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CLIMATE CHANGEFinance

Presentation on Key Elements of African and Arab Position

on

Finance

Convention provisions and guiding principles

• Developed countries have a commitment to provide support (Financial/Tech. Trans./Capacity Building) to enable developing countries actions to reduce emissions and adapt with Adverse effects of climate change.

• Actions taken by Developing countries are dependant on the level of support by Developed countries

• Convention’s provisions and articles 4.3/4.4/4.5/4.7/4.9-.

• Article 11 of the Convention identifies the Financial Mechanism

Basis for negotiations

• UNFCCC Convention and its Kyoto Protocol are the basis of the negotiations. Any proposals to the negotiating text must be aligned with the principles and provisions of the Convention.

• The aim of the current negotiating process is “The full and sustained implementation of the Convention”, not renegotiating it. Commitments of Developed countries under the Convention regarding the provision of financial resources and Technology have to be fulfilled.

• Climate change poses an extra burden on African and Arab countries to face a global challenge they did not participate to create, while Africa’s developmental needs to eradicate poverty and hunger and achieve sustainable development are growing. Therefore African and Arab Countries need extra financial and technical support.

Current funding entities A- Current funding entities of United Nations Framework & its K.P.

• The Global Environment Facility (GEF): Operates the financial mechanism under the Convention on an on-going

basis, subject to review every four years.

As of July 2007 the GEF had allocated (since its inception) a total of just over USD 3.3 billion to climate change projects from the GEF Trust Fund. Further co-financing in excess of USD 14 billion has been leverage for these GEF projects, or USD 4.2 per dollar of GEF grant.

The proposed programming for GEF 4 (for the period 2006 – 2010) climate change activities amounts to USD 990 million

• Special Climate Change Fund- SCCF-: Complements other funding mechanisms and exists to finance projects

relating to: capacity-building / adaptation / technology transfer / climate change mitigation and economic diversification for countries highly dependent on income from fossil fuels.

As of June 2007, the original pledges to the SCCF totalled USD 67 million. Of this sum, USD 57 million was pledged for the SCCF Programme for Adaptation and USD 10 million for the SCCF Programme for Transfer of Technology. The total amount available for allocation was USD 43.67 million.127

• Least developing countries fund:• As of 30 June 2007, the LDCF had received USD 160 million in

contributions and investment income.

• Allocations of USD 20.7 million had been made and USD 139.3 million remained available for allocation129.

B- Current funding entities of K.P.

Adaptation Fund: It became operational with the first commitment period of the Kyoto

protocol in 2008:• To finance practical adaptation projects and programs in developing

countries and support capacity-building activities {Funded from an adaptation levy (2%) on Clean Development Mechanism (CDM) projects}.

• Funding for the Adaptation Fund post-2012 depends on the continuation of the Clean Development Mechanism (CDM) and the level of demand in the carbon market.

• Assuming that the adaptation levy of 2% on CDM projects applies post 2012, the level of funding could be: USD 100−500 million for a low demand for credits from non-Annex I Parties USD 1−5 billion in 2030 for high demand.

B- Other funding:• Climate investment funds: jointly managed by Multilateral Development

Banks, with the World Bank as trustee. It includes the Clean Technology Fund, and the Strategic.

• The AfDB has also established the Climate for Development in Africa Special Fund, the Africa Water Facility and the Congo Basin Forest Fund. and is in the process of setting up an Africa Green Fund, based on Copenhagen commitment.

II- Estimates of Economic costs of Climate Change

A- Estimates of Cost of Climate Change:• Adaptation: 1% of Global GDP, on Africa 4-5% of Africa GDP.(WB)• Global Economic cost is up to 5.5% decrease in global GDP in 2050 to

limit warming to 2-2.8 degrees Celsius (IPCC) .• Global Economic cost: 1- 5 percent of GDP (Grantham Research Institute).

