Column: Even climate is about the money

Written by Arunabha Ghosh | Updated: Dec 6 2009, 02:12am hrs
A lottery would not get many ticket sales if it disclosed the prize after the draw. With this observation, a developing country delegate expressed frustration over the lack of a climate finance mechanism. Why, he argued at climate negotiations earlier this year, would poor countries undertake costly climate-related actions without guarantees that funds would be available As the Copenhagen meeting begins, it looks less like lottery and more like poker.

Lotteries are games of pure chance. Poker is a game of part chance, part strategy. Climate negotiations hinge on, among other things, creating a pool of finance to share the burden of mitigating and adapting to climate change. The game is not one of a winner taking all by sheer luck, but of who contributes how much to the common pot. No country is willing to act first; doing so would be to fold. Countries are taking a chance on the level of aggregate effort needed to avoid dangerous climate change, but their strategy is to avoid revealing preferences.

Several countries have announced plans for emission cuts (Brazil,EU, Indonesia, Japan, Russia,South Korea,the US) or carbon intensity reduction (China, India). These are, however, opening gambits to guess how far others would go. For instance, Chinas offer of 40-45% reduction in carbon intensity by 2020 is a continuation of its already existing policy, which began in 2006. If other countries had expected more, China was not going to oblige. By 2020 the US aims to reduce emissions by 17% relative to 2005, which is way below desired levels (using the Intergovernmental Panel on Climate Changes 1990 baseline, this means only 4% reduction). For rich countries as a whole, the IPCC recommends reductions of 25-40% by 2020; offers on the table amount to only a 12-19% cut. Further, many leaders have suggested that Copenhagen will not deliver a legally binding treaty.

The absence of internationally enforceable mitigation commitments means that the burden on climate finance will increase. Unilateral promises will depend on whether sufficient financing is available to achieve the scale of actions needed. So, who will pay The Commonwealth Heads of Government backed a British-French proposal for a$10-billion fundto help developing countries reduce emissions and adapt to a changing climate. This was one more push to secure at least a political deal in Copenhagen.

But larger issues remain unresolved. The first is the scale of funding required. Estimates for additional annual investments for climate mitigation in developing countries vary, but they hover around $100 billion annually by 2020. A tiny fraction of that is spent at present with even new funds failing to disburse significant amounts. Funding for adaptation shows similar gaps, with only $1 billion being spent when the needs are perhaps 40 times more.

Many argue that significant increase in official development assistance (ODA) is difficult. Therefore, a second issue is the funding mix. No doubt a large share of financing has to come from private, market-based sources. But, as currently configured, carbon markets will not generate funding to match the actions required. The incremental costs of moving up the technology ladderR&D, capital costs, intellectual propertyimply public financing support. It is unhelpful to pretend that market failures in cleaner energy technologies will correct themselves without support.

Needed then are arrangements that generate win-win situations. These arrangements involve a mix of political commitment, public finance and private investment. In October, delegations meeting in New Delhi endorsed Indias proposal for a network of technology research centres across developed and developing countries. Again, the US and China announced several joint initiatives during Obamas recent visit, on energy efficiency, research on cleaner coal plants, electric vehicles, carbon capture & storage and renewable energy, among others.

Such bilateral initiatives, while important, are still small scale. Moreover, they must not divert attention from multilateral arrangements. Otherwise, financing might indeed turn into a lottery for a few countries while others are left without access to clean technologies.

That raises a third issue of additionality of funding. This is jargon for climate funding being over and above existing ODA allocations. Developing countries worry that climate finance will simply substitute money intended for education, health and other development needs. The EU has sought to delete references to additional funding from the Copenhagen text.

There is a long history of unmet commitments that has resulted in an atmosphere of sheer mistrust and bad faith between rich and poor countries. Despite its bilateral initiatives, the US has yet to table any substantial offer regarding climate finance. PresidentObama admitted at the G8 summitin July that the US had sometimes failed to meet its responsibilities so let me make it clear those days are over. Those days are not over yet; the game of poker continues.

There is an alternative: a multilateral Low Carbon Technology and Finance Facility that uses public finance to leverage private investment, underwrites project risks, covers intellectual property fees, and offers rich and poor countries equal voice in governing climate finance. Will negotiators at Copenhagen play this new game

The author is Oxford-Princeton Global Leaders Fellow at Princeton University