Innovative
sources
of sources
Innovative
of climate
finance
climate
finance
June 2011
June 2011
Executive Summary
Climate change is already having a powerful impact on the world’s poorest people and efforts to support
them must be adequately financed. NGOs working on climate change have estimated that the level of
additional public finance needed will be at least US$200 billion per year by 2020, for adaptation and
mitigation. Countries have not yet agreed where finance on this scale will come from. This briefing paper
focuses on ways to address this concern. A wide range of economists and scientists concur that investment
now in climate change adaptation and low-carbon technology and energy production will avert much higher
costs later1. Given the scale of funding needed and the current squeeze on public finances, we need to
agree on some innovative sources of climate finances as soon as possible – with the added benefit of
boosting solidarity between developed and developing countries.
Tearfund sees a Financial Transaction Tax (FTT) and measures to raise finance from international transport
as the most promising of these potential sources. 2011 offers the best opportunity we are likely to have for
some time to achieve international progress on these innovative sources and agreement on their use to
raise significant new climate finance. The G20 and meetings of the International Maritime Organisation
offer particularly good opportunities to make progress and gain political agreement. Getting agreement on
innovative sources to raise the finance needed will be a crucial step towards agreeing a fair, ambitious and
binding climate deal.
Tearfund therefore recommends that the UK government should:
•
ensure a cross-Whitehall approach where DECC, HM Treasury and the Department for
Transport work together to support progress and agreement of specific innovative public
sources
•
lead by example in 2011, by disclosing fully its fast-start finance (what it is using it for, how
it is being channelled to developing countries and in what form) and advocating full and
transparent reporting by all EU countries
•
push strongly for other developed countries to agree increased climate finance targets for
2013–2015, to help fill the current gap between the end of the fast-start finance
commitment in 2013 and 2020, and to achieve the scale-up needed over this period
•
make clear its position on specific innovative public sources, specify how much it thinks they
can raise and work with other governments to agree a timetable for the introduction of
these innovative sources
•
support publicly a Financial Transaction Tax and push strongly for international agreement
on this by G20 members. A significant percentage (at least 25 per cent) of the revenue
raised should be earmarked for international climate finance in developing countries
•
support publicly measures to address emissions from international shipping and push
strongly for the International Maritime Organisation to agree a mechanism this year to raise
revenue from these measures in a way which would have no net burden on developing
countries
•
reassess periodically the adequacy of commitments and pledges in the light of the best
available climate science, the degree of emissions reductions achieved and objective
estimates of developing country needs
1.
Climate change is already hitting the poorest people hard
‘The climate has changed. Because of the droughts, we don’t know whether we’ll harvest anything at all.’
Andrew, farmer in Malawi
‘The rain does not come at the right time. People start cultivating and there is no rain. Then it comes
after a month, so the seeds die and again we have to plant.’ Tearfund partner Eficor, India
‘The climate has changed and the rainy season has become unpredictable. The water levels fall year by
year and some kinds of animals and vegetation have disappeared. The future is bleak for farmers and
cattle-breeders alike.’ Tearfund partner TNT, Mali
Some of the current and future impacts of climate change include:
Unpredictable rainfall – Many regions are experiencing huge variations in rainfall, leading to droughts,
floods and crop failures. Overall, parts of the world which already receive heavy rainfall are likely to
experience more intense downpours and flooding, and parts of the world which are already droughtprone are likely to face more severe droughts and desertification. This is resulting in food insecurity and
water scarcity, often in places which are already vulnerable.
Extreme weather events – As weather patterns change, extreme weather events are becoming more
common. Heatwaves, floods and droughts are likely to increase in intensity and frequency, leading to
more disasters. Storms and sea surges are likely to become more intense.
Sea-level rise – As the oceans warm, water expands, leading to rises in the sea level. There is also the
threat of polar ice caps melting, leading to an even more dramatic sea-level rise. This threatens low-lying
islands and coastal zones.
Tearfund is active in advocating for a fair, ambitious and binding international agreement on climate
change. Adaptation is about taking action to cope with the impacts of climate change. For successful
adaptation, countries and communities need financial resources and the appropriate technology and
expertise. It is crucial that adaptation is properly integrated into national development planning, rather
than it taking place as a separate, stand-alone activity. Tearfund is impatient for adaptation funding to
reach the poorest communities most impacted by climate change and those least able to adapt to future
climate-induced impacts.
