WRI Publications Feed: International Cooperation on Climate & Energy

Assessing Non-Annex I Pledges: Building a Case for Clarification

Maggie Barron — Thu, 01 Dec 2011 13:53:32 -0500

Introduction

Under the UN Framework Convention on Climate Change’s (UNFCCC) Cancun Agreements, both Annex I and non–Annex I Parties have announced a diversity of mitigation targets and actions respectively for emissions reduction by 2020. While Annex I Parties have put forward economy-wide emissions reduction targets, non–Annex I Parties have proposed a variety of nationally appropriate mitigation actions (NAMAs). These non–Annex I actions include economy-wide goals (e.g., business-as-usual goals, carbon neutrality goals, and intensity goals) as well as sectoral actions, project-level activities, and policies (e.g., energy efficiency measures, no-till farming, projects related to mass transport systems, and investments in renewable energy sources).

Although the targets and actions of Annex I and non–Annex I Parties are different in form due to the principle of common-but-differentiated responsibilities and respective capabilities, many are similar in their lack of clarity regarding critical details, assumptions, and methodologies. For example, many of these pledges do not specify aspects such as which sectors or gases are covered, which methodologies are used for estimating expected reductions, if applicable, and/or the role of offsets. Without this and other information, it is challenging to track progress towards fulfillment of pledges, to ensure transparency, to estimate resulting emissions reductions, and to assess whether overall global emissions reductions are adequate for meeting global temperature limits.

For Annex I Parties, these problems should be resolved through the negotiation of common accounting rules. Although beyond the scope of this paper, the design of such rules is a critically important determinant of the regime’s environmental integrity. While common assessment methodologies for non–Annex I countries may be developed in the future, it is unlikely that the 17th Conference of the Parties (COP-17) in Durban, South Africa, will resolve this issue.

There are a number of reasons for this, including the principle of common-but-differentiated responsibilities, the level of complexity of various types of non–Annex I actions, and the lack of experience in this field compared to the common accounting rules developed for Annex I Parties under the Kyoto Protocol from which Annex I Parties can draw. In the absence of a set of provisions similar to those discussed for Annex I, clarification of non–Annex I actions can assist in providing transparency and tracking performance for domestic and international purposes.

While this paper focuses on clarification of non–Annex I actions, we first explain how common accounting rules for Annex I targets resolve the lack of clarity surrounding targets for developed countries. The remainder of the paper is devoted to discussing why and how non–Annex I Parties’ pledges should be clarified. In doing so, we describe the benefits of clarification, as well as the related mandates under the Cancun Agreements. We then outline the specific clarification needs associated with each type of non–Annex I action. It should be noted that this paper focuses only on non–Annex I pledges that are stated in terms of emissions reductions or emissions limitation and not on pledges that are framed in terms of indicators unrelated to emissions (e.g., capacity building initiatives). Lastly, we recommend decisions that can be made in Durban to formalize both common accounting rules for Annex I targets and a clarification process for non–Annex I actions.

Summary of Developed Country ‘Fast-Start’ Climate Finance Pledges

Maggie Barron — Wed, 23 Nov 2011 15:41:50 -0500

Reiterating a pledge made in Copenhagen in 2009, the Cancun Agreements of December 2010 formally commit developed countries to collectively provide resources “approaching USD 30 billion for the period 2010 - 2012” to support developing countries’ climate efforts. This so-called “fast-start” finance will help developing countries, particularly the poorest and most vulnerable, mitigate (reduce) their greenhouse gas emissions, and adapt and cope with the effects of climate change. These pledges also present an opportunity to build trust between developed and developing countries in the international climate arena, in turn fostering progress towards a comprehensive post-2012 international climate agreement.

WRI has carried out a preliminary analysis based on available information on countries’ immediate pledges announced thus far. The accompanying table sets out both the amounts and the mechanisms by which funding would be delivered. WRI has also looked at how countries indicate whether their pledges will provide “new and additional” funds compared to what they provide as official development assistance.

This table will be continuously updated as more information becomes available.

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Q&A on this Analysis

(Updated on November 23, 2011)

Have developed countries met their fast-start finance pledge?

Based on our research, as of November 18, 2011, 23 developed countries and the European Commission have publicly announced their individual fast-start finance pledges, in addition to the European Union’s collective pledge. These pledges total USD 28.22 billion.

While this represents a significant step in the right direction, developed countries still have much to do in meeting the fast-start pledge. The Cancun Agreements mandate that fast-start funds have a “balanced allocation between adaptation and mitigation,” are “new and additional,” are “prioritized for the most vulnerable developing countries, such as the least developed countries, small island developing States and Africa,” and include “forestry and investments through international institutions.” It is not clear that developed countries’ fast-start finance contributions fulfill these criteria.

Finally, ensuring that pledges are actually delivered will be essential. Though the pledges are clear, their delivery is uncertain. According to reported information, of the pledged funds, USD 16.23 billion has been requested and/or budgeted by the executive bodies of the countries during the fast-start period. In some cases, the legislative bodies have also approved these requests. Some of the requested or budgeted funds may have even been delivered, yet the actual delivery and implementation of the finance is often not clear in countries’ fast-start finance reports.

Do the funds have a “balanced allocation between adaptation and mitigation”?

