Tag: Finance

Cancun Building Blocks - Oct 2010

THE POST-COPENHAGEN ROAD

A fair, ambitious and binding deal is needed more urgently than ever. Climate science is more compelling by the day. Impacts are coming harder and faster. Disastrous flooding in Pakistan, heat waves and forest fires in Russia and hottest recorded temperatures around the globe, amongst other devastating climate-related events, all point to the need for urgent action. Levels of warming once thought to be safe, may well not be, 1.5˚C is the new 2˚C

Negotiations Post-Copenhagen
Copenhagen was a watershed moment for public interest and support for climate action – and people have not lost interest. More people in more countries than ever have put their governments on notice that they expect a fair,
ambitious and binding global deal to be agreed urgently. Trust-building is essential after the disappointment of Copenhagen. Developed country leadership must be at the core of trust building efforts. Countries must show
their commitment to the UNFCCC process by driving it forward with political will and flexible positions, rather than endless rounds of repetitive negotiations. Many countries are troublingly pessimistic for Cancun, and are working to lower expectations. While others, including countries most vulnerable to climate change, maintain high expectations.

Challenges ahead of Cancun
There are many challenges to getting a full fair, ambitious and binding deal at Cancun, including:

  • Lack of a shared vision for the ultimate objective of the agreement, and the equitable allocation of the remaining carbon budget and emissions reduction/limitation commitments;
  • Sharp divisions on the legal form of an eventual outcome;
  • Failure of the US Senate to pass comprehensive legislation this year; and
  • Current economic difficulties facing many countries, which make it difficult to mobilize the substantial commitments to long-term climate finance needed as part of any ambitious agreement. 

Positive moves afoot
However, more and more countries, both developing and developed, are stepping up their efforts to pursue low-carbon development and adaptation, despite the absence of an international agreement. This can be seen in a variety of ways:

  • Investments in renewable energies have continued their exponential growth, increasing to 19% of global energy consumed;
  • Progressive countries are working to move the negotiations forward;
  • There is a growing perception that low-carbon and climate-resilient development is the only option to sustainably ensure the right to development and progress in poverty reduction. 

So, what does a pathway forward look like?

Firstly we must learn the lessons of Copenhagen. The “nothing’s agreed until everything’s agreed” dynamic from Copenhagen could mean that nothing would be agreed in Cancun. An agreement in Cancun should instead be a balanced and significant step toward reaching a full fair, ambitious & binding deal at COP 17 in South Africa. This will require parties to work together in good faith to create sufficient gains at Cancun, and a clear roadmap to South Africa. This paper outlines how that could be achieved. 

Take-aways on finance

ECO would not want negotiators to leave Bonn with the feeling that no progress was made on finance–which is what will enable the implementation of any fair and ambitious agreement reached in Paris.

The good news first: ECO senses convergence on the view that future finance arrangements should build on the existing architecture. This includes the Green Climate Fund, the Adaptation Fund, the Least Developed Countries Fund, the Standing Committee, the Strategies and Approaches process (a work in progress, hopefully useful), the biennial ministerial engagement, and the MRV provisions (modest and with room for improvement). This fact should keep the developed countries happy, and allow negotiators to focus on the substance: how to get more money flowing to climate action.

But before money can get out, it will first have to get in–that is, into the Green Climate Fund. The Fund is waiting for pledges.This week the G77 and China called for an initial capitalisation of  at least US$15 billion. Thanks to the remarkable pledge by Sweden, we are inching closer. Will the US, the UK, Japan, Norway, Canada, Australia, New Zealand, Belgium, Finland, Austria, Iceland, Ireland, Poland and others rise to the challenge?

ECO is pleased that climate-proofing of investments has gained a lot of attention and support here in Bonn, perhaps even enough to be expressed through  specific decisions to be made in Paris. ECO is all for climate-proofing, with public entities taking the lead. Governments, development banks, export credit agencies, etc. should shift their financial or political backing away from dirty fossil fuels.

Much to ECO’s dismay, however, no real progress was made on delineating the “vehicle” for finance between Lima and Paris. There is fierce resistance to including information on the provision  of finance in developed Parties’ INDCs, meaning that developing countries will head home from Peru without any confidence that the Paris agreement will lead to binding commitments on finance. These commitments are an integral part of the “fair shares” that developed countries must make towards an equitable and ambitious outcome. ECO challenges them to offer credible ideas to create such confidence.

In this regard, ECO very much liked the Brazilian proposal to include South-South co-operation in their INDCs. Developed countries would be enlightened (or maybe embarrassed) to see other INDCs with information on support and co-operation without having anything to showcase themselves. Or, as AILAC noted, developing countries could prepare two-tier INDCs, starting with their fair-share level of ambition without support, and then an indication of how much  further a country could go with sufficient support. Developing countries could then decide in Paris whether to lock-in their more ambitious INDCs, subject to finance becoming available.

