Tuesday, 31 March 2009

Bonn climate meetings 2 - Climate financing and four-letter words

I spent much of today attending plenary sessions and 'side-events' on financing and technology transfer. It is easy to get lost in the rhetoric that envelopes the debates. I have seen this happen so many times in trade negotiations, and am witnessing the same in climate talks. But the essential issue is this:

1. The climate change problem is real to which there could be two responses: either countries can try to mitigate the problem by reducing greenhouse gas emissions (the world needs at least a 50% cut in emissions by 2050 to restrict average temperature increases to 2 degrees Celsius); or countries can adapt to an already changing climate, which means changing agricultural practices, building flood defences, preparing for sharp changes in water availability, etc. In practice, both mitigation and adaptation are necessary and sometimes the activities cannot be easily distinguished.

2. In order to do so, all countries need money and access to new technologies. Developing countries argue that since they played no part in creating this problem, they should receive funding from developed countries. The UN Framework Convention on Climate Change recognises this obligation of developed countries, in principle.

The consensus ends there and the debates begin.

1. The first issue is the amount of funding required for techology research, development, deployment and diffusion (or RD3 in the jargon). Estimates vary wildly. For mitigation, the spending is anywhere between $70 billion and $165 billion a year; and additional funding of $262 billion to $670 billion is needed. Adaptation spending is about $1 billion a year when some estimates suggest $86 billion are needed. Thanks to such a wide range, one NGO representative told me that developing countries are hesitating to put any specific estimate in their proposals. Fair enough, but then how do you get a concrete commitment and, more importantly, by what standard would you measure compliance? Compliance has been one of the biggest problems with the climate regime so far, and there has been little progress so far to overcome it on the question of climate financing.

2. Where will the money come from? There is a major debate about private versus public financing. Developed countries argue that since much of the technology spending comes from private sources, that would also be the source of funding for developing countries. Developing countries are calling the bluff. They argue that private investment can flow into developing countries only when profits are expected, not when the higher capital, operational and intellectual property costs make a project commercially unviable. Hence, public funding has to cover the difference in costs. As the Indian delegate put it, "If the initial upfront capital investment and lifetime expenses [of a clean technology project] are positive, then developed countries must recompense developing ones. I'd love to see which are the commercial institutions that will invest in projects that have no return!"

3. Under what conditions will the funding be given? There is a fear that, even if commitments for funding mitigation and adaptation activities were secured, developing countries would be treated as aid recipients, subject to conditionalities imposed by rich donors. Developed countries are, of course, interested in ensuring that the money is spent in a verifiable manner. But poor countries argue that the process cannot be top-down, there has to be a sense of "ownership", as the Filipino delegate noted.

In the end, the debate boils down to the purpose of climate funding. Developing countries, like Uganda, insist that "funding climate change is a commitment, not a donation." For them it is a right, both from a legal point of view and from an ethical one. But the modalities of financial and technology transfer will not be resolved easily. The Indian delegate ended his intervention by asking for grants, not loans: "A 'grant' is a four-letter word in some dictionaries, so I will introduce a new phraseology: we want interest-free, non-repayable transfer of money." The current climate negotiations are meant to conclude in December this year. There will be many more four-letter words whispered under diplomatic breaths before then.


shakester said...

Nice. Clear and succint for those a bit clued out, like moi.

It seems like one of those things, to the uninitiated, that will be endlessly debated, then any and all steps taken to tackle it will be dwarfed by the size of the challenge.

Dark, bleak sci-fi anyone?

Fabian said...

Given how much money there seems to be hidden somewhere, to be transformed into a 'historic' G20 compromise, I say: Let's join in the spirit and hand out IMF drawing rights to pay for it all...