Countries often specify the general objective that their fast-start funds will support. For example of the EUR 4.68 billion mobilized for fast-start by the EU, 39% will support mitigation, 31% will support adaptation, 12% will support REDD+, and 18% will support multipurpose activities. While Germany has pledged that one-third of its 2010-2012 fast-start funds will support adaptation, only 21% of its 2010 reported funds do so. In its 2010 fast-start finance report, Germany highlighted the challenges of identifying suitable adaptation projects as the reason for this, and recognized the remaining need to adjust the allocation of funds across the three areas of mitigation, adaptation and REDD+. Several countries involved in the Interim REDD+ Partnership — a process created parallel to the UNFCCC to ensure effective and sustainable REDD-plus (reduced emissions from deforestation and forest degradation) actions over the next few years — have also specified that at least 20% of their funds will support REDD-plus. However, without an agreed-upon definition among countries of what constitutes a “balanced allocation,” we cannot answer this question.

Are the pledged funds “new and additional”?

“New” funding represents an increase relative to pledges or allocations from previous years. However, a number of pledges include commitments already made in the past. For example, Japan’s USD 15 billion fast start pledge announced in December 2009 as the Hatoyama Initiative includes USD 10 billion announced previously in 2008, while the fast start pledges of the United Kingdom and the United States also include their 2008 commitments to the Climate Investment Funds (CIFs) of roughly USD 1.4 billion and USD 2 billion respectively.

Funds that are “additional” ensure that their delivery does not result in the diversion of funds from other important development objectives. In other words, climate mitigation and adaptation funds should be additional to development aid. Parties to the UNFCCC have not yet achieved consensus on a clear and specific definition of ‘additionality’ that can be applied uniformly to developed country financial pledges. As a result, countries have proposed a variety of methods for defining the additionality of their fast-start finance.

Do the pledges include “investments through international institutions”?

Countries are channeling investments through a mix of multilateral, bilateral, and public-private institutions. Several countries, including Japan and the United States, are channeling a considerable amount of their funds through export credit agencies and other public-private channels. The Climate Investment Funds (CIFs) and the Global Environment Facility (GEF) are the primary multilateral institutions of choice through which other funds will be channeled. Still, a significant portion of this funding, particularly for 2011 and 2012, has not been specified by the countries. The governance of the funds has implications for the effectiveness and perceived legitimacy of the overall climate finance architecture. Developing countries generally prefer that institutions governing finance ensure developing country ownership of funded activities and prioritize funding for climate vulnerable countries. Developed countries tend to emphasize the need to minimize bureaucratic costs and ensure the effective use of resources.

Why is fast-start finance “prioritized for the most vulnerable developing countries, such as the least developed countries, small island developing States and Africa”?

Countries under the Convention recognize that developing countries are highly vulnerable to climate change impacts because they have fewer resources to adapt to the effects of climate change, which can include increased droughts and floods, rising sea levels, and greater uncertainty in the agricultural sector. Least developed countries (LDCs) and small island developing States (SIDS) in particular are recognized as needing special consideration due to their extreme vulnerability. For these reasons, developed countries have pledged to prioritize fast start funds for the “most vulnerable countries.” Several countries are channeling their fast start finance through the Least Developed Countries Fund or the Adaptation Fund, many are channeling finance directly to SIDS and LDCs. Australia in particular states that it will channel at least 25% of its fast-start finance to SIDS. Japan has specified that over 50% of it is grant aid to vulnerable countries, including Africa and the LDCs, is devoted to the area of adaptation.

What types of financial instruments are countries using?

There are several different types of financial instruments countries are using to deliver their fast-start finance, including grants, loans, equity, loan guarantees, insurance, and private investments. Many countries have provided some information on the type of financial instruments used. For example, the EU’s internal reporting process for fast-start finance distinguishes between “grants” — which made up about 45% of EU Member State contributions in 2010 — and “loans, equities or others” — which constituted 55%. Norway reports that all of its fast-start finance will be grants. Meanwhile, Japan’s fast-start finance includes grants and loans that meet ODA standards, finance in the form of ‘other official flows’, and private finance. However, reporting on the type of financial instrument used is neither comprehensive nor consistent. For example, no information is reported on the concessionality of the loans when used, save for by the United Kingdom.

What are the next steps to ensure clarity on the delivery of climate finance pledges in the future?

The UNFCCC system for developed countries to report on the delivery of climate finance faces several challenges, which limit the utility of available data. For example, countries currently use multiple methods for reporting and often provided insufficient information even where requested. To address this, the Cancun Agreements mandate more frequent reporting by developed countries using an enhanced common reporting format.

While these enhanced reporting provisions will be essential for successful tracking of developed country climate financial flows, they will not be ready in time to provide guidance for reporting on the short-term, fast-start finance. In the meantime, the Cancun Agreements invited developed country Parties to submit information to the UNFCCC secretariat, for compilation, on the resources provided to fulfill their fast-start finance commitment by May 2011, 2012, and 2013. Nine developed countries and the EU¹ submitted their reports on or around the May 2011 deadline. While the Cancun Agreements include reporting provisions for fast-start finance, it does not provide guidance on what these reports should include, resulting in reported information that is neither fully comparable, transparent, nor complete, as is demonstrated by the gaps in information in WRI’s fast-start table and in a report by IIED assessing the transparency of the May 2011 fast-start finance reports. The UNFCCC secretariat recently launched a fast-start finance module on its finance portal that enhances the comparability of the May 2011 reports but it remains limited to information provided by developed country Parties. It also does not capture information available on the faststartfinance.org website or on individual donor or recipient websites, or other sources such as NGOs, the private sector or multilateral development banks.

