforinternationalauction,theRCIcouldbeappliedoncetheoveralltargetforhold-backwasagreed.Sowere
anoverallhold-backtargetagreedof10percentofAAUs,thenratherthaneachcountrysacrificingaflat10percentofitsAAUs,eachwouldbegivenadifferentproportionrelativetoitsRCIrankingandsocountrieshigheruptheRCIwouldhavemorethan10percentof
theirAAUsheldbackandvice-versa.36 AproposalbyAprodev(2009)proposesholdingback
25percentofAAUsoverallandusingtheGDRsRCItodecidewhichAnnex1countriessacrificewhatproportionoftheirAAUs.
35.AnnexBoftheKyotoProtocollistscountriesquantifiedemissionsreductionandlimitationobligations.Inpractice,anRCIforAnnexBincludesallAnnex1countriesexceptBelarusandTurkey.Seehttp://unfccc.int/kyoto_protocol/items/3145.php
36.AprecisecalculationofthisisdifficultbecausetheproportionofAAUscountrieswouldsacrificerelativetotheheadlineAnnex1percentageheld-backwoulddependonhowcomparabilityofeffortwasagreedamongAnnex1countries.Arguably,theRCIcouldbedeployedbothforafairAnnexmitigationburdenshareandthentodetermineeachcountriesproportionateAAUsacrifice.
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neededoverwhattypesoffinancewouldqualify;onlythesewouldthenbemeasured,reportedonandverifiedbythenewinternationalbody.
AmoreeclecticfinancingsystemtolerantofawidevarietyoffinanceflowsandwithCOPoversightviaanexecutivebodymightalsofitwellwithothersuggestedbodies,suchasa
TechnologyDevelopmentExecutive(E3G2008)andproposalsforREDD.Bothoftheseareaseachalsocriticaltoapost-2012agreementrequirefinanceandmightthereforebeaccountedforandverifiedthroughtheexecutivebody.Indeed,amoreeclecticsystemthataggregatedfinancefromavarietyofsourcesandwascapableofmonitoringandverifyinganumberoffinancingchannelsmightbebetterequippedthanasinglesourceorfundatrespondingtothevarietyofchallengeswithintheUNFCCCnegotiatingmandate.Thediagrambelowoutlineshowsuchabodymightfitwithinanagreed,multisource-multichannelfinancingarrangement.
COP
Executive Body
Central Fund Trustee
Agreed finance NAMAs
Developingcountryactions
Developedcountryfinance
(Offsets, proceedsfrom auctions,levies, bonds,
etc.)
International carbonaccounting instrument
incorporating RCI
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Financewillplayacriticalroleinthemitigationofandadaptationtoclimatechange.Withoutflowsofadditionalfinance,theupfrontcostsofnewinvestments,indeploymentof
low-carbontechnologyandinR&Dandtheongoingincrementalcostdifferencebetweencarbon-intensiveandlow-carbonapproacheswillnotbemet.
Thevariousestimatesofincrementalcostsareunsatisfactory.Whilebeingbasedinmanycasesonrigorousanalysis,especiallyofmitigationopportunitiesindifferentcountries,thereisahighdegreeofuncertaintyoverfuturefactorsthatwillhaveasignificantinfluenceoncosts.Inparticularthebehaviourofgovernments,officialsandpopulationsisdeeplyunpredictable;policycostsmayprovesignificantandthemostcost-effectiveroutetodecarbonisationmaynotbetheonetaken.
Nevertheless,thereisaconvergenceincostestimationsaround$100billionto$200billionfordevelopingworldcostsandaround$200billionto$400billionforglobalcosts.Adaptationcostswilladdsignificantlytothesesumsandarenowunavoidableregardlessofthepaceanddepthofmitigation.
Aplethoraoffundingproposals,eachmeretriciousinitsownright,maskswhatisessentiallyachoicebetweenKyotoProtocol-stylemechanismsreliantonthedevelopmentoftheexistingregimeontheonehandandproposalsthattapintoothertypesoffinanceontheother.Themostdevelopedoftheseproposalsleveragingoffsets,AAUhold-backandup-anddownstreamauctioningappearthemostrelevantbecausetheydockwithexistinginternationalclimatepolicy.However,theseareallbasedontheassumptionofanexpansionofcarbontrading,whichmayproveoptimistic.ProfoundproblemswiththeEuropeanEmissionsTradingScheme,theonlydevelopedworldschemecurrentlyupandrunning,haveproveddifficulttoaddress.
ThecostburdeninKyotoProtocol-relatedmechanismsessentiallyfallsontheshouldersofconsumersindevelopedcountries.Already,asaresultofvolatileenergypricesandexistingpoliciestoreduceemissionsandincreaselow-carbonenergyuse,consumersaresensitivetofurtherleviesonconsumption.Increasedcostsasaresultofmeetinginternationalobligations,ontopofdomesticeffortstodecarbonise,mayprovedifficultfordevelopedcountrygovernmentstojustifyindomesticpolitics.
Nevertheless,theUNFCCCinletterdemandsthatagreementbereachedonthescaleofnewandadditionalcostsandthatthesearemetbydevelopedcountryspecificallyAnnexIIparties.Itremainstobeseenwhetherdevelopedcountrieswillacquiescetothis.Iftheydo,thenforpoliticalsustainabilitypolicymakersmightdowelltoconsiderablendoffinancingoptionsbothrelatedtoexistingmechanismsandthatareinnovative.Thiscouldinvolvea
balancebetweenmechanismsthatimposecostsontodaysconsumersandtaxpayersandfrontloadingfinancethroughtheuseofbondsandotherdebtinstrumentstodepreciatecostsovertime.Government-leddebtfinancemayalsohelpattractgreaterparticipationindevelopingcountrylow-carbonfinancebyprivate-sectorinvestors.
Developingcountriesclearlyfavouranew,globalfundundertheCOP,butbaulkatthenotionthattheyshouldalsocontributetothesefunds.ThereisevidencethatdevelopedcountriesmightaccommodateaMexican-stylefund,butwillwantdevelopingcountriestofinancelow-costmitigationthemselves(EC2009).Theymayalsowanttouseexistingchannels,suchastheWorldBank,andcontinuetopinmostoftheirhopesontheexpansionanddevelopmentofcarbonmarketsastheprinciplesourceoffinance.Intheabsenceofdevelopingcountrycommitmentsormeasurestoleverageoffsetting,financialflowswouldbethroughoffsets,achievingnomitigationadditionality.
Almostregardlessoftheapproachtakentofinancing,theRCIintheGreenhouseDevelopmentRightsFrameworkcanprovideagoodbasisfordeterminingormeasuringtheproportionof
Conclusions
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