Climate finance
Åsa Persson,
Stockholm Environment Institute &
Stockholm Resilience Centre
CEMUS, 2 November 2011
Climate finance is motivated by (i) the fundamental
differences in vulnerability and adaptive capacity of
societies in the developed and developing world...
Global Adaptation Index 2010
and (ii) the historical responsibility of the developed
world for emissions and calls for equitable burdensharing...
IEA, 2011
Applying a consumption perspective: net emission
transfers from developed to developing countries
(indexed to 1990) (Peters et al. 2011)
Net change in emission transfers and territorial
emissions 1990-2008 (Peters et al. 2011)
and (iii) considering growing emissions by middle
income countries and general development
aspirations of developing countries, climate finance
acts as a ’side payment’ to incentivise strong
mitigation commitments from those countries.
CO2 emissions from fuel combustion
IEA, 2011
IEA, 2011
Approaching the Rio+20 summit...
• 2 billion people without access to clean cooking fuels
• More than 1.5 billion people without electricity
• More than 1 billion have poor access to fresh water
• About 800 million people chronically undernourished
• 2 million children die per year from diarrhea
• 30,000 deaths each day from preventable diseases
Approaching the Rio+20 summit...
• Basic development objectives on the agenda again,
coupled with growing middle-class aspirations of
emerging economies
• ’Green growth’ and portrayal of ’easy’ win-win
solutions questioned (’environmental imperialism’)
• Acting on climate change:
– Direct costs of mitigation and adaptation and their
compatibility with income and wealth in developing
– The opportunity cost of less resources for non-climate
development objectives
Copenhagen Accord 2009
Copenhagen Accord 2009
“In the context of meaningful mitigation
actions and transparency on
implementation, developed countries
commit to a goal of mobilizing jointly USD
100 billion dollars a year by 2020 to
address the needs of developing
“The collective commitment by developed
countries is to provide new and additional
resources, including forestry and
investments through international
institutions, approaching USD 30 billion
for the period 2010–2012 with balanced
allocation between adaptation and
• Background and earlier climate finance
• Definition of climate finance
• Estimated need for climate finance
• Supply and mobilisation of new finance
• Governance of funds
• Allocation and use of finance
• Conclusion: critical issues for Durban and beyond
How much is USD 100 billion?
• 0.2% of world GDP
• 6% of world military spending in 2010
• 14% of 2009 G20 financial stimulus packages
• Roughly equal to Bangladesh GDP in 2010
• 22% of Sweden GDP in 2010
• Almost doubled global ODA (129 billion in 2010)
1. Background: UNFCCC (1992)
• Art 4.3 – “The developed country Parties and other developed Parties
included in Annex II shall provide new and additional financial resources to
meet the agreed full costs incurred by developing country Parties in
complying with their obligations under Article 12, paragraph 1… The
implementation of these commitments shall take into account the need for
adequacy and predictability in the flow of funds and the importance of
appropriate burden sharing among the developed country Parties.”
• Art 4.4 – “the developed country Parties and other developed Parties
included in Annex II shall also assist the developing country Parties that are
particularly vulnerable to the adverse effects of climate change in meeting
costs of adaptation to those adverse effects.”
• Art 11.5 – “The developed country Parties may also provide and developing
country Parties avail themselves of, financial resources related to the
implementation of the Convention through bilateral, regional and other
multilateral channels.”
1992-2007: Bali increases the pressure
• 2001 Marrakech Accords (COP7): three multilateral funds under the UNFCCC
launched (LDCF, SCCF, AF)
– Around 400 million USD spent by 2011, plus 360 million more by 2013
– Voluntary contributions from developed countries
• 2005 Bonn Declaration (COP11): 21 countries declared to provide 410 million
per year by 2005
– Lack of monitoring arrangements
– Failure to deliver (Pallemaerts and Armstrong 2009)
• Beyond the convention
– More climate change focus within ODA, but no use of climate markers to track aid
• 2007 Bali Roadmap (COP13): finance one of four pillars
– “Improved access to adequate, predictable and sustainable financial resources and financial
and technical support, and the provision of new and additional resources”
– Birth of MRV
2007-2011: ’Climate finance’
• National submissions prior to Copenhagen proposed levels of finance and
• Various new ODA funds set up
• 2009 Copenhagen Accord (COP15) – 100 billion!