To build trust with developing country counterparts, developed countries should improve their fast-start finance reporting in the future, for example, by including more comprehensive, comparable and transparent information on the following seven elements in their annual fast-start finance reports: scale, method for determining that the money is “new and additional,” channeling institutions, objective, geographic distribution, status of the pledge, and type of financial instrument.

While the EU does not report comprehensively on individual Member State pledges that fulfill the EU EUR 7.2 billion collective pledge, some Member States provide information on a voluntary basis on their individual pledge, for example, on faststartfinance.org, or on their bilateral donor institution websites. ↩

Getting Ready: A Review of the World Bank Forest Carbon Partnership Facility Readiness Preparation Proposals

admin — Wed, 19 Oct 2011 12:04:10 -0400

The World Bank administered Forest Carbon Partnership Facility (FCPF) and the UN Collaborative Programme on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries (UN-REDD Programme) are two leading multilateral efforts currently supporting developing countries to become ―ready‖ to reduce emissions from deforestation and forest degradation and enhance carbon stocks (REDD+).

This working paper is the eighth in a series of regular updates reviewing the Readiness Preparation Proposals (R-PPs) submitted by REDD+ Country Participants to the FCPF and the National Programme Documents (NPDs) submitted by UN-REDD Programme countries to the UN-REDD Programme. The analysis is based on a desktop review of each R-PP and NPD in order to understand how countries are considering fundamental issues of forest governance during the readiness phase. We assess whether the documents identify major governance challenges contributing to forest loss, and whether principles of transparency, accountability, participation, and coordination are being applied in the development of REDD+ institutions, systems, and plans.

The 7th meeting of the UN REDD Programme Policy Board and the 10th meeting of the FCPF Participants Committee will be held in Berlin, Germany, from 13-14 October and 17-19 October, respectively. This paper evaluates R-PPs from Central African Republic and Colombia submitted for formal consideration by the FCPF Participants Committee. Draft R-PPs from Guatemala and Mozambique were submitted for informal review, but are not analyzed in this paper. We also review Nigeria’s NPD, which will be considered for funding by the Policy Board.

Climate Science: Major New Discoveries

Maggie Barron — Wed, 12 Oct 2011 10:26:28 -0400

This WRI Issue Brief highlights the latest major research in climate change science and technology. It presents a synthesis of current understanding of global warming at a critically important time, as the world continues to negotiate a comprehensive international climate agreement and countries begin to implement their national greenhouse gas emission reduction targets and actions. Our summary of select peer-reviewed science and technology publications from 2009 and 2010, including those from key general scientific and technical journals, aims to inform policymakers, the non-governmental organization (NGO) community, and the media, by:

documenting the impacts of a changing climate that are already occurring as a result of increased global temperatures, altered precipitation patterns, sea level rise, and other changes in the climate system;
synthesizing the current state of knowledge on how the climate is likely to change in the future; and
identifying important advances related to technologies that could help to mitigate climate change.

The latest science summarized below suggests that the impacts of climate change in many areas of the world are not advancing linearly: profound changes are already occurring and models project even greater changes for the remainder of the 21st Century. The findings support the need for rapid and deep cuts in greenhouse gas emissions, and at the same time confirm that climate adaptation measures are increasingly required today—and will be ever more important in the future—to enhance the resilience of both human communities and ecosystems.

There is new and abundant literature on four topics: climate feedbacks where the literature generally suggests positive feedbacks from many different processes; sea level rise where the evidence indicates that previous estimates of sea level rise are likely to be revised upward; ocean acidification where new science is confirming the potential global implications of an ocean that is already 30 percent more acidic than about 100 years ago; and on climate impacts to ecological systems, where the literature base on climate impacts is broadened to provide more evidence of changes to a variety of species, including lizards, tigers and butterflies.

Similar to previous years, this review is divided into four sections:

Physical Climate
Hydrological Cycle
Ecosystems and Ecosystem Services
Climate Change Mitigation Technologies and Geoengineering

GHG-Framed Mitigation Actions by Developing Countries

Maggie Barron — Tue, 14 Jun 2011 09:37:05 -0400

International negotiations on climate change have recognized the importance of enhanced national action on mitigation, and of finance, technology, and capacity-building support to developing countries. Since 2009, a growing number of developed and developing countries have pledged mitigation targets and actions, and developed countries have committed to provide financing to developing countries, including US$30 billion in “fast-start” finance during 2010 – 2012.

WRI has tracked these targets, actions, and pledges since 2009 in an effort to shed light on their implications for greenhouse gas (GHG) emissions and for finance, respectively, and to call attention to data gaps.

This paper summarizes a subset of the mitigation actions announced by developing country parties and submitted to the UNFCCC, focusing on those actions that are framed in GHG terms. While 41 developing countries have put forward actions that take a variety of forms, this summary includes only those 16 countries that have framed their actions in terms of their expected GHG impact, i.e. “GHG-framed mitigation actions.” The types of GHG-framed mitigation actions examined in this paper are illustrated in Box 1.

