In Copenhagen, Progress on Financial Pledges Limited; Draft Document Punts Details to COP-16

by David Hunter

December 15, 2009

Although virtually all of the attention regarding Copenhagen in the United States focuses on mitigation targets, in the developing world a primary focus of any environmental agreement is on the scale, sources and governance of any financial resources being made available. This is particularly true in Copenhagen, where the Global South has demanded upwards of a trillion dollars in development assistance over the next decades. That number is almost certainly out of reach, but with only a few days left of the negotiations none of the numbers are adding up, and there is little clarity over the scale, structure, or sources of climate financing.

Monday's distribution here of a new “facilitators draft” on financial resources (not publicly online, at least at the moment) did little to clarify the situation, punting most of the details to next year’s COP-16. The draft contemplates a new (as of yet unnamed) mechanism to coordinate all funding arrangements under the COP. In addition to that coordinating mechanism, a new fund would be created to provide support for both mitigation and adaptation efforts.

More generally, discussion of financial resources has been split into both short-term finances (meaning between now and the end of the Kyoto Protocol) and medium or long-term commitments. The final amount in either category is not easy to predict, particularly because the United States has yet to table any specific overall number for increased climate-related financial support. Yesterday, Secretary of Energy Stephen Chu announced a $350 million, five-year plan to support the deployment of renewable energy technologies in developing countries. Welcome news, but rather oddly timed given that delegates are waiting for more clarity on the overall assistance package the United States is expected to announce later in the week. The Europeans have announced $3.4 billion a year financing for the short-term (between 2010-2012), but they have not promised that this will all be additional funding. Japan, reportedly, will offer $10 billion over the course of three years. Under the UNFCCC and Kyoto Protocol, financial support is supposed to come from new and additional resources, which is short hand for ensuring that any promised climate-related support is not merely a shift in development assistance from support for the Millennium Development Goals or related poverty alleviation goals.

Much of the ambiguity around funding commitments is of course part of the current negotiating strategy for donor countries. The United States will give more, they say, if developing countries agree to firmer mitigation commitments. The United States also wants to see most climate assistance filter through existing financial institutions, particularly the World Bank, and this is as much a sticking point as the scale of financing. The World Bank is controlled disproportionately by the United States and other donors, and developing countries would prefer a new, more democratic, financial mechanism that is controlled substantively by the UNFCCC Conference of the Parties. Yesterday’s text tries to finesse the issue by claiming that the trustee and secretariat will be “selected through a competitive bidding process.” In the end, it appears that the World Bank will be relegated to a financial trustee role with any new institution having a more equitable voting structure.

Given that the public money made available is likely to fall far short of what is needed, delegates are looking for new sources of funding. Yesterday, Norway and Mexico released a joint Proposal on Climate Change Financing, proposing a new Green Fund. Their proposal looks to “guarantee the availability of adequate and sufficient resources” for addressing climate change, particularly through budge contributions (based on GDP and historical emissions) and revenue from international and domestic auctioning of emission allowances. They suggest the Fund could start with approximately $10 billion in 2012 and grow to $30-$40 billion by 2020. In a break from the tradition in the environmental arena, all countries (except the least developing countries) would be expected to contribute.

Other funding sources are also being proposed. George Soros, the billionaire investor, presented last week his idea to use the International Monetary Fund’s special drawing rights (SDRs) as a source of capital for investing in new energy technologies. Billions of dollars of assets sit in the IMF reserve, but critics argue those reserves serve an important macroeconomic stabilization role. Thus, far only the African countries have supported the use of SDRs.

Gaining greater support is levying a fee on fuels for international aviation or maritime shipping. Oxfam estimates that the aviation and maritime fees could potentially raise more than $25 billion per year. General references to aviation and maritime-related sources of revenue are found in current negotiating texts and have significant support—although the precise methods of how to accomplish this are not yet clear.

Some environmental groups also seek further funding from the phase-out of fossil fuel subsidies. Although the G-20 has announced the “medium term” phase-out of fossil fuel subsidies, there is no timetable and no commitment to use the savings for climate finance. Estimates vary on the amount of fossil fuel subsidies, but some estimates put this over $100 billion per year in OECD countries. Environmentalists would like to see a commitment to phase out fossil fuel subsidies by 2020 and shift a significant portion of those revenues to climate finance.

It is probably too late to get much detail in the Copenhagen texts regarding SDRs and other innovative sources, but environmentalists are calling for at least placeholder language with deadlines that will lead to clear recommendations by the next COP. As with much in this negotiation, we may have to wait to Mexico City in 2010 for details.

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