Case study of adapting to climate change
Francisco Neto has a small plot of land in north-east Brasil where his family grows a wide range of
fruit trees, vegetables, cereal and fodder plants. Neto remembers that in the 1980s there was a
stream running through their farm that flowed nearly all year. In the 1990s, the water level fell
gradually and now the stream becomes dry three months after the rainy season ends. To help solve
this problem, the family built a dam for irrigation and livestock. ‘We are now irrigating much more
than we did five years ago, because it is hotter and drier for half the year,’ Neto comments. ‘We are
concerned that we may run out of water in the future as the climate is now so variable.’
Based on current promises for emissions reductions, we will see at least a four-degree increase in global
temperatures on pre-industrial levels. ‘Business as usual’ without emissions cuts on the scale and at the
pace needed would be devastating. It would mean: mass extinction of species, devastating ocean
acidification, brutal heatwaves, a sea-level rise of one to two metres by 2100, more than 100 million
environmental refugees, more than a third of the planet desertified, half the planet in drought conditions
and the loss of all glaciers which currently provide water to a billion people.
2.
The importance of climate finance
The scale of finance needed
Current international commitments made in Copenhagen in December 2009 and then reaffirmed in
Cancún in December 2010 are for US$30 billion of fast-start finance for 2010–2012 and for US$100
billion a year from 2020 to be mobilised for climate action in developing countries. This figure for longterm finance should be seen as a starting point. Estimates vary as to the scale of climate finance needs in
developing countries but,on the basis of recent studies and analysis by the EU and World Bank among
others, NGOs working on climate change have estimated that the level of additional public finance needed
is at least US$200 billion per year by 2020 for adaptation and mitigation. For example, the World Bank
estimates an average of US$75–100 billion of public finance per year for 2010–2050 for adaptation
2
alone.1 Other estimates for adaptation are at least US$100 billion a year2 and it is recognised that much
more finance than this will be needed for mitigation. However, until we have targets for emissions
reductions on the scale and at the pace needed to keep average global temperature rises below 1.5
degrees, it is difficult to be sure how much finance is required.
Countries have not yet agreed where finance on this scale will come from. Many developing countries see
assessed contributions from developed countries based on a percentage of GDP as the primary source of
climate finance. The Least Developed Countries are right to argue for this, particularly given the
disproportionate contribution rich countries have made historically to climate change. However, in the
current financial and political context, this does not seem a feasible option to raise the level of finance
needed. There is opposition to the use of innovative sources from both some developed and some
developing countries although for different reasons. There are therefore currently substantial political
barriers to gaining universal acceptance.
Innovative sources
We need agreement of innovative sources as soon as possible to provide finance on the necessary scale
and to avert a gap in funding between the end of the fast-start finance period in 2013 and 2020. A
number of recent, useful and impressive international reports have shown how innovative public sources
of finance can be used to raise funds on the necessary scale for both development and climate change.
These include:3
•
•
•
•
the IMF report to the G20 on stability in the international financial system, which considered the use
of Financial Transaction Taxes (FTTs)
the 60-country Leading Group on Innovative Financing for Development’s report recommending a
Currency Transaction Tax as a way to raise funds for the Millennium Development Goals and climate
action
The European Commission’s analyses and proposals for different kinds of innovative financing
mechanisms
The UN Secretary General’s High-Level Advisory Group on Climate Change Finance (AGF)’s report
(November 2010) on options for mobilising climate financing from innovative and existing sources.
This includes detailed background papers on issues such as FTTs and revenue from international
aviation and shipping. The report concluded that mobilising US$100 billion per year will be
challenging but feasible and that a combination of sources is likely to be needed. The report did look
at the potential for raising sums above the US$100 billion figure and explicitly said that the findings
of the report should be useful for any revenue goal and not just for the US$100 billion target.
An assessment by the EC4 released in April 2011 broadly confirms the AGF report's overall conclusion
that it will be challenging but feasible to meet the goal of mobilising US$100 billion per year by 2020,
assuming that the EU’s share were about one third of this total amount.
Bill Gates has been asked by President Sarkozy to report on innovative financing for development at the
G20 summit in November this year. The report will not look specifically at the use of FTT sources for
climate finance, although it should consider measures to raise revenue from international transport.
