A stumbling block at COP 23 – Finance

huddle-Fiji-in-BonnThe cost of mitigating climate change is estimated at 200-350 billion Euros (236-413 Billion USD) per year by 2030. It is a manageable sum in terms of a global burden, only 1% of global GDP. In terms of who pays and how much to pay, however, it becomes a disputed figure. For example, developed countries agreed in 2010 to “mobilize” 100 billion USD annually by the year 2020 in paragraph 98 of the COP16 decision 1/CP.16. Unresolved issues regarding this commitment remain, even in 2017.

Philosophically, this divide has on one side the developed countries as having the ability and the responsibility to pay. Developed countries use more energy than under developed countries. On the other side, the underdeveloped countries need financing and the know-how to ensure that future development in their countries is environmentally friendly and sustainable.

At COP23, this issue came to the forefront where it stopped the APA closing plenary dead in its tracks on Wednesday afternoon, the day the APA was scheduled to close. Negotiations lasted through the night. The underdeveloped countries, led by the G77, wanted developed countries to make concrete commitments through the biennial communication requirements as required by Article 9.5 of the Paris Agreement. The G77 also referred to Paris Agreement Articles 13 (transparency) and 15 (compliance) to make this requirement enforceable.greendollars

In response the developed countries argued that Article 9.5 is a procedural matter and that the G77 countries want to discuss the dollar commitments. They argued that this is beyond the scope of the Paris Agreement.

The result was to urge both sides to act on their commitments and to refer this matter to a High Ministerial Dialogue for further discussion.  In other words, onwards to 2018.


Loss and damage at SB44 – Whither the WIM?

101803802-495496305.530x298While, as we posted last week, loss and damage (L&D) was not on the agendas of the Subsidiary Bodies or the APA at the UNFCCC intersessional meetings held in Bonn, May 16-26, some attention was paid to this important issue.

Four side events covered varying aspects of L&D policy and action, both inside and outside the UNFCCC. These included climate migration, climate litigation, non-economic losses (we posted on this last week), and existing disaster risk management tools. (Links to event presentations can be found at the SB44/APA1 side event site.)

In addition, the Presidencies of COP21 and COP22 held a meeting for observer delegations to provide input on Article 8.4Screen Shot 2016-06-10 at 5.11.27 PM of the Paris Agreement and action areas of the 2-year workplan of the Warsaw International Mechanism (WIM) Executive Committee (Excom). (As we reported earlier, the workplan is scheduled to be completed for review at COP22.) Among those presenting were: the Organisation for Economic Co-operation and Development (OECD), Climate Action Network (CAN) International, the Munich Climate Insurance Initiative, a range of NGO constituency groups, the Food and Agriculture Organization (FAO), and the International Indigenous Peoples’ Forum.

Dr. Saleemul Huq, Director of the International Centre for Climate Change and Development (ICCCAD) in Bangladesh, and one of the (Least Developed Countries) LDCs’ top advisors,Screen Shot 2016-06-10 at 5.13.02 PM suggested that the purpose of this event was “to gauge the level of interest amongst parties and observers.” Given the throng of attendees and the passion with which many statements were delivered, it is clear that interest and engagement levels are high.

And, there is good reason – this is a highly political subject. According to presenters at the side events, developing countries are increasingly experiencing much worse L&D and sooner than expected from drought, heat waves, major storms, sea level rise, and salt-water intrusion. Climate-induced migration is gaining wider acknowledgement and attention. At the same time, L&D has essentially achieved recognition as a separate pillar of the climate regime through Article 8 of the Paris Agreement. Yet, the Paris decision included a clause preventing Article 8 from serving as “a basis for any liability or compensation;” on top of which, no specific reference to financing to address L&D is present in either the Agreement or the decision.

Concern is great, and the primary message is that the WIM should ramp up its engagement with the robust sphere of non-state actors and resources to both address current actual losses and damage and establish equitable, aggressive policies and strategies to avoid future L&D. Hotbeds of engagement exist for all of its current workplan action areas. (The 2-year workplan can be found here.) Dr. Huq considers migration and finance as “the two most critical,” and recommends fast-tracking those.

Screen Shot 2016-06-10 at 4.50.21 PMThe urgency is mounting ahead of COP22. Among the questions we’ll be following, as the Excom holds its final 2016 meeting in September, is whether the 20-person body will seek an extension or try to meet the review deadline. Among its tasks is to “[d]evelop a five-year rolling workplan for consideration at COP22 building on the results of this two-year workplan…”

Will the Excom fail to deliver? Will a delay lose the political momentum of COP22? Neither those suffering now, nor those at current risk can afford that.