Ultimately, it will be important to understand the GHG impact of all targets and actions that have been pledged internationally. In light of the diversity of forms that developing country actions take, however, we focus first on those that are framed in GHG terms. This approach allows us to identify the accounting and performance-tracking issues common to this form. Additionally, the developing countries that have framed their actions in GHG terms contributed approximately 60 percent of all developing country GHG emissions in the year 2000.

The purpose of this paper is to identify (a) the GHG impacts that could result from the mitigation actions assessed and (b) the accounting questions that would need to be clarified in order to better understand the magnitude of those impacts. It does not attempt to compare the actions to one another or to assess their ambition, adequacy or appropriateness.

This paper builds on a previous summary, released in 2010, that presented actions articulated in the Copenhagen Accord and in other country announcements.

Grounding Green Power: Bottom-Up Perspectives on Smart Renewable Energy Policy in Developing Countries

Maggie Barron — Tue, 24 May 2011 12:51:13 -0400

Watch the summary interview with Lead Author Lutz Weischer

This paper was published by the German Marshall Fund of the United States in cooperation with the Heinrich Boell Foundation and the World Resources Institute.

Developing Countries in the Renewable Energy Transformation

In order to meet the intensifying climate challenge, the global energy system must undergo a fundamental transformation, with a rapid increase of renewable energy worldwide. Developing countries are at the forefront of this challenge, since they are expected to add around 80 percent of all new electric generation capacity worldwide in the next two decades.

The deployment of energy from renewable sources is accelerating in developing countries, and already accounts for a higher percentage of electricity generation than in the developed world. In 2008, non-OECD nations generated 21 percent of their electricity from renewable sources including large-scale hydroelectric power (compared with 17 percent in OECD countries), according to International Energy Agency (IEA) statistics. However, this figure must more than double by 2035, to 46 percent, in order to meet the IEA’s “450 scenario,” which outlines a climate friendly pathway for meeting global energy demands.

Transforming the energy system on this scale will require significantly increased support from developed countries, channeled through both bilateral assistance and multilateral institutions, as well as philanthropic initiatives. Our conclusions, derived from a series of case studies and a comprehensive review of existing literature, suggest that donors should deploy financial support more effectively by moving beyond a project-by-project approach to one that creates the right environment for investments in scaled-up, nationwide deployment.

This working paper seeks to assist in this process, by identifying key components of smart renewable energy policy in developing countries, focusing on the power sector. It also provides recommendations for maximizing the effectiveness of international support for deployment of renewable energies, drawn from these on-the-ground experiences in developing countries.

About this Working Paper

Chapter 1 introduces the approach and methodology taken in this paper and describes the key concepts we address. The second chapter discusses what developing countries are already doing to deploy renewable energy sources, and how they can be supported in scaling up such efforts. It also introduces a set of principles of smart renewable energy policy to propel such a transformation, developed by the World Resources Institute. These are based on insights drawn from case studies of existing renewable energy policies in 12 countries in Africa, Asia, and Latin America as well as from existing literature.

The following five chapters each examine one key element of smart renewable energy policy, discuss lessons learned, and identify needs for international support. These cover planning and strategy (Chapter 3), well-designed generation-based incentives (Chapter 4), an enabling policy and regulatory framework (Chapter 5), attractive financing conditions (Chapter 6), and the necessary technical environment (Chapter 7). Our findings and recommendations are summarized in Chapter 8.

Principles of Smart Renewable Energy Policy

We define smart renewable energy policy as the set of rules, regulations, and government actions that lead to an increased share of renewables in total electricity consumption in line with a country’s development objectives. Smart renewable energy policy encourages private investment, achieves its objectives in a cost-effective way, promotes continuous innovation, and is designed through transparent, accountable, and participatory processes.

Presentation

Download Slides (PDF, 16 pages, 839 Kb)

Testimony Before the Subcommittee on Energy and Power: The Transformation of China's Energy System

Deborah Seligsohn — Mon, 04 Apr 2011 14:50:47 -0400

Testimony Of Deborah Seligsohn
Senior Advisor, China Climate and Energy Program
World Resources Institute

Hearing Before the Subcommittee on Energy and Power, Committee on Energy and Commerce

The Transformation of China’s Energy System: Challenges and Opportunities

Summary

In my testimony today, I will start by discussing both where China is now and its plans for the upcoming five years, and then I will talk about some of the business opportunities this creates for other countries, including the United States, that want to compete in new energy technologies.

Energy, environment and climate policy has become increasingly important in China in the last decade. As with any policy focus, there are a number of interests and drivers involved. The confluence of concerns about energy security, environmental protection, climate change and economic restructuring has strengthened the Chinese government’s commitment to both energy efficiency and non-fossil fuel development. Under the 11th Five-Year Plan (2006-2010), China made considerable progress. It came quite close to its energy intensity target, reducing energy intensity over the five-year period by 19.1%, and it increased non-fossil fuel use by 3.1% per year, so that non-fossil energy now comprises 8.3% of China’s total energy use.

In March, China’s National People’s Congress adopted its 12th Five-Year Plan. The plan sets 2015 goals that continue to focus on energy efficiency and non-fossil energy development and set China well on the way to meeting its 2020 goals made at Copenhagen. The five‐year goals are to reduce carbon intensity by 17% and energy intensity by 16%, to increase the share of non‐fossil fuels in China’s total energy mix to 11.4%, and to increase forest cover by 12.5 million hectares and forest stock volume by 600 million cubic meters.

