High Level Finance Questions

On Friday 12 February, the UN’s Secretary General announced the formation of a high-level advisory group on climate financing. It will be co-chaired by Gordon Brown – although for how long who knows – and Meles Zenawi of Ethiopia. The assumption is that this is the same high-level group mentioned in paragraph 9 of the Copenhagen Accord.

It is ‘tasked with creating practical proposals to boost both short- and long-term financing for mitigation and adaptation strategies in developing countries’ and is expected to report before COP 16 in Mexico in December. With wider negotiations moribund and the debate on emissions reduction targets seemingly going nowhere the group may have its work cut out as it is likely to be the sole focus of those doggedly pursuing a global climate deal.

Developing countries, who will be fairly represented in the group, are at least in theory only willing to count finance as fulfilling industrialised countries’ obligations under the UNFCCC’s Article 4 if it is identifiably from public sources and is delivered through a UN-related fund. Along with climate campaigners, they have also held the view that climate-related finance should be transferred in addition to existing levels of aid or promised future aid increases. Already, the extent to which this is the case is opaque and anyone who has followed the Official Development Assistance debate will attest to the difficulties inherent in demonstrating ‘addionality’.

But while all of this is complex enough, perhaps the most pressing challenge for the UN’s new high-level group is the impact of the finance crisis that has seen government borrowing in industrialised countries increase, with fiscal deficits across OECD countries expected to reach almost $3 trillion in 2010. With political rhetoric in both Europe and the US focusing almost wholly on cuts in public spending, it is hard to see where the new, additional, North-South climate finance is going to come from. Industrialised country governments had been pinning their hopes on finance flowing from carbon market offsets. But if there aren’t any carbon markets (increasingly a very real possibility) or if the caps in those markets are relatively loose, then offset finance is necessarily going to be limited, perhaps to less than $5 billion per year, according to Project Catalyst.

The Climate Action Network, whose high level finance briefing paper has been doing the rounds (although I can’t yet link to it, I’m afraid), want the group to focus only on public sources of finance, which given the current fiscal climate and the near absolute certainty that governments in OECD countries will prioritise domestic spending, seems unrealistic in the extreme. It also seems mad to rule out the use of private finance capital – pension funds in particular – as providers of long term financing for climate investments. There are already a range of proposals on linkages between public and private sector climate finance.

Plus while the principles of  fairness between countries – common but differentiated responsibility – at the UN level are important, to avoid the poor in industrialised countries financing the rich in developing countries, the national distributional impacts of any financing proposals should also be weighed. This brings me back to the discussion here last week on taxation of wealth rather than emissions, which would seem a logical focus for climate campaigners.