There are concerns that it is not coming out far enough in advance of the G20 to be discussed between
countries ahead of the summit and that this will lessen its impact. In addition, in April this year G20
finance ministers commissioned the World Bank to analyse sources of climate finance further, including
innovative sources, and particularly the implications of each of the sources considered by the AGF to
enable further progress on climate finance.
Both innovative sources and budgetary contributions will be needed to provide climate finance for the
long term and to scale up from the fast-start level of US$10 billion a year for 2010–2012 to much higher
amounts by 2020. We must avoid the weaknesses of the fast-start finance so far, where it has been
drawn from recycling existing commitments and re-allocating aid budgets. As a start, developed countries
should commit to specific targets for 2013–2015 based on the use of new innovative sources5 – and then
scale up from these to the figures needed by 2020. Agreement of finance targets for this intermediate
period would provide a goal for policymakers in a more politically relevant timeframe than the 2020
1
http://www.concordeurope.org/Files/media/0_internetdocumentsENG/4_Publications/3_CONCORDs_positions_and_stud
ies/Positions2010/CONCORD_views-on-implementation-of-EU-fast-start-finance-adaptation_Feb2010.doc
2
Martin Parry study 2009
Mark Lutes, article for NGLS round-up, January 2011
4
European Commission Staff Working Document: Scaling up international climate finance after 2012
http://ec.europa.eu/economy_finance/articles/financial_operations/pdf/sec_2011_487_final_en.pdf
5
Project Catalyst (23 November, 2010) From climate finance to financing green growth
3
3
target. It would also provide intermediate steps to the 2020 figure and should help re-build trust between
developed and developing countries on the provision of finance.6
Public versus private finance
In agreeing a figure of US$100 billion, there was no clarity on how much of this should come from private
sources and how much from public ones. Significantly scaled-up public finance will be required –
particularly to support the Least Developed Countries (LDCs). Adaptation funding for the poorest
countries must come from public sources. Private finance can play an important role in supporting low
carbon development, and Tearfund does not oppose the flow of private finance to support mitigation in
developing countries where appropriate, but it should not be counted towards developed countries
financing commitments. Private finance already plays a significant role in financing mitigation in many
countries, particularly emerging economies, but there are concerns around a reliance on private
investment to deliver adaptation or mitigation in LDCs. It is unlikely that sufficient private finance will
flow to LDCs. On the evidence of the existing Clean Development Mechanism China, India, Brazil and
Mexico host approximately 77% of CDM projects while Africa hosts only 2%. Private companies are likely
to look for environments with low risk and high return and are thus unlikely to favour LDCs. Large
emerging economies are likely to be the primary beneficiaries of private investment. Private investment
is likely to focus on return for investors, and thus be far less concerned with mitigation as a lever for
increasing energy access and enabling poverty eradication. Large infrastructure projects attractive to
private investors such as large hydropower often have serious social and environmental consequences for
poor communities living in their locality, and additionally the benefits often bypass them as power
generated flows to capital cities and industry and not to local communities. Small scale renewables that
increase energy access and bring sustainable development benefits for poor communities are not likely to
attract private investors and are likely to require significant public investment.
The US$100 billion target must therefore be met entirely through public sources if we are to progress
towards raising the levels of finance needed for the long-term. Raising climate finance must be seen in
the context of seeking justice for the poorest and most vulnerable countries. In this regard, the following
should all be taken into account: the current scale of greenhouse gas emissions that drive climate
change, the increasing intensity of impacts, the failure of developed countries to meet their aid
commitments and the trail of broken promises in UN climate change discussions.
Additionality
Climate change imposes new burdens on poor countries. Rich countries therefore need to provide new
resources to tackle it. This means that all long-term climate finance must be additional to existing
development finance commitments, including the UN commitment in which countries agreed to spend 0.7
per cent of their gross national income on Official Development Assistance (ODA). US$100 billion is
almost equivalent to the size of global aid transfers annually (US$120 billion). Currently, all climate
finance is part and parcel of ODA and the push to make climate finance additional to ODA seems to have
lost momentum. Tearfund welcomes the UK government’s commitment to achieving the 0.7 per cent
target and to supporting existing development priorities in developing countries. Without a commitment
to additionality, however, developing countries will be standing still – gaining finance for adaptation and
mitigation but with no additional money desperately needed to achieve the Millennium Development
Goals and tackle the underlying poverty.