• After Copenhagen:
Intensified work on sources of climate finance, UN AGF and G20
Discussion on baselines for ’new and additional’
Monitoring of delivery of fast-track finance
Mapping of the climate finance landscape (eg, CPI report)
• 2010 Cancún Agreements (COP16): Transitional Committee to design
Green Climate Fund, and Standing Committee
• 2011 Durban (COP17): Decision on Green Climate Fund
• History of failed promises and lack of trust until 2007 – increased
delivery on commitments since but high uncertainty and strategic
2. Definition of climate finance
• Lack of legal definition – ambiguities relating to what counts as ’mitigation
and adaptation’, how to measure what is ’new and additional’, what is
meant by ’mobilise’
• Emerging technical definitions focusing on specific flows: multilateral
funding, ODA, some FDI (see CPI 2011)
• Unresolved issues:
– Baseline (see Stadelmann et al. 2011)
• Over and above ODA target of 0.7% of GNI
• Over and above 2009 ODA levels
• New sources of finance only
• UN channels only
• No agreed baseline – current status
– Public and/or private finance
Definition of climate finance ...cont
• A broader, more political definition Mitchell and Maxwell (2010, p. 2) :
“[c]limate finance… signals a new global relationship, shaped by
– “polluter-pays” rather than charity. It means:
– governance structures to allocate money weighted toward developing
– resistance to the use of traditional aid rules and conditions;
– new lines of accountability to the UNFCCC, rather than to traditional “aid
givers”; and
– demands from developing countries for direct access to finance, without the
need to work through intermediaries”.
• The dilemma: to create trust we need to account, but lack of trust
prevents the definition of what to account for
• Currently a learning period for MRV practices in climate finance
3. Need for climate finance
Annual Cost
World Bank (2006)
$9 - 41
Oxfam International (2007)
> $50
UNFCCC Secretariat (2007a,b)
UNDP (2007)
$49 - 171
Costs to mainstream adaptation in
development aid
Costs of adaptation in developing
countries in immediate term.
Costs of adaptation in 2030
(summarized in Table IX-65, p. 177)
Costs of adaptation in developing
countries in 2015
UNFCCC Secretariat
IPCC AR4 (2007: SPM Table 7)
Stern Review (2007, 2008)
European Commission (2009)
2007:1% (±3%) 2008:
“450 may be substantially
> 2% GDP”
Costs in 2030 to return emissions to
2007 levels. (Table 64, p. 196).
Costs as percentage of GWP in 2030 for
stabilizing in 445 -535 ppm CO2e range.
2007: Costs percentage of GWP through
2050 for 500-550 ppm CO2e. Target
was revised in 2008 to 450-500 CO2e
Bottom up analysis of incremental costs
Need for climate finance ... cont
• Roughly equal needs for adaptation and mitigation (100 billion per
year by 2030), but
• High uncertainty and strong assumptions
– E.g. adaptation used to be considered as purely private concern
in integrated assessment models (autonomous adaptation)
– Now concern that 100 billion is at low end considering that
ecosystem impacts not considered (Parry et al. 2009)
• 100 billion commitment less than cost assessments indicate
• However, project proposals are not coming forward currently at this
– NAPAs: 483 projects with total value of 1.8 billion
– NAMAs: just starting to be submitted
4. Supply and mobilisation of new finance
• What is already supplied?
• What new sources could be developed?
• What should be the respective responsibility of each
developed country?
Spaghetti diagram
How much climate finance has been
provided so far?
