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Sources of long-term finance and their implications

Climate Change Meets Policy. Sources of long-term finance and their implications. Jeremy Webb and Mulugeta Ayalew African Climate Policy Centre (ACPC). Outline. The Copenhagen promise The AGF report Sources considered Evaluation criteria Finance scenarios Conclusions.

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Sources of long-term finance and their implications

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  1. Climate Change Meets Policy Sources of long-term finance and their implications Jeremy Webb and MulugetaAyalew African Climate Policy Centre (ACPC)

  2. Outline • The Copenhagen promise • The AGF report • Sources considered • Evaluation criteria • Finance scenarios • Conclusions

  3. The Copenhagen promise • Financial commitments in the UNFCCC • New and additional financial resources to meet the costs incurred by developing countries in discharging their reporting commitments • Financial resources needed by developing countries to meet the incremental costs of implementing mitigation and adaptation measures

  4. The Copenhagen promise • the provision of and improved access to scaled up, new and additional, predictable and adequate funding to developing countries • Fast-start finance: 30 billion USD from 2010 to 2012 • Long-term finance: 100 billion USD a year from 2020

  5. How to mobilize the 100 billion a year by 2020 is the central question? …in the context of meaningful mitigation actions and transparency on implementation, developed countries committed themselves to a goal of jointly mobilizing USD100 billion a year by 2020 to address the needs of developing countries. this will come from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources of finance…

  6. AGF Report • This is the Secretary-General’s High-level Advisory Group on Climate Change Financing (AGF) • The Group focused on: • The identification of practical proposals on how to significantly scale up long-term financing for mitigation and adaptation strategies in developing countries from various public and private sources, and • How best to deliver it • It did not the adequacy of 100 billion USD per year

  7. Representation • MelesZenawi, Prime Minister of the Federal Democratic Republic of Ethiopia (Co-Chair) • Jens Stoltenberg, Prime Minister of Norway (Co-Chair) • BharratJagdeo, President of the Republic of Guyana • Pedro LuizCarneiro de Mendonça, Under-Secretary General for Economic and Technological Affairs, Ministry of External Relations, Federal Republic of Brazil • Ernesto Cordero Arroyo, Minister of Finance, Mexico • Chris Huhne, Secretary of State for Energy and Climate Change, United Kingdom • Sri MulyaniIndrawati, Managing Director, World Bank • Donald Kaberuka, President, African Development Bank • Caio Koch-Weser, Vice-Chairman, Deutsche Bank Group • Christine Lagarde, Minister of the Economy, Industry and Employment, France • Trevor Manuel, Minister in the Presidency for National Planning, Republic of South Africa • Bob McMullan, Member of Parliament and Parliamentary Secretary for International Development Assistance, Australia • Mutsuyoshi Nishimura, Special Advisor to the Cabinet Office, Japan • SupachaiPanitchpakdi, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD) • TharmanShanmugaratnam, Minister for Finance, Republic of Singapore • Lawrence H. Summers, Director of the National Economic Council and Assistant to the President for Economic • Policy, United States of America • Montek Singh Ahluwalia, Deputy Chairman, Planning Commission, Republic of India • George Soros, Chairman, Soros Fund Management • Nicholas Stern, Professor of Economics and Government, London School of Economics • Zhu Guangyao, Vice-Minister, Ministry of Finance, People’s Republic of China

  8. Sources considered by the AGF

  9. Sources considered • International auctioning of emission allowances (e.g. AAUs in the KP) and auctioning of allowances in domestic emissions trading schemes (e.g. the ETS) • Offset levies like the 2% levy on CDM CERs for the Adaptation Fund • Revenues from international transportation (maritime and aviation) • Carbon-related revenues such as finance freed from removal of fuel subsidies, carbon tax, and portions of fossil fuel royalties

  10. Sources considered • Financial transaction taxes • Direct budget contribution • Development bank instruments • Carbon market offsets like the CDM • Private finance

  11. Evaluation criteria • Revenue: how much money can be raised from a particular source? • Efficiency e.g. the incentive and disincentives to take measures of reducing emissions • Equity and incidence: who is ultimately paying for it? Who shoulders the burden at the final analysis? • Practicality: what sort of institutions are required for mobilizing resources from a particular source and whether such institutions already exist and if not whether they can easily be established?

  12. Evaluation criteria • Reliability: can it provide predictable stream of revenue? • Additionality: is it an additional money? • Acceptability: can developed countries easily sell it to their citizens?

  13. 2020 and beyond price scenarios • Low = US$15 per ton of CO2 • Medium = US$25 per ton of CO2 • High = US$50 per ton of CO2

  14. International auctioning of emissions allowances

  15. International auctioning of emissions allowances

  16. Offset levies

  17. Offset levies

  18. International transportation

  19. International transportation

  20. Carbon related revenues

  21. Carbon related revenues

  22. Carbon market off-sets

  23. Carbon market off-sets

  24. Indicative levels of potential annual financial flows These levels are indicative as the various estimated flows vary conceptually and as such should not be added directly

  25. Conclusions • ‘Challenging but feasible’ is the conclusion of the AGF • More challenging now than at the time of the report • Many of the sources depend on the price of carbon which in turn depends on the level of ambition in the international climate agreement • The Durban Platform for Enhanced Action: the agreement will come into effect in 2020 • The Kyoto Protocol: Japan, Russia, and Canada not part of the second commitment period and US not a party

  26. Changing global situation • Given that the global financial and economic situation is changing • Are the mechanisms described in the AGF report still viable? • They were ambitious to start with • What opportunities arise out of the financial and economic crises affecting Europe currently? • e.g. the introduction of taxes on financial transactions • this has been discussed but London and the UK object • e.g. aviation emissions becoming part of the ETS • This has been introduced but some countries object • The 100 billion per year is arbitrary • It does not take into account actual needs

  27. What counts as climate finance? • The Advisory Group did not seek an agreed formula on which financing flows should count and which should not count towards the US$100 billion per year • The Advisory Group in some cases did not agree on how much of a particular flow should count either

  28. Climate Change Meets Policy Thank you jwebb@uneca.org

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