Spinning off in Bangkok?

A little bird told ECO that today's LCA spin off groups are reason for concern. Unfortunately the compromise agenda that was adopted in Bangkok did not resolve the many differences of opinions between governments on what should be negotiated first. ECO learned that in the shared vision group there is a clear division over whether priority should be given to the two issues that are in the Cancún agreement, the global goal and peaking, or whether all important issues should be dealt equally. In the finance group there was clear division over whether the group should start discussion on fast start and long-term financing. And in the review group countries discussed whether the review should deal with the adequacy of the long-term goal as stated in the Cancún agreement, should review the full implementation of the Convention, or should review the Convention as such. ECO has always said that countries should implement Cancún undertakings, and go further on the road to building a real fair, ambitious and legally binding deal. Given the amount of time that has already been spent on agenda fights we feel countries should get on with the work at hand.

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Money – Now, New, and on the Table

In Copenhagen and reaffirmed in Cancún, developed countries collectively pledged USD 30 billion in ‘fast-start’ finance from 2010-2012 to support developing countries’ mitigation and adaptation efforts, and helping to maintain Parties confidence in the process.

Based on the fast-start finance reports submitted by developed countries, about USD 16.8 billion has been committed or allocated in 2010. However, opaqueness remains. Several countries are clearly not meeting the agreed criterion that the finance should be “new and additional,” and constitute a “balanced allocation between adaptation and mitigation.” On balanced allocation, e.g. France has stated that 80% of its fast-start finance will go to mitigation and REDD+, with the rest to adaptation. This imbalance is not unique and implies that adaptation will remain heavily underfunded. Denmark has a better track record, with 48% of its fast-start finance in 2010 supporting adaptation and capacity building.

Furthermore, countries are not being entirely comprehensive, comparable or complete in reporting information on their finance. While countries do report on whether e.g., grants or loans have been used, they do not provide information on the terms (concessionality) of loans when used, nor on which projects are supported by loans versus by grants. While there is no political agreement on how to define ‘additionality,’ countries should at least be transparent about the baseline they are using to define this. Enhanced reporting guidelines are clearly needed, building towards a common reporting format in the longer term.

Despite this opaqueness, we can and should give developed countries credit for making a perceivable effort to get fast-start finance flowing   and reported on, despite a lack of formal guidance on how to do so. The EU yesterday hosted an open forum on their fast-start finance, which reflected on lessons learned – from the donor side and from the recipient sides – for improving the future provision of, access to, and reporting of financial support. Such stocktaking will help ensure the transparency, effectiveness and efficiency in the delivery of finance in the future, and build much-needed trust between developed and developing countries in the international climate negotiations.

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The $100 Billion+ Question

Cancun delivered the Green Fund, now Durban must deliver the sources of finance to fill it. Where the money will come from is the $100 billion+ question governments will need to answer at the African COP.

Financial flows for climate action must be scaled up to the tune of several hundred billion dollars a year. While much of this can come from the private sector, principally for mitigation, it won’t flow without public funding to invest in capacity-building, technology R&D, creating policy and regulatory frameworks, and to leverage the private sector investments into areas where they are not now flowing.

Meanwhile REDD requires public finance investments over the next decade in the tens of billions of dollars, and adaptation requires even greater sums of public finance. It’s clear to ECO that the annual $100b figure must be almost entirely public finance to make a significant contribution to the amount of financing needed.

ECO recognizes that there are many issues on the finance agenda in Bonn – from learning the lessons of the fast-start finance (2010-2012), establishing new institutions, and deciding the scale of finance requirements. The finance issue that parties should focus most of their efforts on here in Bonn, and between now and Durban, is how to generate the public finance required.

Part of this must be from developed country budgets. But how much and from which governments must be spelled out. Durban is only one year away from the end of the fast start funding period, and there are as of yet no concrete commitments at all for the 2013 to 2019 period.

But even if we assume optimistically that governments will scale up from the fast-start levels, the problem remains. Developed countries have a tendency to provide funding that is not new and additional, but rather often comes at the expense of other existing commitments to development finance. Supplementary sources alongside government budgets will be absolutely necessary if we are to reach the levels of predictable, new and additional public finance required.

What is needed is a clearly defined and structured process to analyze, negotiate and reach conclusions on the sources of long-term finance between now and Durban. This process should involve workshops, submissions, informal Ministerials, receipt of and responses to input from past processes like the AGF and ongoing processes like those in the IMO and G20. By Durban this process should reach key conclusions on several concrete sources of finance and set out a pathway forward to operationalize them and identify further sources needed. This should include the establishment of an effort sharing approach for developed country governments’ budget contributions, and also explore a range of new and innovative sources, including international transport (bunkers), financial transaction taxes (FTTs), and Special Drawing Rights (SDRs). 

A breakthrough agreement in Durban on the basic parameters of a mechanism to address emissions from international transport, that can generate finance for climate action in developing countries, would demonstrate conclusively that the multilateral process is alive and well and breaking new ground. If Durban can also get resolution on a second commitment period on the Kyoto Protocol that sends a strong signal and provides certainty to private sector investors, Durban could well be remembered as a turning point on the road to a fair, ambitious and binding global regime.

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