A Green Climate Fund
At the UN talks in Cancún in December 2010, an agreement was reached to develop a Green Climate
Fund. This fund, once developed, should receive and direct the vast majority of climate finance to
developing countries. In designing the fund, it is very important to have a sense of the scale and source
of this finance, linked to what it will be used for, ie sources and finance that will be suitable for
adaptation in the poorest and most vulnerable countries. A well-designed fund cannot be effective if little
or no money flows through it. Developing countries – including COP17 host, South Africa – are already
warning that they have no appetite to establish another 'placebo fund' with no money in it. If the Green
Climate Fund is to be made operational at COP 17 in Durban, there must be credible pledges on the table
at the start of this summit.7
The UK’s role
The UK is in a strong position to push other countries on finance to fill the gap between 2013 and 2020
as it is the only developed country so far to provide any commitment beyond 2012. The UK has
established an International Climate Fund of £2.9 billion (all from a rising UK aid budget) for up to the
end of the spending review period in 2014. The current commitment beyond 2012 is not enough and is
6
Ibid
Oxford Energy and Environment Brief (April 2011) Solidarity levies on air travel: the case for a ready-made
innovative stream of finance in support of the current international climate negotiations
7
4
not additional to ODA commitments. The government is aiming for this £2.9 billion to be spent in the
following way:
•
50 per cent on adaptation,
•
30 per cent on mitigation
•
20 per cent on forests.
Fast-start climate finance from the UK and other developed countries should be used to establish bestpractice approaches to ensure that climate change finance can be managed and delivered in the most
cost-effective manner in the longer term. This will in turn build resilience to climate change in developing
countries and enable successful low-carbon development. Tearfund’s recent report ‘Adaptation United’8
provides examples of just such a developing country-owned approach in presenting practical building
blocks towards establishing integrated, cross-sectoral and multi-agency approaches to adaptation.
3.
An analysis of key innovative sources
A. Financial Transaction Taxes
Financial Transaction Taxes (FTTs) are an innovative way of financing development and climate change,
particularly given the enormous gap on climate funding. In the UK alone, greater taxation of the financial
sector could raise an additional £20 billion a year, through FTTs, an expanded bank levy, a Financial
Activities Tax, or a combination of these measures. An FTT would be a way of the financial sector
contributing to the common good globally and recognising the strong dimension of justice in this issue.
How much could FTTs raise?
A micro-tax averaging just 0.05 per cent on certain financial transactions could raise between US$100
and US$400 billion per year globally, depending on the scope of transactions covered and the extent to
which the tax changes market behaviour. Fifty per cent of this revenue could be used to address budget
deficits; 25 per cent could be earmarked for international development; and 25 per cent could go towards
climate finance, thus generating up to US$100 billion per year for climate finance.
How would FTTs be levied?
FTTs would be levied on all financial market transactions, including stocks, bonds, foreign exchange and
derivatives. The feasibility of administering a national FTT has already been established. The
administrative costs of collecting such a tax could be relatively low. Some argue that because of the
significant mobility of financial markets, there is a potentially high risk of relocation and tax avoidance if
the tax is not applied globally. However we disagree as there is very little evidence that such relocation
would take place for such a small percentage on transactions.
Why is this year so crucial?
The AGF report considered that some form of FTT could raise up to US$10 billion a year, a relatively low
figure compared to other analyses of the potential of a FTT. It said the main obstacle was lack of ‘political
will’. In this context, the French presidency of the G20 makes 2011 a make-or-break year: the current
momentum in favour of an FTT is unlikely to be sustained once the French government has handed over
the presidency. A thousand economists from 53 countries wrote to G20 finance ministers in April in
support of the FTT and describing it as "an idea that has come of age". The G20 is the critical forum for
making this decision although there may be a ‘coalition of the willing’ (eg in Europe) even if there is no
agreement at a global level. The UK government should therefore support France’s efforts for greater
taxation of the financial sector during its G20 presidency in 2011. The German government is also
supportive of greater taxation in this area.
