“Challenging, but feasible,….”
…. this is the condensed conclusion of the final report – recently released – of the UN Secretary-General’s High-level Advisory Group on Climate Change Financing (AGF), which was tasked with trying to find ways to raise US$100 billion per year by 2020 for mitigation and adaptation actions in developing countries. This number — far less than what many experts believe is really needed — was the sort of political compromise, the lowest common financial denominator, leaders came up with at last year’s international climate negotiations in Copenhagen.
Just a few short weeks before the international climate negotiations head into the next big round of talks at the COP16 in Cancun, Mexico, the panel hopes that their guardedly forward-looking assessment – it would be too optimistic to call it optimistic — on how the long-term climate funding promised in the Copenhagen Accord can be pieced together, might move global climate talks forward by securing. if not a comprehensive climate deal, so at least a financing package.
While the report does not shine with a great new idea and the universally acceptable grand solution for solving global climate financing shortfalls — as could in all honesty not be expected — it did have a few little surprises, even for observers who had thought they knew in advance the direction and tenor of the Panel’s recommendation.
Probably the biggest surprise was the unwavering, unquestionable trust the 20 high-ranking and politically high-hitting members of the group placed in the carbon markets and its ability to generate roughly US$40 billion of the overall targeted US$100 billion a year. Then again, maybe not so surprising, considering that some strong pro-market voices and market players had dominant roles in the process ( such as George Soros, Larry Summers, Nicholas Stern and Deutsche Bank Vice-Chairman Caio Koch-Weser).
Apparently, it was Stern’s team which consistently built the case for carbon markets throughout the nine months life span of the panel’s work — and got little resistance on it from the public sector stars in the panel, such as Prime Ministers Stoltenberg (Norway) and Zenawi (Ethiopia) or Ministers Manuel (South Africa), Huhne (UK), Lagarde (France), Zhu Guangyao (China) or Cordero Arroyo (Mexico).
But do carbon markets — by their very nature highly volatile and unpredictable — really hold the key piece to solving the global climate finance puzzle? Some civil society observers worry that the price projections for carbon the panel based its recommendations on – US$20-25 per ton of CO2 equivalent — are too optimistic in the long run (today, at the European Energy Exchange, CO2 was trading at roughly US$ 19 per ton). They think the panel report instead should have held industrialized countries goverments more to account on fulfilling a significant part of their Copenhagen finance pledge with direct budget contributions from existing public finance sources.
While the report acknowledges direct public support will play a “key role”, wisely — at least politically, if to the detriment of a stronger message –it did not give a percentage figure of how much of the US$100 billion should come from developed countries’ coffers directly. Though the panel did say that of all the financing options discussed in the report scaling-up public finance contributions could come the quickest. If it weren’t for that old drag on such recommendations — the often referred to, but still accurately diagnosed lack of political will for such action among the industrialized countries….
Another head-scratching moment — surprising because of its directness and clearly diverging from the Panel’s mandate to focus solely on the sources of long-term climate finance, not the channels via which these monies ought to be distributed – is the more than honorable mention of the hoped for role of the multilateral development banks in global climate finance. Oops, almost forgot the little disclaimer, the panel clearly inserted at the last minute as a qualifier for the status of MDBs in the global climate finance architecture, mentioning that the Banks should act only “… in close collaboration with the United Nations system.”
The AGF sees the MDBs as “significant multiplier” in leveraging additional green investment and all but asks the global community to put another US$10 billion into the MDBs to do that job (in addition to the roughly US$ 6,3 billion industrialized countries had already pledged to the World Bank’s Climate Investment Funds in the past years). Not that the Banks have done such a stellar job on transformational climate investments towards low-carbon development in the past…. A recent report of the World Bank’s own Independent Evaluation Panel confirms that. At least with respect to its energy portfolio, the World Bank and other MDBs are too often still very much of the problem of causing climate change and have to “clean house” before they can be a true part of the climate-friendly solution. This is certainly not the “wise use of public funds” the AGF is urging.
The main argument for the Banks, of course, seems to be that with more public capital they could raise easily triple or quadruple that amount in private resources from global capital markets, essentially generating “net flows” for global climate finance. However, as one climate finance expert asks, would national development banks of developing countries, if they received the same capital directly, not be able to leverage additional funding as well?
While the AGF report did focus predominantly on the carbon markets and the financial benefits it thinks can derive from public and private sector engagement in the markets — via devoting a share of public cap-n-trade auction revenues or carbon taxes to climate financing, as well as generating up to US$200 billion of grass private capital flow from private investors — it also demonstrates some other viable options to fill the climate finance gaps. Of course, for politicians, they are much harder to achieve then waving the magic finger and pointing to the private sector as the solution, as they entail hard political choices and well, yes, the willingness to assume leadership.
Up to US$10 billion, so the estimate of the high-level panel, could for example be mobilized from some form of a financial transactions tax or the redeployment of fossil fuel subsidies in developed countries. At the G20 Summit in Pittsburgh/USA a year ago, world leaders had promised working toward an end of fossil fuel subsidies. A year later, this pledge — as so many others, for example the one promising to provide fast start finance for climate action in form of “new and additional” funds — seems already forgotten.
So, now that the much awaited AGF report is out, what’s next?
The ball, politically speaking, is now firmly in the court of political leaders, since the recommendations of the AGF are non-binding . Cancun will present the first opportunity for them to prove that the work of the panel was more than a useful, but ultimately fruitless academic exercise. In any case, the AGF is finished, to be discontinued without plans for follow-on processes and groups. The larger debate about how to generate the necessary public and private investments for low-carbon, equitable, sustainable development in developing countries, of course, isn’t.