Some developed countries (New Zealand is one) seem open to the idea of a global target on finance (and other means of implementation), as part of the Paris package, though most remain silent. Such a target on the provision of public finance is essential to ensure that adequate support is available for adaptation and to catalyse an investment shift from fossil fuels to renewables and energy efficiency technologies.

The AILAC proposal of periodic finance pledges or commitments by developed countries (and other countries with comparable levels of responsibility and capability) has gained attention this week. The EU, for one, does not seems entirely hostile to the idea, as a way of creating predictability and transparency in the fulfilment of  longer-term promises and commitments.

Parties on the lookout for something more short-term may remember that there is still no forward-looking transparency with regard to the Copenhagen promise of $100 billion. ECO echoes the calls from Malaysia, Jordan and Iran for a finance roadmap towards 2020 and has no idea why the developed countries continue to resist this. Such a roadmap will be an essential ingredient to the success of the overall Paris package.

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Beyond binary

ECO has always believed that the Convention, with its Annexes and principles, need not, and must not, be a straight jacket that restricts the ability of the UNFCCC to adapt to emerging realities. While some developed countries give the distinct impression that they would like to sweep the Annexes (and perhaps the whole Convention) aside and start over, there are now some developing countries showing how we can move forward by building on the current structure of the Convention.

Different proposals have been put forward that provide interesting ways to move past a binary world to cross the rigid firewall.

The LDCs proposed an interesting idea in this regard: Annex I Parties should adopt economy-wide targets, and non-Annex I Parties “in a position to do so” (the so-called “POTODOSO countries”) should do the same. Both of these groups – all parties with economy-wide commitments – would then inscribe these commitments in Annex A to the new agreement. This would be an elegant way of using the current Annexes to ensure no backsliding, while progressing beyond an exclusive reliance on these commitments. ECO could imagine other creative ways to do the same thing.

Another way of moving beyond a binary world is the route proposed by Brazil (yes, that Brazil!). Making clear they did not support a bifurcated approach, Brazil proposes “concentric differentiation”, where Annex I countries with absolute reductions targets are at the centre of concentric circles of less rigorous commitments going outward. (ECO is paraphrasing here.)

So far, so good (or, “so far, so Art. 4.1/4.2”, as it were). But where Brazil advances the discussion is by saying that everyone should be encouraged to move towards the centre over time. This would pave the way for voluntary graduation, and prevent any voluntary backsliding. Many countries should be prepared to move close to (and some into) the coveted inner circle now. ECO is sure they know who they are.

Not content to just signal an interest in an enhanced interpretation of the Convention, Brazil also made a very useful suggestion on finance. Brazil recommended that developing countries indicate South-South financial contributions and collaborative actions in their INDCs. The LDCs’ and AILAC’s submissions also call for financial contributions from an expanded group of countries, while placing primary responsibility on Annex II Parties.

ECO wonders how developed countries will justify their refusal to talk about finance in their INDCs when developing countries are willing to do so.

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Want concrete deliverables from WS2? Switch to RE and EE now!

In the TEMs followup meeting yesterday , ECO was reminded of the need to move beyond never-ending discussions into concrete action under Workstream 2. It also appears that the areas where Parties show the greatest interests are renewable energy (RE) and energy efficiency (EE). In their Technology Needs Assessments (TNAs), Parties have also expressed their priorities for mitigation technologies, and guess what? They begin with EE and RE. The science tells us that to limit global temperature rise to below 1.5°C, we need to phase out fossil fuels by 2050 and phase in 100% RE as quickly as possible. This means that in the pre-2020 period, we should be rapidly scaling up RE to at least 25% globally, along with doubling the rate of EE.

It just so happens that RE and EE are the two issues that have been most thoroughly analysed throughout the TEMs. Being armed with a good understanding of the policies that are needed for a rapid scaling-up of these approaches marks a potential turning point for transforming understanding into action.

In a Workstream 2 decision, Parties should explicitly call on the GCF and other international funding institutions to prioritise, within their mitigation windows, investments in tried and tested policies that promote sustainable renewable energy and energy efficiency. All multilateral energy funding should only flow towards clean and sustainable renewable energy technologies, and highly efficient industrial and demand-side applications. This funding will have to come from somewhere, so developed countries should indicate what kind of support (finance, technology and capacity building) they intend to make available under Workstream 2, in addition to the actions that they themselves will take. To help, ECO has an idea: Lima could be the time for a TEM session to consider how actions with high mitigation potential could be supported.