The UK government’s response is that it would not agree to a FTT unless the US is on board. This is
unlikely for at least two years and probably longer, so it may be possible to look at developing an EUwide FTT (including major financial markets in Frankfurt and London), with the US joining later. Global
participation in an FTT is desirable but not essential, and a ‘coalition of the willing’ approach should be
taken with a focus on European countries at the outset. However, it may be possible to engage with the
US on FTTs if it is made aware of how small a percentage the tax on each transaction would be. The EC
paper released in April 20119 recognises that a tax on financial transactions has significant revenueraising potential. However, it is disappointing that it does not recommend that the EU move ahead
unilaterally on this and instead highlights the need for a global approach.
8
Tearfund (2011) Adaptation United: Building blocks from developing countries on integrated adaptation
http://tilz.tearfund.org/webdocs/Tilz/Research/Adaptation_United_web.pdf
9
European Commission Staff Working Document: Scaling up international climate finance after 2012
http://ec.europa.eu/economy_finance/articles/financial_operations/pdf/sec_2011_487_final_en.pdf
5
B. Measures to raise finance from international transport
The international shipping and aviation sectors are responsible for approximately eight per cent of global
greenhouse gas emissions and this figure is growing rapidly. Measures to address emissions from
international shipping and aviation received the strongest recommendations in the final report of the AGF.
How much funding could they raise?
According to the AGF, finance from these sectors could generate more than US$10 billion a year for
climate action in developing countries. These sources would also help to reduce global greenhouse
emissions. Other estimates of the finance that could be raised from these measures vary widely and
depend on the coverage of countries included. It would be possible to design mechanisms to address
emissions from the global shipping sector that would also generate substantial additional funds of
between US$20 and US$30 billion per year by, for example, a levy. Transaction costs would be relatively
low for all levies since they could be collected via existing sales systems, and compliance monitoring
could be assured via existing safety enforcement mechanisms. Emissions trading systems, if applied
globally to both sectors, could raise a combined total of US$36-54 billion, of which the part attributed to
developed countries could be used for international climate finance and count towards the US$100 billion
commitment.10
Why is this year so crucial for discussions in the shipping sector?
There are proposals under discussion at the International Maritime Organisation (IMO) and these
proposals will be taken up in IMO meetings this year and discussed in greater detail than previously.
Tearfund wants agreement on a fair mechanism to raise climate finance from international shipping which
will include a rebate to reflect the principle of common but differentiated responsibilities (CBDR).
Tearfund insists that a fair mechanism would ensure that developing countries did not end up paying
more than they received. There was an IMO meeting in London at the end of March and there will be
further relevant meetings in July and December. Through these, we want a mechanism to be agreed
upon internationally and we want to see implementation beginning. At the meeting in March there was
growing support for finding a mechanism to ensure no net incidence on developing countries from a
global approach to international shipping, which could kickstart progress on the issue. China, India, Brazil
and South Africa are all supportive of such a mechanism. The assessment by the EC11 released in April
2011 highlights that international maritime and aviation transport could be promising new sources and is
supportive of these measures. Most European countries agree that all finance raised should go to
developing countries. Again, agreement even without the US may be the best path to follow for now.
What about the aviation sector?
The current ICAO (International Civil Aviation Organisation) timetable would suggest that 2015 is the
earliest possible date for a comprehensive aviation measure to be introduced, even if political obstacles
can be overcome.12 In the absence of any prospect for an agreed global measure to raise finance from
the aviation sector in the next few years, levies introduced by a number of countries would help in raising
additional international climate finance that is urgently needed and could actually help speed up
development of an international measure. Tearfund supports the International Airline Passenger
Adaptation Levy proposed by the Maldives on behalf of the LDC group at COP 14 in Poznan13 which would
generate US$8–10 billion annually. The proposal was for a levy of US$6 on an economy class ticket and
US$62 on a premium ticket. The levy would be applied universally and at a level that would not
materially affect demand.14 An aviation ticket or passenger levy would generate a new (off-budget)
income stream for many developed countries that could be earmarked for climate change.
Such country levies are quick to set up (without the need for international agreements) and have proven
to be extremely cheap to administer. For example, a number of countries, including France and several
LDCs, already implement a solidarity ticket levy to fund the fight against HIV. Several countries (such as
the UK and Ireland) have ticket taxes to raise general revenue rather than climate funding. Tearfund
believes that these countries could either ring-fence a proportion of existing taxes, or increase them and
ring-fence the additional revenue.15 National levies could be phased out in the longer term if a carbonpricing mechanism is agreed in ICAO that generates similar revenue for climate initiatives.