While decreasing as a percentage of total energy used, coal will continue to be an important energy source for many years. To address the greenhouse gas issue, China is actively pursuing a research and commercial scale pilot program looking at carbon capture and storage, a technology China has a strong interest in mastering.

International partnerships with Chinese clean technology companies are growing rapidly. What makes China attractive to U.S. and international investors is the clear policy framework which gives businesses the certainty they are looking for before investing. Companies including First Solar, GE, Duke Energy and American Electric Power have all announced new initiatives in the last year. Increasingly entrepreneurs with new ideas are looking to China to make those ideas become a reality. With a similarly supportive policy environment, the U.S., with its unsurpassed research resources and proven track record in new technologies, could be an unsurpassable winner.

Download Full Testimony (PDF, 12 pages, 119 Kb)

CCS Demonstration in Developing Countries: Priorities for a Financing Mechanism for Carbon Dioxide Capture and Storage

Maggie Barron — Mon, 04 Apr 2011 10:54:35 -0400

Executive Summary

Climate Change and CCS

In facing the challenge of mitigating global climate change, world leaders have acknowledged that no single solution exists, and therefore, a portfolio of carbon dioxide (CO2) reduction technologies and methods will be needed to successfully confront rising emissions. Due to their dependency on fossil fuels, the energy supply and industrial sectors are the greatest contributors to CO2 emissions, accounting for 25.9 percent and 19.4 percent of the total respectively.

In addition to efficiency improvements and enhancing clean energy use, one key option for limiting future CO2 emissions from fossil fuel energy use is carbon dioxide capture and storage (CCS). CCS is a suite of technologies integrated to capture and transport CO2 from major point sources to a storage site where the CO2 is injected down wells and then permanently trapped in porous geological formations deep below the surface. Candidates for CCS technology include fossil fuel power plants; steel, cement, and fertilizer factories; and other industrial facilities.

CCS in Developing Countries

Despite often-aggressive programs to promote energy efficiency and deploy nuclear, renewable, and other low-carbon energy sources, many developing countries will still rely heavily on fossil fuel energy to power their development for decades to come. There is therefore a need for developing countries to create strategies that address fossil fuel emissions in a way that minimizes the costs of doing so, and consequently minimizes impacts to their national development goals.

CCS is currently the only near-commercial technology proven to directly disassociate CO2 emissions from fossil fuel use at scale. Its deployment could potentially allow developing countries to gradually shift away from fossil fuels for energy and industrial needs with relatively little disruption to their long-term development strategies. If deployed as an interim measure, it could allow time for other alternative low-carbon technologies to be developed and deployed, permitting fossil fuels to be gradually phased out. This strategy could assist developing countries to transition to a low-carbon economy in the next 15–50 years.

While CCS is potentially attractive to some developing countries, there has been limited development of demonstration projects in Africa, Asia, or Latin America due mainly to their high cost in the absence of expected profits or significant carbon financing. The International Energy Agency (IEA) estimates the total cost for a new average-sized coal-fired power plant that captures up to 90 percent of its CO2 emissions to be US$1 billion over 10 years.

Existing financing for CCS is grossly insufficient to enable demonstration projects in developing countries. The few available funds are either spread over the full array of low-carbon technologies, or fall short of the magnitude or the mandate needed to propel commercial-scale CCS demonstrations forward. Current carbon offset mechanisms are not sufficient to spur CCS deployment in developing countries in today’s context either. Overall, existing CCS financing mechanisms help grow capacity, but their support is insufficient to leverage enough funding from capital markets to implement projects in a non-OECD context.

The IEA CCS Roadmap proposes 50 CCS projects in developing countries in the next 10 to 20 years. As well as reducing the developing world’s greenhouse gas emissions, accelerating CCS demonstration efforts in non-OECD countries can likely also improve technologies, increase efficiency, reduce uncertainty and risk, and initiate learning-by-doing at a lower cost than would be possible in OECD countries. The captured benefits from doing so will be more significant the sooner acceleration in CCS development in developing countries begins.

About this Paper: Topics of Discussion for Financing CCS in Developing Countries

This paper seeks to promote the effective deployment of CCS demonstration projects in developing countries. Aimed at international policymakers and agencies engaged in CCS funding and deployment negotiations and discussions, the paper explores some of the key issues emerging around this critically important topic, and it presents a series of options and recommendations to international policymakers. WRI’s aim is to assist the initial design of an effective approach for financing CCS demonstration projects in developing countries over the next 10 years. Below is a summary of the key topics and options explored in the paper.

Topic 1: Aims of Financing CCS Demonstrations in Developing Countries

The main goal for developed countries to provide financing for early-stage CCS demonstrations in developing countries should be to support non-OECD countries in fulfilling their share in global climate change mitigation efforts.
A financing mechanism for CCS in developing countries should aim to foster tangible CO2 emission reductions through a clear focus on storage goals. The level of ambition for CO2 storage should support current CCS deployment requirements in developing countries. While it is impossible to objectively ascertain what proportion of this total a dedicated OECD country–funded CCS financing mechanism should support, it is evident that developing countries will need support for a significant share of these projects.
Implementing CCS demonstrations that lead to the storage of 45–60 million tons carbon dioxide (MtCO2) over 10 years could significantly spur the research and deployment rates needed for CCS development to take off in developing countries.