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Will the INDCs add up to a safe climate?  The truth is out there.

Many countries are already working hard to prepare their INDCs. ECO has said repeatedly that INDCs need to be assessed for adequacy (do INDCs sum up to <2°C?) and equity (are countries doing their fair share?). The INDCs must include all the elements, and also set out an assessment phase between March 2015 and Paris. This must include:

  • all important timelines for INDC communication by March/June 2015;
  • requirements for a proper assessment including the equity indicators of adequacy, responsibility, capability, development need and adaptation need; and
  • a process for conducting assessments.

Following the first batch of INDCs in March, the Secretariat should prepare a compilation paper and public online database, to be updated as INDCs continue to be submitted or amended. The Secretariat should also arrange for an assessment of the collective adequacy of all received INDCs at a June 2015 workshop series, that is also periodically updated. The series of workshops at the June session should:

  • give governments an opportunity to clarify their INDCs by responding to questions from other Parties and observers;
  • present the outcome of the assessment of collective adequacy to verify if we are on track towards staying well below 2°C; and
  • facilitate equity reviews of received INDCs, including opportunities for observers to present their own equity assessments.

These workshops should create momentum towards more substantive ongoing review and ratcheting processes. The purpose of the exercise isn’t to finger-point but, instead, should lead to the up-scaling of INDCs before they are inscribed as part of the new agreement. Parties have different options to improve their ambition. Developed countries can increase emission reduction efforts, and adopt or improve RE targets or EE targets. Developed countries and others with similar capabilities can put up more finance or other MOI support for mitigation actions in developing countries. Developing countries have options as well, for example, they can increase actions without requiring support or outlining additional activities they could undertake if international support is there.

A final note: developing countries have many reasons to support an assessment with an equity review. It would raise overall ambition, support development, build cooperation and can be a way to ensure developed countries can’t walk away from their equitable shares.

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Sweden gets serious on climate finance

Is there a new climate hero on the horizon? ECO was excited to read that the new Swedish Government is thinking of pledging SEK$4 billion (US$560 million) to the GCF for the 2015-18 period. That’s not all: the 2015 portion of this pledge will also, at the very least, be in addition to its already planned ODA (1% of GNI). If this continues for the entirety of the 2015-18 period, Sweden will become the first country to walk the talk on “new and additional” finance.

ECO hopes that the Swedish government sees their planned pledge as one of several finance pledges, given that the planned GCF pledge is still less than half of Sweden’s fair share of climate financing towards the $100 billion promise. Before we pop open the bubbly, the Swedish parliament is yet to approve these plans. ECO, optimistic as ever, thinks this already sets an example for others to follow though. ECO is now looking to Sweden’s oil-rich neighbour that promised to up its current, and rather modest, pledge at the upcoming pledging session in Berlin. Will they rise to the challenge?

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Getting the big bucks from Lima to Paris: finance in the INDCs

In the UNFCCC circus, ECO rarely favours one Party and its views over another. But this week, ECO is tempted to make an exception on finance. ECO secretly hopes that the AILAC submission on INDCs has been every negotiators’ bed-time reading last night in preparation for this morning’s ADP session on finance and the INDCs. AILAC’s submission helpfully suggests that for developed countries, and for countries with comparable levels of responsibility and capability, providing international climate finance (e.g. to support mitigation in other countries) is part of their fair share in the global effort, as much as it is their commitment to cut their own emissions too. Providing climate finance is not charity, nor is there a choice to opt out.

Once this is more widely understood in these halls (and ECO stands ready to help that cause), the next logical step is ensuring that such information on supporting mitigation through finance or means of implementation appears somewhere. That way, it’s easier to assess the adequacy and equity of overall contributions. ECO notes the clever system AILAC has come up with: INDCs to include information on policies and measures taken by countries to contribute to a yet-to-be-defined global target for the means of implementation in the 2015 agreement. Going further, ECO would propose, and so does AILAC, to complement it with details on expected forthcoming annual financial contributions and information on channels and instruments (e.g. multilateral funds) chosen by countries towards the collective target.

It comes as no surprise that developed countries are less inclined to agree to all of this, at least not quite yet. ECO wonders why, because in order to understand if we’re all doing enough and if everyone is committing their fair share, we need to know what everyone is doing on mitigation at home, as well as how they’re supporting mitigation elsewhere. If the INDCs aren’t the right place for it, then ECO wonders where developed countries plan to have that conversation instead. Perhaps developed countries are more excited about setting a collective target, perhaps disaggregated into 3 sub-targets for mitigation, adaptation and loss and damage. ECO insists that these targets be about public finance as a key lesson learnt from the fuzziness of the $100 billion goal. This could then be backed up with more concrete commitments to contribute to those targets and regular pledging (multi-year pledges were possible during the fast start period, remember?), and processes to assess progress towards meeting those collective goals.

