Calculating the real cost of climate is a highly complex and contentious affair. It is undeniable that we need to fundamentally transform our economies to get on the path of low-carbon growth, especially by reducing energy consumption and reliance on fossil fuel and halt deforestation as one of the biggest single contributors to climate change. We also need to adapt our way of life to the unavoidable effects of climate change such as changing rainfall patterns, extreme weather events and rising sea levels. While it remains difficult to calculate the costs of the required action on such a massive scale, there is a clear urgency to make substantial funds available as soon as possible.
A variety of climate funds have already been established, most of which have a very specific purpose and relatively limited funding from donor countries. A proposal for a new approach in raising up to $100 billion a year for “Green Fund” for the transition to a low-carbon economy by the World Future Council has been taken up by the IMF. The principal idea is to raise finance through the issuance of additional Special Drawing Rights (SDRs), a reserve asset created by the IMF. The creation of “new money” by issuing new SDRs should not cause inflation if the funds are productively invested into renewable energy.
Africa has long been demanding significantly increased climate funding as the continent most affected by and least responsible for climate change. The official Proposal by the African Group in Copenhagen demanded the establishment of a new adaptation fund to finance the full costs of adaptation activities and the related transfer of technology sharing and capacity building in developing countries, with sources of funding be new, substantial and sustained public funding from developed countries, with an annual scale not less than 2.5 % of the GNP of developed countries. The hopes for such significant funding were shattered together with many other aspirations for the Copenhagen conference but at least some commitment was made in the Copenhagen Accord with regard to climate finance:
“Scaled up, new and additional, predictable and adequate funding as well as improved access shall be provided to developing countries, in accordance with the relevant provisions of the Convention, to enable and support enhanced action on mitigation, including substantial finance to reduce emissions from deforestation and forest degradation (REDD-plus), adaptation, technology development and transfer and capacity-building, for enhanced implementation of the Convention. The collective commitment by developed countries is to provide new and additional resources, including forestry and investments through international institutions, approaching USD 30 billion for the period 2010-2012 with balanced allocation between adaptation and mitigation. Funding for adaptation will be prioritized for the most vulnerable developing countries, such as the least developed countries, small island developing States and Africa. In the context of meaningful mitigation actions and transparency on implementation, developed countries commit to a goal of mobilizing jointly USD 100 billion dollars a year by 2020 to address the needs of developing countries. This funding will come from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources of finance. New multilateral funding for adaptation will be delivered through effective and efficient fund arrangements, with a governance structure providing for equal representation of developed and developing countries. A significant portion of such funding should flow through the Copenhagen Green Climate Fund.
To this end, a High Level Panel will be established under the guidance of and accountable to the Conference of the Parties to study the contribution of the potential sources of revenue, including alternative sources of finance, towards meeting this goal.”
While the Ethiopian Prime Minister Meles Zenawi was criticised by many for his willingness to compromise and settle for less adaptation funding than requested, the fact that there now is such as fund can partly be attributed the to Joint appeal of France and Ethiopia from 15 December. Meles is now a member of the high-level panel for the Green Climate Fund which has a formidable task ahead in addressing the following key issues:
1. Out of the USD 10 billion committed, how much is new and additional money, i.e., not a diversion of Official Development Assistance (ODA) or previously committed funding to deforestation by countries such as Norway or low-carbon growth by countries such as the UK? And if it is not “new money”, how should additional commitments be measure without penalising countries for their commitments earlier on?
2. What will be the mix of public and private, bilateral and multilateral, including alternative sources of finance for the fund and will the funds be dispersed as grants or loans?
3. Which financial institution will allow fulfilling the long-standing demand by developing countries to have balanced representation in the administration of the fund in addition to figures such as Meles already taking prominent positions?
4. What will the money be spent on? Just deforestation and forest degradation, adaptation, technology development and transfer and capacity-building as outlined in the accord or other measures such as finalizing national low-carbon growth and adaptation plans, improving in-country capacity to design and implementing national climate change actions as proposed by the UK, Mexico, Norway and Australia?
5. And last but not least, how will Africa build its capacity to be able to absorb and us additional climate funding after 2012, especially if it comes anywhere near the USD 67 billion for adaptation and USD 200 billion for mitigation as requested in the run-up to Copenhagen?
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