Topic 2: Eligible Costs for Financing

Most CCS demonstration projects will operate in conjunction with new or existing power plants or industrial facilities that may also function without the technology. Funding for CCS demonstrations can therefore be structured around whole projects—including the non-CCS components of the facility under consideration—or just the specific CCS components that would enable the facility to effectively capture and store its carbon dioxide emissions.
Funding should only be eligible to finance incremental costs incurred as a result of CO2 capture, transport, and storage efforts—not the full cost of the project.

Topic 3: Project Eligibility Criteria

Project objectives: Finance should be primarily directed toward projects that either actively store CO2 or directly provide the basis for near-future CO2 storage locally, avoiding duplication with other existing funding mechanisms.
Project scales and types: To maximize both near-term and future storage, eligible project types should cover geological site characterization and integrated CCS projects, both at the pilot and commercial demonstration scales.
Project sectors: CCS projects in fossil fuel power plants are likely to be the largest recipients of funding. However, some industrial CO2 sources may present advantages that could facilitate timely and cost-effective development of CCS projects in developing countries. “Low-hanging fruit” projects in industrial facilities with high-purity CO2 streams can advance infrastructure and technologic know-how in developing countries at a fraction of the cost of implementing CCS at a power plant. Funding criteria should therefore not discriminate against industrial sources of CO2.
EOR and other CCUS projects: Enhanced oil recovery (EOR) and other carbon capture, usage and storage (CCUS) projects have multiple advantages for early CCS development and can result in the net storage of CO2, warranting their inclusion in financing opportunities. However, awarding of CCS financing to CCUS projects should occur only where projects are managed and monitored with the aim of permanent CO2 storage.
Additional project requirements: Funding criteria should stipulate that awarded projects employ sound procedures for CCS site selection, operation, and stewardship. Site selection must be based on specific geologic characteristics. Awarded projects must also have monitoring plans in place for both the operational and the post-closure stewardship phase and ideally demonstrate local government support and local community buy-in.

Topic 4: Project Selection Process

In order to make the selection process as equitable and objective as possible while maximizing CCS deployment goals, projects that meet funding demonstration objectives should be awarded on a competitive basis under a points-based system to judge applications. Such system should reward, among other factors, storage efficiency, geographic diversity, and contribution to wider CCS advancement in developing countries.
The selection system should also favor improving knowledge of storage opportunities through projects implemented in deep saline formations, since they represent the largest knowledge gap and the largest storage potential in the future.

Topic 5: Financing Mechanism Characteristics

Significant attention has been focused on creating an international public fund solely dedicated to CCS, or a CCS window within a larger fund that may also finance other pre-commercial, low-carbon technologies in developing countries. Additional research is needed to ascertain the pros and cons of different structures in a developing country environment. However, there are several advantages of adopting a CCS-only mechanism for the early demonstration phase, instead of having CCS in direct competition with other technologies for the same pool of funds.
In order to meet the IEA-recommended storage goal of 45–60 million tons of CO2 in 10 years, a CCS fund needs to be able to invest or leverage total investments of US$5– 8 billion and have the capacity to disburse its resources effectively over the same period.
A CCS fund should employ strong early-mover and CO2 storage incentive provisions to leverage its goals. A 10-year storage incentive on a rising scale could be applied to ensure project operators act to permanently reduce emissions.

Innovation and Technology Transfer: Supporting Low Carbon Development with Climate Finance

Maggie Barron — Sun, 16 Jan 2011 15:47:02 -0500

Overview

Meeting the ambitious goal of limiting global warming to 2° Celsius or less will require significant innovation - the improvement of technologies and processes to drive down their cost and improve their performance. Public climate finance is essential to spurring innovation and creating the conditions that attract private investment. Investing in innovation also makes the most efficient use of the limited financial resources available and takes advantage of the developing world’s growth to improve technologies.

Countries like the UAE have an opportunity to play a pioneering role in this expanded international innovation system. Innovation will be underpinned by international cooperation that supports:

priority setting and coordination,
joint research, development and demonstration,
sharing information and knowledge,
capacity building,
provision of finance and
supporting hubs and networks.

Several international forums can fulfill portions of these functions, but each faces its own limitations and risks. In this context the UAE could uncover opportunities to be an innovation leader. For example:

How can IRENA and Masdar develop into a world-class innovation hub and then effectively link into the international innovation system?
How can the UNFCCC’s Climate Technology Center and Network function effectively?
How can other forums such as the Clean Energy Ministerial develop to support the international innovation effort?
How can public climate finance be used to support innovation while deploying clean technology in the developing world?

Power, Responsibility, and Accountability: Re-Thinking the Legitimacy of Institutions for Climate Finance

Maggie Barron — Tue, 14 Dec 2010 12:27:05 -0500

Executive Summary

The 2009 Copenhagen Climate Summit left unresolved major questions about how to fund lowcarbon development in developing countries. In a high-level political declaration—the “Copenhagen Accord”—developed countries agreed to “provide new and additional resources … approaching USD 30 billion for the period 2010–2012” and to a goal of jointly mobilizing USD 100 billion a year by 2020 from both public and private sources, to address the needs of developing countries. As the negotiations on a global climate deal continue, disagreement remains on how much of these funds will come from public or private sources and whether these billions should be delivered through new or existing institutions. There is also heated debate over whether a single centralized institution or a decentralized approach that coordinates international, regional, and national institutions would be more effective.