• Coding of ODA project data – 11 billion USD in 2006
• Self-reported climate finance projects – 4.5 billion
since 2009
• Fast-Start Finance 2010-2012 – 28 out of 30 billion
USD pledged
• CPI report: 97 billion per year
– 55 billion from private sector
– Includes carbon offset flows (2 billion)
– Self-reported data on ODA marked as ’climate’
Sources and instruments proposed
• Carbon-linked fiscal instruments – for contributions from national
– Reduction of fossil fuel subsidies – 4-12 bn
– Carbon market revenues – auctioning of allowances under EU
ETS or sales of AAUs – 2 bn
– Carbon tax revenue – 7 bn – if international carbon price of
25$/tonne applied to all Annex II countries, 25-50 bn
– (General tax revenue)
– Problem: opposition against earmarking of funds, requires
expansion of ODA/climate finance budget line in times of
economic recession
• Carbon offsets – measurable by country
– CDM and JI under the Kyoto Protocol – 2-3 bn
– Problems: validity as ’new and additional’, uncertain future
Sources and instruments proposed .. cont
• Fuel taxes in international aviation and shipping – ’new’
source, does not pass national budget
– Could raise 7-11 bn
– Problems: requires significant international cooperation,
need to provide tax rebates for developing countries
• Private finance
– Targeted FDI – 37-72 bn
– Public instruments to facilitate and leverage private
investment: guarantees, demonstration projects, PPPs
• Financial transactions tax (Tobin tax)
Allocation of burden among
developed countries
• Responsibility – in proportion to historical emissions
• Capacity – in proportion to GDP (eg as applied for
assessed contributions to the UN)
• Unilateral pledges – no formula, a ’grandfathering’
• Unlikely with burden-sharing formula in the near
National Obligations in 2020 (for climate costs = 1% of GWP)
Per capita
(Billion $)
(Billion $)
(% GDP)
obligation per
capita above
dev threshold
$ 216
- EU 15
$ 188
- EU +12
$ 1,840
$ 28
United States
$ 275
$ 4,139
$ 62
$ 1,927
$ 41
$ 5,932
$ 98
$ 11
South Africa
$ 10
$ 1,009
$ 15
EU 27
Annex I
$ 652
Non-Annex I
$ 292
High Income
$ 655
Middle Income
$ 286
Low Income
5. Governance of funds
• Under UNFCCC or beyond? Private/public
• Comprehensive fund (a new World Bank) or
fragmented architecture?
• Strong interest in the political economy of
climate funds:
– Decision-making and power - board structure and
decision rules
– Regulations on access to funds – direct or via
multilateral organisations
Green Climate Fund
• Transitional Committee to present a ’design’ to COP17
• Still unclear business model
– GCF to become ”the main global climate fund” but no
pathway outlined
• Equal representation of developing and developed countries
on Board
• Direct access modality proposed
• Minimal guidance on objectives of fund, environmental and
social safeguards, accountability to beneficiaries
6. Allocation and use of funds
• Uneven allocation between adaptation and mitigation, 14:86
• Uneven and inequitable allocation between countries
– Most mitigation investments in emerging economies (eg CDM)
– Not clear that ’particular vulnerability’ criterion for adaptation finance
is applied
• Uneven allocation between individuals and communities in
different countries:
– Eg Adaptation Fund proposals show a difference in dollars/beneficiary
by 4 orders of magnitude
– Countries vs. communities as recipients raises i) democracy issues and
ii) equity issues
• Accountability, transparency and anti-corruption
7. Conclusion
• Important progress since Copenhagen 2009:
– Climate finance commitment survived Global Financial
– Pledges near the fast-start finance commitment (30 billion)
– Green Climate Fund to be ’considered’ by the COP
– Strong monitoring by NGOs, academia and stakeholders of
climate finance progress and accounting practices
Critical issues unresolved
Interim targets for scaling up between 2012-2020 missing
If no proposal on baseline for determining what is ’new and additional’ from
Parties soon, large chance that ’no baseline’ continues to be applied
Need for convergence of expectations whether climate finance should come
mainly from public or private sources
The bleak prospects for the Kyoto Protocol suggests that ’new’ sources of climate
finance (international aviation and shipping tax) could be more promising than
carbon-related national revenue streams
Unlikely with explicit national burden-sharing quotas for provision of finance from developed
However, growing level of ambition of national climate policy independently of international
G20 to digest new World Bank report on sources, finance ministries taking over the climate issue
Need to improve needs assessment and use of finance, to maintain credibility and
Critical start-up phase of Green Climate Fund
Key references
• IEA (2011) CO2 emissions from fuel combustion – Highlights.
• Peters et al. (2011) Growth in emission transfers via international trade
from 1990 to 2008. PNAS April 25, 2011.
• CPI (2011) The landscape of climate finance.
• Mitchell, T. and Maxwell, S. (2010) Defining Climate Compatible
Development. CDKN Policy Brief. Climate & Development Knowledge
Network, London, UK.
• The World Bank (2011) Mobilizing Climate Finance. Paper prepared at the
request of G20 finance ministers. Washington, DC.
• Persson et al. (2009) Adaptation Finance under a Copenhagen Agreed
Thank you!

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