B- Estimates of needs: • Global Mitigation extra investment: $430 bln/ year by 2020 (IEA) * 530-810 bln euros/ year 2020-2030 (McKinsey) .• Adaptation needs of developing countries : $100 billion/ year from 2010

(WB).• Funds needed by developing countries: 100 billion euros ($150.6 billion)/

year by 2020 (EU)• Share of developing countries needs of global climate change finance

by 2030 will be 46% (WB)

III- Current status of climate change finance

A- Financial resources provided for Climate Change.•GEF: 3.3 billion USD from 1991-2007 for Climate Change (with 14 billion USD co-finance from benefiting countries).

•GEF+SCCF+LDCF: in total 275 million USD for adaptation in 2007

•Bilateral support: (100 million USD/year 2000-2007)

•Adaptation fund: (around 200 million USD, started operation in 2010)

B- Carbon market finance :•Total volume of Carbon Market: $60 bl in 2007

•Total volume of CDM: $6.5 bl in 2008

•Africa’s share of CDM: 2%

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IV- African Position

- Guidelines:• Existing Financial support is inadequate, complex, fragmented and is

pledge based. This has so far constrained African Countries from gaining direct access to the financial resources.

• Financing climate change has to be scaled up. It should be in the form of grants (adaptation), and through substantial public funding contributions from developed countries.

• Financial resources must be adequate, new and additional to the ODA’s, predictable and sustained.

• Balance between financing mitigation and financing adaptation.

• The new financial arrangement must include a compliance mechanism to ensure the fulfillment of commitments of developed countries regarding finance, through Measuring, Reporting and Verification MRV of the support.

• New architecture must avoid gaps in current system (CDM/ GEF/LDCF)

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IV- African Position cont’dA- Basis of funding:•Commitments based: financial support must be based on clear financial commitments under the UNFCCC “Legally binding”, not a pledge based system. •New and additional: Additional to existing official development assistance ODA’s.•Predictable: volume of finance can be estimated and predicted (volume of finance/year).• Sustained: sustainability in providing the resources.•Adequate: adequate to needs of developing countries, and based on the priorities set nationally by developing countries.B- Sources of funding:•Public sector: {Developed countries official commitments under UNFCCC} is the main source of funding (provides predictability/sustainability/ can be MRV).•Private sector and other sources (carbon market/taxes and levies) are supplementary sources of funding. C- Amount of funding and its mechanism:• 1.5% of developed countries GDP/ annum.•Based on assessed scale of contributions (approved by COP/ formulated by finance committee)• Finance flows mainly through multilateral UNFCCC funding entities (to allow MRV and transparency/ follow COP guidelines and criteria regarding eligibility, equitable allocation, and a clear transparent for all countries).

D- Restructure the Financial Mechanism to include:i- A new Fund: to be established as an operating entity of the financial

mechanism that is under the guidance and fully accountable to the Conference of the Parties COP.

• Board membership based on equitable representation (adaptation fund board model), with special criteria of members (Financial background..)

• Financing decisions based on guidelines and policies approved and recommended by the COP.

• Direct access of developing countries to funds, while ensuring equitable allocation of resources between thematic areas (adapt. & mitigation& tech.)

• Possibility of establishing funding windows under the fund (with approval of COP).

• Legally binding agreement between COP and Fund (not MOU)• Clear and transparent process for project cycle ending in the fund for

funding decisions, not technical evaluation or feasibility criteria (for adaptation).

• Guidelines for projects or program preparation and technical criteria done through thematic bodies (Adapt. Committee/ Mitig. Comm./Tech. transfer mech.)

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ii- Finance committee

- A standing committee under the COP of small number of members (20-30 with equal geographical representation), that acts on behalf of the COP in inter alia (compliance/evaluation and assessment/overview of funds):

• Analysis of reports from different UNFCCC bodies.• Overview of funding entities (funds/..), ensures the implementation of

guidelines and policies recommended by COP to funds.• Establish coherence between different funding entities.• Identifies gaps in support provided to different thematic areas.• Follows the fulfillment of developed countries financial commitments

(assessed scale of contributions/ 1.5% of GDP) through transparent MRV system and reports to COP.

• Considers establishing a forum for all climate change funding entities as a platform for coordination of climate finance.