10
USCAN (September 2010) A review of public sources for financing climate adaptation and mitigation
European Commission Staff Working Document: Scaling up international climate finance after 2012
http://ec.europa.eu/economy_finance/articles/financial_operations/pdf/sec_2011_487_final_en.pdf
12
Oxford Energy and Environment Brief (April 2011) Solidarity levies on air travel: the case for a ready-made
innovative stream of finance in support of the current international climate negotiations
13
http://unfccc.int/files/kyoto_protocol/application/pdf/maldivesadaptation131208.pdf
14
WWF (22 June, 2010) Bunker finance: a briefing for the High-Level Advisory Group on Climate Change Financing
15
Oxford Energy and Environment Brief (April 2011) Solidarity levies on air travel: the case for a ready-made
innovative stream of finance in support of the current international climate negotiations
11
6
C. Redirecting Fossil Fuel Subsidies
How much could they raise?
Current subsidies for fossil fuel production by OECD countries are estimated to be around US$100 billion
a year and so if redirected would raise a significant proportion of what is needed for climate finance.
Fossil fuel subsidies are estimated to be around US$300 billion in non-OECD countries.
What signs have there been that this could be successful?
The UK along with other G20 countries pledged to phase out inefficient and wasteful fossil fuel subsidies
at the G20 summit in 2009. In addition, the UK’s Conservative Party promised this while in opposition.
Though not part of the G20 agreement, it has been proposed that G20 governments should redirect this
funding to international climate finance.16 Cutting subsidies, including those made through the World
Bank and export credits, would give a clear indication that this pledge was serious and could also allow
funds to be redeployed to support clean energy projects. Along with the potentially massive amount of
climate finance that could be raised, it is estimated that the worldwide removal of these subsidies would
result in a 20 per cent reduction in emissions. Many countries have tried to reform their fossil fuel
subsidies with varying degrees of success, but the agreement of G20 countries to phase out inefficient
fossil fuel subsidies in the near term demonstrates a significant degree of momentum behind this idea.17
What are the causes for concern?
Although a tentative agreement on phasing out fossil fuel subsidies was reached at the G20 summit in
Pittsburgh in 2009, there remains some doubt over whether that agreement will be implemented.18 The
communiqué from the G20 summit in June 2010 was essentially just a reminder about what was agreed
in September 2009, rather than representing real progress or making any reference to investment in
clean energy. Again, when the G20 leaders met in November 2010, there was little progress on delivering
on the promise made to phase out inefficient subsidies. The US has made some recent moves on
redirecting subsidies but overall there has been little momentum internationally. Indeed, there is lack of
agreement on basic definitions of words such as ‘inefficient’ and ‘subsidies’. Nonetheless, Tearfund hopes
for real progress on this issue when G20 ministers report back this year in France.
It appears that simply phasing out fossil fuel subsidies is not sufficient to establish trust and build
momentum. Their removal must be sequenced and linked to climate finance. Most feasible would be a
phased removal, gradually decreasing the level of support, and one which is differentiated in time and by
country-income level. For example, developed countries could commit to phasing out energy subsidies
completely within five to seven years, and that finance could then be redirected to climate finance.19
D. Special Drawing Rights
Special Drawing Rights (SDRs) are ‘reserve assets’, sometimes thought of as a special currency, issued
by the International Monetary Fund (IMF) and allocated to IMF member countries. SDRs were used in
response to the global financial and economic crisis in 2008.20
How much could they raise?
If developed countries decided to convert their own idle SDRs into cash – up to US$165 billion from the
2009 allocation – this could provide a massive injection of climate finance that could be used for
mitigation and adaptation in developing countries. If ongoing and regular allocations of SDRs were to
provide the predictable and sustainable climate finance needed, developed countries would need to agree
to convert their SDR allocation into climate finance to be channelled through the Green Climate Fund.
What could be achieved this year?