Although there are many variations in government positions, broadly speaking, developed countries favor a substantial role for existing institutions, such as the multilateral development banks (MDBs) that they have funded and led for the past 60 years. Developing countries prefer new institutions, arguing that existing ones favor the interests of contributor countries and have failed to deliver on promises to support poverty alleviation and sustainable development. The ongoing negotiations on a global climate deal reflect this “northsouth” gulf. Despite these differences, one thing is clear: if the institutional arrangements entrusted with managing new flows of climate finance are to succeed in raising the required resources and in investing these resources effectively, they will need to be perceived as legitimate by both contributors and recipients.

Institutional Arrangements for Climate Finance: Power, Responsibility, and Accountability

Box A. Dimensions of Power, Responsibility, and Accountability in the Design of a Climate Finance Mechanism

Power: The capacity—both formal and informal—to determine outcomes

How will the financial mechanism’s governance structure distribute voice and vote between and among contributors and recipients?
What role will the United Nations Framework Convention on Climate Change’s (UNFCCC) institutions, including the Conference of the Parties, play in guiding the financial mechanism?
To what extent will contributors be able to determine funding priorities by placing conditions on the resource mobilization and allocation process?
How influential will the secretariat and management staff of the financial mechanism be in determining project design and selection?
Will advisory groups, civil society observers, and local communities play a role in determining how the financial mechanism operates?

Responsibility: The exercise of power for its intended purpose

Are the financial mechanism’s standards, program priorities, and eligibility criteria strong enough to ensure its resources are invested fairly and effectively?
How do cost-sharing formulas (e.g., incremental, marginal, transformative costs) allocate responsibilities between contributor and recipient countries, and between the financial mechanisms and recipient countries?
To what extent are national institutions and local civil society entrusted with ensuring the effective design and implementation of investments?

Accountability: The standards and systems that ensure power is exercised responsibly

How does the financial mechanism measure, evaluate, and incentivize results?
Are effective environmental and social safeguards in place to ensure the investments do no harm?
How are fiduciary duties and financial management standards supported and enforced?
Are grievance and inspection mechanisms in place to ensure that standards are followed?

The full report seeks to ground the debate on the future of climate finance in an objective analysis of existing efforts to finance climate mitigation and adaptation in developing countries. The authors step back from the question of which institutions should be entrusted with new flows of climate finance to examine instead how governments can design a climate financial mechanism in a way that is widely perceived as legitimate. We identify three crucial dimensions of legitimacy: power, responsibility, and accountability (see Box A). While these three dimensions interrelate and overlap, we have found them to provide a useful analytical framework to analyze and guide choices in institutional design.

We review the governance structures, operational procedures, and records to date of 10 international and national financial mechanisms, with reference to these core dimensions of legitimacy, to draw lessons for future institutional arrangements (see Box B). We place special emphasis on the experiences with the Global Environment Facility (GEF), which, in operation since 1994, is the longest serving operating entity of the United Nations Framework Covention on Climate Change (UNFCCC) financial mechanism. In addition to the GEF, we review experiences from the Multilateral Fund for the Implementation of the Montreal Protocol, in operation since 1990, which is often referred to as a model for future funds. The remaining funds reviewed are much newer and yield more insights with regard to design, rather than operation.

We recognize that perceptions of the legitimacy of a financial mechanism are inherently subjective and that this subjectivity is revealed in the very different preferences expressed by contributor and recipient countries. We believe, however, that if governments were to discuss the dimensions of legitimacy more explicitly, the stakes and the trade-offs would become more apparent, and a more shared understanding on how to design a legitimate financial mechanism would emerge. We believe that the failure, thus far, to address the distribution of power, responsibility, and accountability more explicitly has led to a proliferation of financial mechanisms that are underfunded, which in turn leads to calls to create new mechanisms.

We recognize that perceptions of a financial mechanism’s legitimacy will also depend upon an institution’s performance—its demonstrated capacity to commit funding to investments that reduce greenhouse gas emissions and build resilience to climate change. Most of the climate financial mechanisms studied have not been operating at a scale or for a time period that would allow a full assessment of their performance. We nonetheless seek to make recommendations that could improve the design and the performance of new and existing climate financial mechanisms.

We conclude that a new global deal on climate finance is likely to significantly redistribute power, responsibility, and accountability between traditional contributor and recipient countries. Most significantly, the power of emerging economies to control climate finance mechanisms will grow, as will their responsibility and accountability for the performance of these institutions. In light of the dramatic changes in global politics and the global economy in past decades, this redistribution seems both long overdue and necessary to provide the basis for a successful global partnership on climate finance.

