IHS Global Insight Perspective | |
Significance | This kick-off meeting is more about brainstorming than narrowing down the options, with two reports due in May and November, which will be fed back into the negotiating process for a global climate change agreement to supersede the Kyoto Protocol beyond 2012. |
Implications | The range of options varies between "Robin Hood" taxes on financial transactions to energy- and carbon-specific levies on aviation and shipping, with the end result likely to be a composite formula bundling public and private funding from multiple sources. This is likely to revive questions about oversight, management, and transparency, with a UN-governed climate fund likely to be one of the key channels for transfers, alongside the Bretton Woods institutions currently jostling for a role. |
Outlook | While the mechanisms for fundraising and transfers are not yet clear, consensus is strong on the principle of financial transfers to the poorest countries for adaptation and mitigation, providing a certain fillip to renewables and clean energy technology take-up in the least developed states, but also raising concerns over the extent to which revenue-raising will affect consumers of traditional energy forms. |
How to Raise US$100 bil.
A number of government ministers convened this week in the U.K. capital, London, within the first meeting of the High Level Advisory Group on Climate Finance set up in the wake of the meeting in December 2009 in Copenhagen, Denmark (see World: 21 December 2009: Countdown from Copenhagen: Summit Renders Unimpressive Agreement as World Leaders Fail to Strike Compromise). The task in hand? To look for ways to drum up the US$100 billion a year estimated to be required in funding for climate change mitigation and adaptation by 2020 (and that at the low end of estimates of required funding, with some non-governmental organisations (NGOs) putting requirements at twice this level).
Reports from the meeting were fairly low key—speaking of brainstorming rather than decisions. A first report narrowing down the options for further assessment is expected to be submitted by the group for end-May before the Bonn (Germany) UN negotiating session, with a final report on financing options (and potentially recommendations) due to be released in November, ahead of the 16th Conference of Parties (COP-16) in Cancun, Mexico. Heading the finance group are U.K. prime minister Gordon Brown alongside Ethiopia's Meles Zenawi and Norway's prime minister Jens Stoltenberg, making up the triumvirate who were most active (and creative) on funding formulae in Copenhagen (see World: 10 December 2009: Countdown to Copenhagen: Funding Formula Compromise Put Forward at Climate Summit). As that meeting saw little time for discussion on the details of any fundraising formula (or indeed any other detail), amidt discord over the structures and broad level parameters of an agreement, technical committees have been assigned to do the more detailed follow-up work this year, and (as looks increasingly likely) early 2011.
Under discussion for climate mitigation and adaptation finance are an intriguing range of options—not mutually exclusive—aimed at raising the kind of sums necessary to cap temperature increases to within 2°C of pre-industrial levels, one of the few points of consensus at the Copenhagen meeting. These include:
- Traditional donor support from developed country governments (Nearly all developed countries would like to minimise this, have oversight of allocations/spending, and set strict criteria). There is a risk that this will reduce other aid flows.
- "Soros" plan to extend remit of International Monetary Fund (IMF) to cover the financing of clean energy projects in developing countries.
- Specific "green taxes" in the public domain—including carbon taxes, aviation (for travellers/airlines), shipping (for example, bunker fuel), charges on revenues from emissions allowance auctions (Norwegian proposal: estimating that 2% of allowances auctioned would raise US$20-30 billion if countries set in place policies to limit temperature rises to two degrees, along lines of Kyoto Adaptation fund)
- "Robin Hood taxes" or broader taxes on financial transactions (Tobin tax favoured by Prime Minister Brown),
Outlook and Implications
While the Kyoto principle of common but differentiated responsibilities has just about survived Copenhagen and was this week given a boost by U.K. support for two-track negotiations, there is an understandable reluctance on the part of the developed world to commit to large, continuing, and non-transparent financial transfers to the developing world, most particularly where it concerns the leading developing economies, China, Brazil, and India. This means that outside budgeted transfers, which will represent a part of the funding, public/private finance solutions are being looked on to supply the rest of the US$100 billion targeted. The preference is likely to be for a composite formula to spread the load between different groups to reach the target—with industrial polluters, utilities, banks, end-users of polluting industries/services all in the crosshairs of the advisory group. Arguably it is end-user consumers who have been least targeted by carbon mitigation measures so far (although carbon taxes have been proposed in France, Japan, and the United States), while global industries such as aviation and shipping have also escaped many of the requirements put on utilities and onshore industries; that makes them attractive options for Brown, Zenawi, et al. Big finance too represents an alluring option, almost certain to make it to the final cut of options, based on the scale of transactions, its wealth, and the ongoing popularity of bringing the sector to account in the wake of the credit crunch and global economic downturn of 2008–09, rather than its direct impact on emissions per se. There will nevertheless be concerns about what the impact of any taxes will be on the behaviour of those taxed, with taxes on energy consumers, or indeed energy-intensive industries such as aviation and shipping, likely to reinforce trends towards more modest consumption—a plus as far as carbon emissions are concerned, but with impacts on energy pricing and demand. At the other end of the funding pipeline, the channelling of some increased funds to clean energy and renewables in the developing world seems a fait accompli under most scenarios, with questions only over the scale and the mechanism of that funding. This provides clear signals to renewables players and other clean-tech industries working in Africa and the less developed countries at least, even if the broader regulatory signals are depressingly obscure.
However, in the wider framework of efforts to flesh out the Copenhagen accord, resolving the issue of climate finance, its resourcing, and mechanisms for transfer and allocation, would represent the removal of one of two key remaining obstacles in the way of a binding and high level compromise—particularly if funding were weighted towards public and private sources, removing the sense of inequity from major North-South transfers. The extent of carbon emission cuts at the country level remains the second of these, despite some good progress made in unilateral and multilateral offers from different regions, including the leading developing states. Nevertheless, backsliding and suspicion mean that some greater confidence building by the leading developing countries, as well as support from developed country leaders such as the European Union (EU), is likely to be required here to bring—to shame, even—more reluctant developed countries, Canada, Australia, and Japan amongst them, back to the more ambitious table. There is a particular sense of urgency around this given a number of legislative processes ongoing this year on this issue, with the countdown to Copenhagen proving how hard it is to rush legislation through on an issue that touches on so many sectors and interest groups (see World: 24 March 2010: Countdown from Copenhagen: Backsliding Prevalent as Countries Jostle to Reformulate Commitments).