Reaching political agreement on SDRs for climate finance may be difficult for many reasons. Firstly, many
wealthy governments maintain that SDRs should only be used for increasing financial reserves. Secondly,
there may be objections that injections of cash into the global economy will lead to inflation. It is also
important to note that the US holds the power of veto on the IMF board and would therefore need to
agree to dedicating SDRs to climate finance. Currently, however, the US is entirely opposed to using
SDRs in this way, while European countries are generally in favour.
One possible solution might be for European (and any other developed countries) to transfer ten per cent
of their existing 2009 allocation to the Green Climate Fund as Green Bonds for mitigation and also
provide a capital base for this fund. An alternative would be for European countries to convert an
additional ten per cent of their SDRs into cash and give this cash to the Green Climate Fund for grants for
16
E3G (March 2010) Innovative sources for climate finance
USCAN (September 2010) A review of public sources for financing climate adaptation and mitigation
18
Oil Change International (March 2010) Shifting fossil fuel subsidies to provide energy access and climate finance
19
Ibid
20
Action Aid (February 2010) Using Special Drawing Rights for climate finance: a discussion paper
17
7
adaptation. It is estimated that this would raise about US$16 billion.21 This is more of a one-off measure,
but it could be argued that it would help fill the current gap between the end of the fast-start finance
period and the start of climate finance flowing from other agreed innovative finance mechanisms.22
4.
Conclusions and recommendations
We need to regain the high level of political engagement on raising climate finance that was developed in
2010. Having agreed a process to establish a Green Climate Fund, we must keep the sources discussion
going in order to finance the fund for the long term. A combination of innovative sources will be needed
to raise climate finance on the necessary scale. The G20 and IMO summits this year provide an
unmissable opportunity to make progress on innovative sources of climate finance such as FTTs and
international shipping. In the case of several of these innovative sources, it may be possible to start using
these by establishing a ‘coalition of the willing’ involving as many countries as possible. It would be
encouraging to think that the UK might be part of such a coalition of European and other countries.
We need to avoid a gap between the end of the fast-start finance period and 2020. It is possible that
there will be a pledging conference ahead of Durban, if the Transitional Committee has made sufficient
progress, to ensure that the Green Climate Fund does not start life empty. In the absence of agreement
on innovative sources, this voluntary pledging approach could become the pattern for funding and
replenishing the Green Climate Fund. We must prevent this approach becoming the norm as it would be
unlikely to provide the predictability or the scale needed by developing countries for long-term climate
finance.
Tearfund therefore recommends that the UK government should:
•
ensure a cross-Whitehall approach where DECC, HM Treasury and the Department for Transport work
together to support progress and agreement of specific innovative public sources
•
lead by example in 2011, by disclosing fully its fast-start finance (what it is using it for, how it is
being channelled to developing countries and in what form) and advocating full and transparent
reporting by all EU countries
•
push strongly for other developed countries to agree increased climate finance targets for 2013–
2015, to help fill the current gap between the end of the fast-start finance commitment in 2013 and
2020, and to achieve the scale-up needed over this period
•
make clear its position on specific innovative public sources, specify how much it thinks they can
raise and work with other governments to agree a timetable for the introduction of these innovative
sources
•
support publicly a Financial Transaction Tax and push strongly for international agreement on this by
G20 members. A significant percentage (at least 25 per cent) of the revenue raised should be
earmarked for international climate finance in developing countries
•
support publicly measures to address emissions from international shipping and push strongly for the
International Maritime Organisation to agree a mechanism this year to raise revenue from these
measures in a way which would have no net burden on developing countries
•
reassess periodically the adequacy of commitments and pledges in the light of the best available
climate science, the degree of emissions reductions achieved and objective estimates of developing
country needs
This briefing paper focuses on raising climate finance on the necessary scale. Other major issues – such
as how the funds should be spent on adaptation and how these funds should be accounted for – also
need to be determined. Currently, there is a lack of transparency on climate finance flows and their
impact is poorly understood. Both of these areas must be improved. How adaptation finance could be
spent well to enable developing countries to become more climate resilient will be considered in a
forthcoming Tearfund research report.
Written by Richard Weaver
©Tearfund, June 2011
Tearfund is a Christian relief and development agency working with a global network of local churches to
help eradicate poverty
Tearfund publications are available at www.tearfund.org/tilz
21
Centre for Global Development (April 2011) Find me the money: financing climate and other global public goods –
Working Paper 248
22
Ilana Solomon, Action Aid. Personal communication, March 2011
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