Submitted by Grant Boyle
Developing country climate finance is a key issue for negotiation this week in Copenhagen. Developing country demands are high and developed country willingness is mixed.
Certainly the market is a potentially promising one for investors. In 2008 the primary Clean Development Mechanism market reached $6.5 billion. According to the International Energy Agency's 2009 World Energy Outlook around $200 billion is required in developing countries for clean energy and energy efficiency investments by 2020. Copenhagen will likely establish some "prompt-start" financing of around $10 billion over the next couple of years.
But how will this be paid for?
One of the issues at Copenhagen is how to improve and scale-up the existing Clean Development Mechanism (the CDM) of the Kyoto Protocol, although industry groups involved in the CDM are impatient with the pace of CDM reform going into the summit.
There is also discussion on how to add more mechanisms - both public and private. Not surprisingly, this looks tricky. The draft textof the Ad Hoc Working Group on Long Term Cooperative Action (AWG-LCA) on finance (about 30 pages) is replete with bracketed text and includes a wide range of options. As it stands, some of the proposals include:
"International Public Finance"
-An assessed contribution from developed country Parties based on "climate debt" amounting to at least 0.5-2% of GNP
-An assessed contribution from developed country Parties over an above current Overseas Development Assistance
-Assessed contributions by developed country Parties and other developed Parties based on a contribution formula developed by the COP, updated on a regular basis reflecting per capita capacity to pay and responsibility for emissions and cumulative per-capita responsibility for emissions since 1850
"Innovative Sources"
-A mechanism for financing climate change action whereby a certain number or percentage of allowances (for developed country Parties) is set aside and monetized through international auctioning. The COP shall determine the quantity of allowances to be set aside and auctioned to support adaptation, REDD, capacity-building and other climate change actions
-A uniform global levy on CO2 emissions above a threshold of 1.5-2.0 tonnes per capita.
-Levies on international aviation and maritime transport
-An international adaptation levy on airfares, except on journeys originating from or destined for Least Developed Countries
-A share of proceeds on Clean Development Mechanism or Joint Implementation emissions trading
-A levy of 2% on "capital transfers" between developing and developed country Parties
-Carbon market finance and private investment leveraged as appropriate by domestic policy frameworks and targeted public funds
-Agreed penalties or fines on non compliance of developed country Parties
By December 15, the AWG-LCA is expected to produce text in the form of draft decisions that could be adopted by the Parties (presumably to be put into a legally binding treaty or other instrument after Copenhagen). How far they will get on the finance question remains to be seen...Times are tight and the world has changed since 1992 - the simple "developing and developed country division" is now less tenable.
