The politics of climate finance

A high-level international report on how financial resources can be raised to help developing countries address climate change is a disappointing and politics-free compromise. Simon Maxwell proposes a way beyond it.
Simon Maxwell
26 November 2010

This is how naive I am. When the United Nations secretary-general Ban Ki-moon announced in February 2010 that he was setting up a High Level Advisory Group on Climate Financing (AGF) to examine how developed-country resources (existing and new) could be used to raise climate finance over the long term, I thought he was on the way to securing a key commitment announced in the Copenhagen accord of December 2009: namely, international agreement on how to mobilise $100bn a year by 2020. The schedule for the group's report - to be published ahead of the Cancún conference on 29 November-10 December 2010 - seemed to underline the sense of momentum.

My enthusiasm was reinforced by the group’s membership. There were two serving prime ministers as co-chairs (Ethiopia’s Meles Zenawi and Norway’s Jens Stoltenberg); eight other ministers as members; senior people from the aid world and from business. And George Soros - and Larry Summers! This was not the typical faceless bureaucrats’ panel, but a group that seemed crafted to help broker a global deal.

Nine months later, the baby has been born, and it looks like nothing so much as - a faceless bureaucrat. There is careful analysis. There are lots of options. But there is no deal. “Naturally”, the report says, “there were differences in perspective”. But “the Advisory Group did not seek consensus...Rather it took the view that its analysis can be useful to parties and decision-makers by reflecting different perspectives”. The sense of avoidance of clear choices and direction is unmistakable.

A missed opportunity

This is not meant to be harsh. The analysis is invaluable, and will indeed be useful to policy-makers. The report classifies different sources, explains how they might work, and calculates how they might sensibly be combined to reach the target of $100bn a year. It notes that funding can come from public sources, development banks, carbon markets and private capital. And it reviews options such as levies on international transport, financial-transactions taxes, carbon-market levies and profit-sharing by private companies.

There is also serious analytical work embedded in the text, for example on the difference between the net and gross value of foreign direct investment, or the “infra-marginal rents” of carbon-market flows (whatever they might be). Few will read this report and not learn something new. (Paragraph 64, by the way, if you want a definition of infra-marginal rent).

But readers need to scan between the lines. For compromises are built into the report which perhaps belie its status as a neutral, technical review. The greatest of these is to adopt, without explanation, a carbon price for 2020 of $20-$25 per ton of CO2 equivalent. But this is astonishingly low. Allow for inflation, and $20-$25 in 2020 is about the current price on the European Emissions Trading Scheme (EU ETS). This is a level generally agreed to have been depressed by over-enthusiastic issuance of permits to private companies, and by the impact of the recession. Nick Stern (another AGF member) supports - in A Blueprint for a Safer Planet  (2009) - a price of €40($52)/ton, more than twice the price recommended in the report.

Moreover, controversial items are slipped in under the radar. For example, a box on how to calculate the benefit of climate-related private investment by developed countries and aid agencies suggests that investors should “modestly lower their return expectations” by 2% in order to generate cashflow which would contribute to the $100bn target. This begs many questions, not least about what kinds of investments might count as contributions to mitigation and adaptation.

The report also neglects full discussion of relevant issues.  A crucial one is additionality - which the Copenhagen accord emphasised in saying that climate finance needed to be “new and additional”. The report simply notes (Para 74 ) that defining additionality is “politically and analytically very difficult”. It does suggest in the same paragraph that the newness of a source (for example a new carbon levy) might act as a proxy for additionality, but then says that there are “other interpretations”.

It’s true that additionality is difficult territory, as several experts (such as Neil Bird and Dirk Willem te Velde) argue. Jessica Brown, Neil Bird and Liane Schalatek have identified at least four different definitions, with widely implications for how much will be funded from existing aid programmes. Why did the AGF not list these definitions and try to adjudicate between them?

The answer is that inevitable disagreement might have threatened to derail publication of the report. There has already been controversy about additionality which torpedoed the European commission’s proposed communication on climate change and development, which has had to be cancelled (allegedly because of divisions among member-states on precisely this issue). The European Union will as a result be greatly weakened at the Conference of the Parties (COP 16) at Cancún.

A proposal

This again raises the question of my initial expectations. Was it naive to expect that the AGF would resolve problems that have eluded other organisations - the European commission, the United Nations Framework Convention on Climate Change (UNFCCC), the Group of 20 (G20), and every other forum in which climate finance is discussed? I think not. Meles Zenawi and Jens Stoltenberg are honourable and committed, but my view is they were too indulgent of their fellow members. Surely, if Gordon Brown had been able to continue as co-chair, he would have not tolerated the lack of resolution that characterises the final report.

In Ban Ki-moon’s shoes, I would refuse to accept the report as it stands. I would point to Para 4 of the terms of reference (“the Group will develop practical proposals’) and to paragraph 5 (“the Group will provide views and suggestions”) - and I would have sent them back for rewriting. Maybe consensus would have proved impossible. In that case, there would have been a majority and one or more minority reports - but maybe the embarrassment of failing to agree would have concentrated minds.

It is too late for that. But there is yet another option: for Ban Ki-moon to refuse to let the group stand down - or, more diplomatically, ask them to continue its work. The November 2010 document would be then considered an interim report, with the proper, political report to follow.

Perhaps Ban Ki-moon would see this as a step too far for him to take. But the original idea for a high-level panel was in the Copenhagen accord (Para 9). So maybe the UNFCCC should take adopt it, and recommission the same team to finish the job. Felipe Calderón is president of Mexico and host of the Cancún conference. How about it?

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