UNECA

Sources of long-term finance and their implications

Jeremy Webb and Mulugeta Ayalew

African Climate Policy Centre (ACPC)

Climate Change

Meets Policy

UNECAOutline

• The Copenhagen promise • The AGF report• Sources considered• Evaluation criteria• Finance scenarios• Conclusions

UNECAThe Copenhagen promise

• Financial commitments in the UNFCCC– New and additional financial resources to meet

the costs incurred by developing countries in discharging their reporting commitments

– Financial resources needed by developing countries to meet the incremental costs of implementing mitigation and adaptation measures

UNECAThe Copenhagen promise

– the provision of and improved access to scaled up, new and additional, predictable and adequate funding to developing countries

– Fast-start finance: 30 billion USD from 2010 to 2012

– Long-term finance: 100 billion USD a year from 2020

UNECA

How to mobilize the 100 billion a year by 2020 is the central question?

…in the context of meaningful mitigation actions and transparency on implementation, developed countries committed themselves to a goal of jointly mobilizing USD100 billion a year by 2020 to address the needs of developing countries. this will come from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources of finance…

UNECAAGF Report

• This is the Secretary-General’s High-level Advisory Group on Climate Change Financing (AGF)

• The Group focused on:– The identification of practical proposals on how to

significantly scale up long-term financing for mitigation and adaptation strategies in developing countries from various public and private sources, and

– How best to deliver it– It did not the adequacy of 100 billion USD per year

UNECARepresentation

• Meles Zenawi, Prime Minister of the Federal Democratic Republic of Ethiopia (Co-Chair)• Jens Stoltenberg, Prime Minister of Norway (Co-Chair)• Bharrat Jagdeo, President of the Republic of Guyana• Pedro Luiz Carneiro de Mendonça, Under-Secretary General for Economic and Technological Affairs, Ministry of

External Relations, Federal Republic of Brazil• Ernesto Cordero Arroyo, Minister of Finance, Mexico• Chris Huhne, Secretary of State for Energy and Climate Change, United Kingdom• Sri Mulyani Indrawati, Managing Director, World Bank• Donald Kaberuka, President, African Development Bank• Caio Koch-Weser, Vice-Chairman, Deutsche Bank Group• Christine Lagarde, Minister of the Economy, Industry and Employment, France• Trevor Manuel, Minister in the Presidency for National Planning, Republic of South Africa• Bob McMullan, Member of Parliament and Parliamentary Secretary for International Development Assistance,

Australia• Mutsuyoshi Nishimura, Special Advisor to the Cabinet Office, Japan• Supachai Panitchpakdi, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD)• Tharman Shanmugaratnam, Minister for Finance, Republic of Singapore• Lawrence H. Summers, Director of the National Economic Council and Assistant to the President for Economic• Policy, United States of America• Montek Singh Ahluwalia, Deputy Chairman, Planning Commission, Republic of India• George Soros, Chairman, Soros Fund Management• Nicholas Stern, Professor of Economics and Government, London School of Economics• Zhu Guangyao, Vice-Minister, Ministry of Finance, People’s Republic of China

UNECASources considered by the AGF

UNECASources considered

• International auctioning of emission allowances (e.g. AAUs in the KP) and auctioning of allowances in domestic emissions trading schemes (e.g. the ETS)

• Offset levies like the 2% levy on CDM CERs for the Adaptation Fund

• Revenues from international transportation (maritime and aviation)

• Carbon-related revenues such as finance freed from removal of fuel subsidies, carbon tax, and portions of fossil fuel royalties

UNECA

• Financial transaction taxes • Direct budget contribution • Development bank instruments • Carbon market offsets like the CDM• Private finance

Sources considered

UNECAEvaluation criteria

• Revenue: how much money can be raised from a particular source?

• Efficiency e.g. the incentive and disincentives to take measures of reducing emissions

• Equity and incidence: who is ultimately paying for it? Who shoulders the burden at the final analysis?

• Practicality: what sort of institutions are required for mobilizing resources from a particular source and whether such institutions already exist and if not whether they can easily be established?

UNECAEvaluation criteria

• Reliability: can it provide predictable stream of revenue?

• Additionality: is it an additional money?• Acceptability: can developed countries

easily sell it to their citizens?

UNECA 2020 and beyond price scenarios

• Low = US$15 per ton of CO2

• Medium = US$25 per ton of CO2

• High = US$50 per ton of CO2

UNECA

International auctioning of emissions allowances

Low Mid High0

10

20

30

40

50

60

70

UNECA

International auctioning of emissions allowances

UNECAOffset levies

Low Mid High0

10

20

30

40

50

60

70

UNECAOffset levies

UNECAInternational transportation

Low Med High0

10

20

30

40

50

60

70

UNECAInternational transportation

UNECACarbon related revenues

Carbon

tax

Wire

s cha

rge

Remova

l of fo

ssil s

ubsid

ies

Redirecti

on of

foss

il roya

lties

0

10

20

30

40

50

60

70

UNECACarbon related revenues

UNECACarbon market off-sets

Low Med High0

10

20

30

40

50

60

70

UNECACarbon market off-sets

UNECA

Indicative levels of potential annual financial flows

Low Med High0

50

100

150

200

250

300

These levels are indicative as the various estimated flows vary conceptually and as such should not be added directly

UNECAConclusions

• ‘Challenging but feasible’ is the conclusion of the AGF

• More challenging now than at the time of the report– Many of the sources depend on the price of

carbon which in turn depends on the level of ambition in the international climate agreement

– The Durban Platform for Enhanced Action: the agreement will come into effect in 2020

– The Kyoto Protocol: Japan, Russia, and Canada not part of the second commitment period and US not a party

UNECAChanging global situation

• Given that the global financial and economic situation is changing– Are the mechanisms described in the AGF report still

viable?• They were ambitious to start with

– What opportunities arise out of the financial and economic crises affecting Europe currently?• e.g. the introduction of taxes on financial transactions

– this has been discussed but London and the UK object• e.g. aviation emissions becoming part of the ETS

– This has been introduced but some countries object

• The 100 billion per year is arbitrary– It does not take into account actual needs

UNECAWhat counts as climate finance?

• The Advisory Group did not seek an agreed formula on which financing flows should count and which should not count towards the US$100 billion per year

• The Advisory Group in some cases did not agree on how much of a particular flow should count either

UNECA

Thank you

jwebb@uneca.org

Climate Change

Meets Policy