Conclusions and Recommendations

This is a dynamic time for climate finance, as the international community struggles to craft mechanisms that are perceived to be legitimate by all UNFCCC Parties and that are capable of funding climate-related activities efficiently and at scale. Our analysis of established and new climate financial mechanisms and the current UNFCCC negotiations leads us to conclude the following:

Change is coming. A new global deal on climate finance will likely reinterpret the principles that in the past have guided the design of climate finance mechanisms in a way that significantly redistributes power, responsibility, and accountability between traditional contributor and recipient countries.
A new balance of power, responsibility, and accountability could enhance recipient country ownership. Greater representation of developing countries on the governing bodies of international financial institutions more generally, and climate finance mechanisms more specifically, should help ensure greater emphasis on the national and local “ownership”—and thus the effectiveness—of climate finance investments.
A new understanding of how to balance national interests with global responsibility and accountability is required. This will require assurance that nationally driven investments contribute to global benefits in the form of net emission reductions and that investments protect the most vulnerable countries and communities.
New financial mechanisms—at both the global and the national level—are necessary. If the international community raises the scale of public finance necessary to move developing countries onto a low-carbon, climate-resilient pathway, the capacity and the creativity to spend these resources well will necessitate the creation of one or more new financial mechanisms at the global level and multiple nationallevel institutions.
Existing institutions must also be reformed. The scale of the climate change challenge and of the scale of the funding necessary to respond to that challenge will also necessitate the reform of existing financial institutions, many of which have been supporting fossil fuel–led growth and have yet to mainstream concerns about the impacts of climate change into their strategies.
Current negotiating positions reflect deep historical and ideological divisions—particularly between developed and developing countries—that will need to be overcome by building trust and experimenting with new kinds of relationships. Developed countries have been keen to build on existing financial institutions they have shaped and traditionally controlled. Developing countries are wary of these same institutions, which they see as historically having advanced contributor interests and theories of development, through both the formal and informal exercise of donor power.
At the international level, the choice between reforming traditional development agencies, such as the GEF, U.N. Development Programme (UNDP), the U.N. Environment Programme (UNEP), and MDBs, and creating new financial mechanisms will raise issues of institutional economy and effectiveness. In order to generate a greater sense of trust and ownership, backers of existing agencies may have to accept a degree of duplication of existing capacity through the creation of new mechanisms—particularly where significant gaps in capacity are identified—and to accept strengthened lines of accountability of climate finance mechanisms to the UNFCCC Conference of the Parties (COP). On the other hand, those calling for the creation of new institutions may need to concede that it may waste precious resources to replicate the staff and services provided by existing agencies.
Balancing the roles of international and national institutions will also involve trade-offs. Traditional development agencies have gained the trust of contributors by putting in place systems to both measure and manage impacts of their investments. Developing country recipients, however, have been frustrated by the bureaucracy and the focus on generic rather than country-specific concerns that these systems can generate. Many developing countries will likely struggle to convince contributors that their national institutions have the capacity to manage large-scale development finance without the support of development agencies. Notably, a number of developing countries are taking steps to build and strengthen this capacity and will need support to do so.
Delivering climate finance at scale, at least in the short term, will likely involve multiple mechanisms, both new and reformed. This is true because of the complex politics of the international negotiations and the differing views of legitimacy held by contributors and donors. The urgency and complexity of delivering funds at scale argues for moving forward, at least in the near term, with the institutions that we have, and investing in the strength and quality of COP guidance and national planning processes to ensure coordination and coherence. This experience should then guide the design and operation of the new institutions that will become necessary as the scale of resources grows.
Low-carbon, climate-resilient development is an unexplored frontier for all countries and has potential risks as well as benefits. While high standards will have to be developed and maintained to ensure emissions fall and the vulnerable are protected, climate finance will necessarily entail experiments with new policies and technologies that will need to be watched closely for unintended environmental and social impacts.
Policymakers must agree on ways to diversify the sources of climate finance and to de-link them from the levers of informal power. If existing institutions are to meet evolving standards of legitimacy, then their fundamental governance structures, as well as their operational procedures, will need to be reformed to give greater voice to developing country recipients. If formal grants of power are to lead to the effective exercise of that power, the international community must also make greater efforts to identify sources of revenue, such as new levies or longterm commitments, that are independent from the discretion of contributor governments.
It is necessary to build the capacity of non-state actors and civil society to monitor climate finance governance. Civil society groups at all levels can and are playing an important role in monitoring and influencing decision-making within climate finance funds. But they need to occupy such spaces more effectively than they have to date by monitoring and engaging in more inclusive decision-making processes with technical rigor and authority. However, “representation” of nonstate actors can be a very difficult issue—civil society is diverse with widely differing views.
Near- and medium-term climate finance should focus on strengthening national institutions. A next generation of climate investments should promote the responsibility of recipient countries by strengthening the national institutions that will implement mitigation and adaptation activities and by ensuring their transparency and accountability to citizens within countries, as well as to the international community. While it is important that development agencies provide technical support to national institutions, they should work in closer partnership with national stakeholders. It will be particularly important to engage with stakeholders outside of government, including the private sector, independent research institutions, and civil society. Such collaborations can help ensure climate finance proposals more appropriately reflect national circumstances and priorities.
It is important to draw from the lessons learned from decades of development finance to build national institutions that reflect universally accepted principles of good governance. Traditional finance and development institutions have decades of experience—both good and bad—in translating internationally agreed upon agendas into national and local investments. National institutions should draw from these experiences and be designed and supported to operate in accordance with universal principles of good governance. Strong provisions for accountability should be put in place, including sound fiduciary management, anticorruption measures, and grievance mechanisms and inspection procedures that ensure compliance with environmental and social standards and safeguards.