“Legally binding enforcement system … will reassure investors”

john kerry

U.S. Secretary of State John Kerry, who is in Paris this week for the COP21 negotiations, is making the Obama Administration’s case for the new Paris Agreement (or Paris Outcome, as it was renamed last week at China’s suggestion). “A legally binding enforcement system will reassure investors, who have to carry the low-carbon economy beyond what governments can do.” With one phrase, Kerry switched the focus from the U.S. government being a global climate leader or good international neighbor to more simply enabling capitalism to address climate change.

“It’s not that we’re going to leave here knowing that everything we do is going to hit the 2 degree mark,” Kerry is quoted as saying. “What we’re doing is sending the marketplace an extraordinary signal – that those 186 countries are really committed – and that helps the private sector to move capital into that, knowing there’s a future that is committed to this sustainable path.”

While there are currently 196 Parties to the UN Framework Convention on Climate Change (195 countries plus the EU as a regional party), Kerry was referring to the countries who filed their intended nationally determined contributions or INDCs before coming to Paris to negotiate a new climate change agreement.  Most of these countries are developing countries that, under the Kyoto Protocol, do not have hard GHG mitigation obligations.  Under the Paris Outcome, they would.  In return, developed countries signing on to this new agreement would help them fulfil these commitments through direct financial support.  While all developed countries who are party to the UNFCCC acknowledge that industrialization has largely caused atmospheric warming, and that their relative wealth enables them to finance mitigation and adaptation in the developing world, the form of this climate finance is currently one of three major sticking points in the last 36 hours of COP21.

Hard at work, waiting.

Hard at work, waiting.

As we blogged earlier, the OECD recently reported successful progress toward the $100 billion per year starting in 2020 promised by developed countries in COP15 in Copenhagen.  As of 2014, OECD calculates that some $62 billion per year has been pledged.  While developing countries look at this number critically, it is the source of these funds that rankles even more.  These UNFCCC parties who expect public financing – donations from governments – to make up this $100 billion.  Thus Kerry’s quote today speaks volumes about the US approach to climate finance – and the current “divergence” (in negotiation speak) that has the 20,000 people here tonight at COP21 waiting for the public side of the negotiations to resume.

Secretary Kerry is no stranger to climate change negotiations.  He understands well how his comments resonate in this international arena, as well as within the DC Beltway.

In a White House press release today, he reacted this way to a reporter’s question on the importance of a deal in Paris.

“I was in Rio. I’ve been in successive COPs, including Kyoto, managed Kyoto on the floor of the Senate in a senate that would do nothing unless China were deeply involved, which is one of the reasons why I went to China two years ago to try to get China involved. And I think that we wouldn’t have 186 countries with INDCs if China hadn’t joined in, so I think that’s been a very important synergy.

But I know it’s – people, you have to sort of try to find the right level of concern to express, because if you go too far people think you’re over the top. And a lot of what is happening can lend itself to conclusions that people will judge to be over the top, but they’re real. They’re absolutely real. Science is science. I keep trying to say this to people. I mean, this is not based on a supposition, what we’re doing. It’s not based on a theory. It’s not an ideology. It’s based on years and years of scientific analysis and study. 

So it’s important because we could have massive human dislocation on the planet. [T]his is a matter of how we organize ourselves as human beings on the face of this planet. And it’s – but what we need to grab on to, and many of you here, particularly those in business already have, is this is not – this doesn’t have to be disruptive in a negative way with respect to economies. This is the most extraordinary market opportunity in the history of humankind. The market of the 1990s which created the greatest wealth our nation has seen since the days of no tax and the Rockefellers, Carnegies, et cetera, Mellons, we created the greatest wealth in the 1990s in America – and we shared it, by the way, with everybody. Every quintile of American society went up.

Venezuela's #2 prepares for tonight's meeting.

Venezuela’s #2 prepares for tonight’s meeting.

 But this is a bigger market. That was a $1 trillion market with 1 billion users. This is already a 4 to 5 billion user market and valued at multiple trillions of dollars, and we’re going to spend at least 17 trillion in the next ten years on new energy projects, et cetera. So that’s why AT&T and Microsoft and Apple and Google and Walmart and GE and a whole bunch of companies have signed on to the President’s business initiative. And they’re already making pledges to make sure that their products are produced without a huge chain of deforestation, with a virtuous fuel cycle, with sustainable practices and outcomes. 

