Climate Action 2010-2011

Finance and Markets
The collective mitigation and adaptation needs of the developing world over the
next several decades add up to a hefty number.
Financing
climate action
Four questions needing answers
Andrew Steer
Special Envoy for Climate Change
The World Bank
What would you pay to save the future? That’s not
a philosophical question but a reality check. It’s
the 64 billion dollar (and much more) question that is
preoccupying world leaders and policy makers in the
run up to and at Cancun. Should we be pessimistic or
optimistic?
There are four big questions on climate finance being
asked by negotiators as they try to forge a deal at Cancun:
• Will the US$30 billion Fast Start money be delivered as
promised?
• How will the US$100 billion longer term annual flow
of funds be found?
• What is the future for carbon markets?
• What is the best design for the new Green Fund?
Are short term promises being delivered?
In Copenhagen, rich countries promised to provide
US$30 billion to developing countries for mitigation and
adaptation over the three-year period 2010-2012. Given
that this was pledged as a demonstration of good faith,
it is particularly important that it is actually delivered –
and seen to be.
If you add the pledges of individual countries you
will come very close to the US$30 billion figure. But
pledges need to be turned into formal commitments to
specific programs, and those in turn need to be turned
into disbursements. Here the picture gets murky, because
surprisingly we’re not yet good at monitoring financial
flows for climate change. Part of the problem is definitional
(how much of water resource management, for example,
should be coded as ‘adaptation’?), and part simply because
contributor countries simply haven’t got systems in place to
track climate flows – and nor have recipient countries.
Several governments, led by the Dutch, have created
a web site to track these flows, but so far the picture is
incomplete. We will need to invest in much better technical
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systems, with stronger political support, if the Fast Start
money is to build the trust that it was intended to.
Real money in the longer term?
The High Level Advisory Group on Finance (AGF)
report on how to raise the US$100 billion that was
committed to developing countries each year from 2020
onwards is now out. While it didn’t give an opinion
on how much should come from public sources, it did
show how very significant revenues could be raised in
a non-distortionary way if linked to carbon emissions.
Mechanisms such as auctioning rights to emit, removing
harmful subsidies on energy use, and taxing the currently
untaxed fuel for international shipping and aviation are
all analyzed and found to be highly promising.
The AGF report also showed how the private
sector and carbon markets have vital roles to play in
transmitting technology and finance, and how public
funds should be used to leverage multiples of their
own value. Here it was also shown how the multilateral
development banks (the World Bank and the regional
development banks) are uniquely equipped to help get
the kind of leverage that will be required.
Where next for carbon markets?
Carbon markets have played a valuable role over
recent years in transmitting money and technology
to developing countries. But offset markets are slow,
inefficient, and unreliable and only a few countries are
benefitting. As the market evolves, the rules of the Clean
Development Mechanism (CDM) need to be simplified,
allowing, for example, more programmatic approaches.
Further, their reach needs to be extended into countries
and sectors that haven’t benefitted to date. The World
Bank pioneered the carbon markets more than a decade
ago (five years before the Kyoto Protocol came into
force), and is now managing US$2.3 billion in carbon
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