ECO will be listening carefully to what developed countries are going to offer this morning on the matter – and, is prepared to follow up on it later this week.

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One small step for a Fund, one giant leap for humankind. We hope.

Graph

ECO sat through 4 long days and one very long night in Barbados last week, but it was worth it. The Green Climate Fund Board finally agreed upon arrangements to receive contributions this year, and further prepared the governance system to start disbursing funds next year.

Not all negotiators will know that the issue of whether contributors could include specific “targets” within their contributions was the one issue that kept board members up until 3:30 AM on Saturday. Developing countries firmly rejected this idea, despite the imminent threat that developed country treasuries were sure to contribute less if this extra grip on the GCF’s purse strings was relinquished.

ECO sees hope and feels that this step highlights the GCF as an entity that could herald a new era in international cooperation, where country ownership and direct access to funding replaces the old model of institutions and decisions dominated by developed countries. Developing countries could have an equal say in fund governance.

Some fights have yet to be fought, though, like whether the GCF will fully steer clear of fossil fuels. ECO has learnt that the idea to tie voting to contributions may rise again, but for now, things seem to be moving in the right direction, albeit slowly and unevenly.

The next milestone is the Pledging Session in Berlin in November. Developing countries are calling for $15 billion in pledges, which ECO considers to be an adequate sum, though modest compared to the scale of the climate challenge and the benefits of preventing dangerous climate change.

Developed countries, led by Germany and France, have pledged around $2.3 billion so far. Some smaller and typically more responsible countries are likely to once again make their citizens proud by shouldering more than their fair share. There are still big question marks around the USA, Japan and the UK and whether they will step up to the mark.

ECO notes that Canada and Australia are two worrying question marks too. Whilst they have been conspicuously silent about their responsibility for making substantial contributions, ECO is confident that good sense will prevail. Perhaps it will be triggered by forthcoming serious contributions, even from developing countries – though it is developed countries that have the legal and moral obligation to pledge.

Contributions in the “double digit billions” scale will certainly improve the prospects of a positive outcome in both Lima and Paris. However, a finance package demonstrating developed countries’ willingness to make progress on the $100 billion a year promise by 2020, must include robust provisions on climate finance. For the post-2020 agreement, the overall challenge to shift the trillions in public and private finance away from fossil fuels towards renewable energies and solutions compatible with equitable and sustainable development must also be a part.

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Filthy finance

ECO is confident that delegates will remember President Obama’s famous address to the world just last month: “The climate is changing faster than our efforts to address it. The alarm bells keep ringing. Our citizens keep marching. We cannot pretend we do not hear them.” Despite this appeal to follow the people, industry choose to follow the money. So far, the money–both public and private–has continued to flow overwhelmingly to fossil fuels, entrenching dirty power, locking-in emissions, and inflating the incipient carbon bubble.

Lubricated by a US$1.9 trillion concoction of subsidies, tax breaks, government incentives and the externalisation of the true costs of dirty energy, the fossil fuel industry spent $674 billion in 2012 on exploration and development. With the current rate, fossil fuel companies are slated to spend over $6 trillion in the next decade on further industry developments. ECO can only encourage governments to stand up to the fossil fuel industry’s efforts to protect their profits. Industry spends half a million dollars a day lobbying in Washington and Brussels to prevent, delay or weaken climate regulation. In the US alone, investment in lobbying activities ($160 million a year) is equivalent to what’s needed for Nepal to adapt to climate change–an amount that remains unfunded.

Governments must stop dancing to the polluter’s tune, and investors must realise that throwing money at fossil fuels is a short-sighted and dangerous game. Instead, ECO expects governments to adopt the “POPI attitude” in Paris (meaning committing to Phasing Out fossil fuel emissions and Phasing In 100% renewable energy) to ensure sustainable energy access for all as early as possible. Since this must be done no later than 2050; there is no room for hesitation. Rich countries must lead the way and end production subsidies in their countries immediately, freeing up finance for domestic mitigation and adaptation, and funding the GCF.

ECO hopes to see plans for such a shift from the outset with the upcoming  INDC submissions. In a similar vein, governments should agree to shift public support from multilateral and national development banks and export credit agencies away from dirty energy and towards renewable energy. Governments must also ensure that fossil fuels are taxed effectively. One option ECO finds intriguing would be a global fossil fuel extraction levy that would not only help reflect the true cost of fossil fuels, but also provide a substantial source of currently untapped finance to support the expansion of renewable energy, adaptation, and financial support for loss and damage.

So, are you ready to join the POPI club?

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