From Copenhagen To Cancun: Climate Finance

An update on the role of climate finance in the international climate negotiations.

An agreement on climate finance is critical to success in Cancun. Last year’s climate talks in Copenhagen recognized that developing countries will need scaled-up financial support to reduce their emissions and adapt to the impacts of climate change. Developed countries have since made financial pledges towards the $30 billion in promised “fast start” climate finance to meet the short-term needs of developing countries. In Copenhagen, developed countries also committed to mobilizing $100 billion from a wide variety of sources to meet developing countries financing needs by 2020, but the long-term needs remain much higher.

The current negotiating text for the meeting in Cancun outlines the critical decisions that need to be made in order to mobilize stable, predictable, and adequate resources for the long-term, and manage it in a transparent and effective manner. The following issues will take top priority on negotiators’ “to do” list for climate finance:

• Establishment of a new global climate fund, with arrangements for its governance.

• Creation of a framework to account for the delivery fast-start and long-term funding commitments; and

• Laying the foundation for generating stable, predictable and adequate long-term finance particularly through innovative sources of finance.

Establishing a New Global Climate Fund

In Copenhagen, countries called for the establishment of a new Climate Fund to scale-up climate financing to developing countries. While climate-specific funds already exist both within and outside the UNFCCC that support projects in developing countries, these funds are inadequate to meet the needs of developing countries. Further, if a decision on the new Fund is to gain the broad-based political support it needs, it must embrace strong governance structures and procedures that will give a greater voice to developing countries.

Since Copenhagen, the debate has centered on the essential elements of the governance and operations of the new Fund. For example, Parties need to decide:

• the legal nature of the Fund and a process for establishing it;
• the scale of the fund and where its resources would come from;
• the size and composition of the Board that will govern the fund; and
• the principles to guide the selection of the trustee and secretariat.

The ministers face some clear options on each of those issues in Cancun. The negotiations are complex, and countries hold sensitive positions, but at the end of the day the Fund needs to be established in a way that is representative of both developed and developing country interests while at the same time allowing for maximum efficiency and effectiveness to disburse and deliver resources to those who need it the most. They will have to make some trade-offs but it is feasible for them to arrive at an agreement.

Accounting for the Delivery of Climate Finance Pledges

To date, WRI research indicates that individual country pledges add up to $29.27 billion of the $30 billion in ‘fast start’ funding promised in Copenhagen.

Countries have also been taking steps (e.g. through budget requests and appropriations processes) to make their pledges available, and have been providing additional details on their pledges. For example, the Obama Administration in the U.S. has requested Congress for $1.9 bn for 2011, while the EU claims to have mobilized 2.2 bn euros (or nearly $3 bn) for 2010.

This increased transparency is welcome. It is important to hold countries accountable for their commitments, but also to build trust among parties. It can also point to gaps in the flows, and guide future allocation of resources. However, further clarity is needed from all countries on:

1. The objectives they are supporting, such as clean energy, REDD+ and/or adaptation,
2. Whether the funds are “new and additional” in relation to finance provided for other development priorities,
3. Which bilateral and multilateral institutions are being used to channel the resources,
4. The types of financial instruments, whether loans, grants, guarantees, used, and
5. What countries are counting towards their fast-start commitments. This can be achieved through more detailed guidelines for reporting on finance.

Scaling-up Long-Term Finance

Developed countries must deliver on their commitment to provide the US$100 billion per year to developing countries by 2020 to help them respond to the challenges of climate change. It will be very difficult to secure agreement on global climate action if there is no demonstrated willingness to help generate stable, predictable and adequate long term finance.

The UN Secretary General’s High-Level Advisory Group on Finance (AGF) has shown that scaling-up climate financing to support developing countries for climate change is challenging but feasible. A menu of options is available to help deliver tens of billions of dollars from each option towards the $100 billion financial target that was agreed to at the Copenhagen Summit.

Now, it is up to the all countries to choose the option/s that work best in their domestic contexts and take necessary steps to raise new revenues through these innovative mechanisms. At Cancun, the COP can launch a process that encourages countries to generate new resources and provide a platform for them to coordinate their efforts.

It is also up to the developed countries to make a share of these resources available to developing countries for tackling climate change. This is also important to ensure that the new Fund has adequate resources to support the climate mitigation and adaptation goals of developing countries.