And that’s going to be the difference that young people growing up now, all of whom are in touch with each other 24/7 around the world, are not going to stand for the hypocrisy and they’re not going to stand for the delay. They’re going to demand products and goods and options that are sustainable, and we owe it to them. That’s why this is what is so important in Paris. 

Media waits too.

Media waits too.

Now, a final comment. I don’t expect Paris and I never expected Paris, given the Kyoto experience, to come out with a firm, we’re going to hit 2 degrees and everybody’s going to live by the same standard. That didn’t work. It’s not going to work. The virtue of this is that every country is designing their own plan, and every country is coming to the table with what it can do, not what it’s being told to do. And that differential is going to create a huge momentum.

And I believe the reason it is so singularly important is that that market that I just talked about, it’s going to explode if we get the right market signal coming out of Paris. And I’ve never looked to the government to be the savior here. 

The government isn’t going to make this decision. You are. Businesses are. This is going to be a business-driven transformation that will take place combined with just consumer demand and voter demand ultimately. And you’re seeing it in China. I mean, China just shut down its schools for two days and its transportation and said no open fire burning. And you see on the news today the pictures of what Beijing looks like. They have to do it. And they’re concerned that if they don’t do it, it could be destabilizing to the party and to the party’s interests and control of the country. So I think you’re going to see a mass movement here, particularly if Paris comes out with the judgment we hope.

It’s All About the Benjamins: Ratcheting Up Financial Support for Developing Countries

In 2009 Parties to COP15 in Copenhagen agreed to a global goal of mobilizing $100B (that’s right, billion) per year for climate finance by 2020. A recent OECD report indicated that we are well on our way to achieving that goal (with $62B committed in 2014). Unfortunately though, $100B may not even be enough to keep global temperature rise between 1.5˚C and 2˚C. For this rDollarseason, much of the discussion at COP21 has centered on the scale of climate finance. Exactly how much additional funding will be necessary? For now, the answer seems to be “more.”

In response to this need, the Global Environmental Facility (GEF), one of the entities responsible for providing climate finance under the UNFCCC, announced a new initiative today: the Climate Aggregation Platform (CAP). The GEF will seed CAP with $2M, which is expected to catalyze over $100M in co-financing from other partners, including from the Inter-American Development Bank.

CAP is just one piece of an ongoing effort by all global actors to increase access to climate financing from a variety of sources. The draft Paris Outcome places an emphasis on the use of public funds, but also acknowledges the role that private finance will play in addressing climate change. Private investors, which currently comprise about 25% of global climate investment, typically offer loans rather than grants. This means that the investors expect to make their money back over time. Therefore, to entice private

Naoko Ishii, CEO and Chairperson, Global Environment Facility

Naoko Ishii, CEO and Chairperson, Global Environment Facility

investors to promote clean energy in developing countries, there must be some indication that the project represents a sound investment. CAP aims to help facilitate these types of robust investment opportunities.

First, CAP will establish a global working group to provide key finance and industry stakeholders with transparent access to, and coordination of, climate-related projects in developing countries. CAP will also promote project standardization, with the goal of creating uniform contracts and repayment plans. Finally, CAP will develop in-country demonstration projects and provide technical support for other pilot transactions. These actions will serve to increase the number of qualified projects, creating a scalable pipeline of clean energy investments.

Establishing a streamlined framework for project development has two major benefits: It increases the penetration of clean energy technologies in the developing world, thereby serving climate change goals. It also allows investors to aggregate a large number of projects, thereby reducing the financial risk. In the same way that insurance companies profit by insuring large groups of people with a variety of health risks, climate investors will be more successful if they invest in large numbers of projects with a variety of risk profiles. As your financial planner will tell you, a diverse portfolio is generally a strong portfolio.

And confidence is high that, if we build it, they will come. Since the financial crisis of 2008, there is a significant appetite for impact investments, which are transparent investments in projects that have demonstrated social benefits. Many institutional investors, along with independently wealthy individuals, are actively seeking investments like clean energy projects in the developing world. There is approximately $46B in impact investment already under management, and that number is on the rise. Leveraging a small amount of public money has been shown to catalyze additional private investment in these types of projects. Some studies indicate that $1 of public funding can attract $20 of private funding. Just last week, Bill Gates alone pledged to contribute $1B in seed capital to potentially transformative energy systems with “near zero carbon emissions.” And he’s getting his friends to pitch in too.

Developing programs like CAP that foster a strong market for investment in climate-friendly projects is one of the most important things that come from COP21.