Tuesday 28 Sep 2021 | 20:30 | SYDNEY
Tuesday 28 Sep 2021 | 20:30 | SYDNEY

Funding Copenhagen: Small change

23 December 2009 09:05

Frank Jotzo is Deputy Director of the ANU Climate Change Institute.

Climate finance has been one of the stickiest issues in the two years of negotiations leading up to Copenhagen. It is widely accepted that developing countries need help to adapt to climate change and to invest in a lower-carbon economy. The Copenhagen Accord has some pledges for public climate finance for developing countries, but leaves for later the crucial decisions on market-based finance.

The Accord pledges US$10 billion per year for developing countries over the next three years, and includes an offer to consider scaling up to US$100 billion year by 2020. The US$100 billion conditional commitment was introduced by the US towards the end of the conference and was seen as an important factor in preparing the ground for the Accord, when the conference itself was almost hopelessly bogged down in acrimony. But as Peter McCawley points out, the wording around the US$100 billion is so vague that it does not in fact commit anyone to anything.

The US$10 billion pledge is likely to actually come through, and it is a positive step, but the numbers are paltry.

A draft version of the Accord contained an Appendix that listed pledges for the period 2010-12: the EU commits US$10.6 billion, Japan US$11 billion, and the US promises US$3.6 billion. The American pledge works out at a contribution of around US$4 per US citizen per year, while developing countries on average would receive around US$2.50 per person per year (excluding China, which has signalled that it is not looking for money).

These amounts are almost nothing when compared to the needs for investment in better infrastructure in developing countries, or the relevant expenditure in rich countries. As a random example, New South Wales, an Australian state of 7 million people, is planning to invest $63 billion over 4 years in infrastructure. That's $2,250 per person, per year.

Providing very large climate finance through public budgets in developed countries will be difficult. There will always be backlash about sending more taxpayer dollars abroad, and no guarantee that pledged funding will in fact be made available year after year. It would probably be preferable to fill a global climate financing fund using new financing sources, for example a levy on air travel or on international shipping. Very moderate levies could yield several tens of billions of dollars per year. It would create a stable source of funding without bickering over relative contributions. All countries would pay directly or indirectly, but differentiated in line with affluence between countries and within countries: the rich fly more.

Ultimately, however, very large scale financing, in particular for low-carbon energy systems, must come from private markets. This is logical given the scale of the issue: the IEA estimates that global annual energy investment needs under business-as-usual are around US$1,100 billion per year, plus an additional US$500 billion per year under an ambitious mitigation scenario to meet energy demand using clean technologies. Energy emissions and reductions can also be estimated and traded between countries.

Market financing is mentioned in the Copenhagen Accord, but without detail. The resumed climate negotiations leading towards the Mexico conference at the end of 2010 offer the chance to work out more comprehensive market financing mechanisms, which will be necessary to make real climate mitigation action possible in many developing countries. 

If they cannot be agreed under a UN framework, then they could arise under individual countries' domestic schemes. For example, the EU emissions trading scheme as well as the schemes currently in the legislative process in the US and Australia all have provisions for accepting offsets or permits from developing countries, in return for payments to these countries.

If future emissions targets in developed countries are ambitious enough – and they may well be, if the Accord is being taken seriously – then there will be a strong impetus for creating effective mechanisms for financing climate action in developing countries, as part of that commitment. And in that way, the real money just might begin to flow.

Photo by Flickr user World Bank Photo Collection, used under a Creative Commons license.