• Puts recommendations and proposes draft decisions for COP approval and endorsement to deal with gaps or other issues related to availability of finance and operating entities’ implementation of COP’s guidelines and policies

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V- Finance in Copenhagen Accord

• Copenhagen Accord is a political document, negotiated by a limited group of countries. COP took note of the Copenhagen Accord (now around 120 countries associated).

• UNFCCC secretariat stated that the Accord is not a legal document under the UNFCCC.

Copenhagen accord para. 8 concerning finance:A- Sources:• 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.

• Fast start finance: Collective commitment by developed countries.• Long term finance: Wide variety of sources, public and private, bilateral and

multilateral, including alternative sources of finance.B- Eligibility Criteria:• Fast start finance: Funding for adaptation will be prioritized for the most

vulnerable developing countries, such as the least developed countries, small island developing States and Africa.

• Long term finance: In the context of meaningful mitigation actions and transparency on implementation

Finance in Copenhagen Accord cont’dB- Amount of funding:

• Fast start finance: 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

• Long term Finance: 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.

C- Channels of Funding:

• 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 (as an operating entity of the financial mechanism of the Convention to support projects, programme, policies and other activities in developing countries related to mitigation including

REDD-plus, adaptation, capacity building, technology development and transfer).

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ComparisonCopenhagen accord vs. Africa position

Copenhagen Accord

Africa positionComments

Volume

-Approaching $ 30bl for 2010-2012.-Goal of mobilizing $ 100bl/year from 2020.

- 1.5% of developed countries GDP/ annually (around $ 600bl)

International estimates : $ 400-700 bl/year by 2020

Sources

-FSF: public commitments-Long term: several sources pledges

-Public sources main source-Private sector and other innovative supplementary

-Copenhagen accord based on pledge based -Convention and Africa position based on clear quantified legally binding commitments

Channels- Multilateral & bilateral.

- Mainly multilateral under UNFCCC

VI- High level Advisory group on Finance

• Cop. Accord para 9:” 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.”

• UN Sec. General decided to establish High level advisory group on finance as an initiative from the secretary general aiming at exploring possible innovative sources of finance, with HE. Prime minister of Ethiopia and HE prime minister of Norway as co-chairs,membership from developed and developing countries (politicians, experts, academia and private sector) – no accountability to COP- .

• 8 working groups on different potential sources:(Carbon market/ taxes on maritime and aviation/ green economy

finance/multilateral finance/ financial transaction taxes/direct budgetary contributions from developed countries) (public finance to mobilize private sector/carbon market as private sector)

• Potential revenue $10-20 bl/ year from each source.

Issues related to innovative sources of finance • Predictability and sustainability: innovative sources and private sector do not

secure predictability and sustainability , (no clear legally binding commitments, effect on market fluctuation and economic and financial crises), keeping in mind that no agreement on second commitment period under KP might lead to a weak Carbon market as there is no demand.

• Adequacy: Potential revenue of resources is related to market mechanisms and market status and circumstances.

• MRV: with no clear commitments there is no MRV of support, thus developing countries actions cannot be guaranteed, then no climate change regime.

• Principles of Convention: Common but differentiated responsibilities is not applied as it is a global financing system with all countries participating.

• Process and mechanisms related issues: how to collect and channel funds raised through the UNFCCC multilateral fund,

• Commitments under UNFCCC: no commitments for support.• Adaptation finance is not attractive to private sector.

Preliminary reflections on innovative sources of finance

• There is a potential for using innovative sources of finance as a component of climate finance architecture, but as a supplementary source.

• There is a must to apply principles of convention in structuring any climate finance arch., especially CBDR and equity, and to ensure simple, direct access to all developing countries, enforcing commitments on developing countries is not acceptable.

• Finance should be channeled mainly through UNFCCC, and other multilateral regional institutions, while ensuring equitable distribution of resources between adaptation and mitigation.

• Benefiting from finance should not be conditional or related to participation in the raising funding (domestic/ other national policies).

• Developing countries trade, should not be negatively affected in the way that applying such policies would act as a barrier to its exports or applies extra burden on its budgets and imports.

Thank You

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