Climate cleavages

This week the G-20 leaders met in London to discuss the global financial crisis, which is set to dominate the international agenda for some time. A parallel debate has been under way here in Bonn on another financial question, which affects an even greater systemic crisis: the funding required to tackle global climate change.

Click here for my op-ed on the state of climate finance negotiations, published in The Indian Express today.

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.

Bonn climate meetings 1 - U.S. setting expectations on climate change?

U.S. climate envoy, Todd Stern, is trying to set expectations on the prospects for climate negotiations. Speaking in Bonn at the climate meetings, he said, 'I don't think anybody should be thinking that the U.S. can ride in on a white horse and make it all work.'

As I have written before, President Obama has already taken steps to move away from the Bush era's almost complete lack of engagement with the climate issue. There is palpable enthusiasm among climate activists about potential U.S. leadership to drive through a global agreement in Copenhagen at the end of this year. Meanwhile, developing countries have announced measures of their own.

But here in Bonn, the first of three major sets of meetings before Copenhagen, the United States is making it clear that ambitious targets for emission reductions will not be politically or economically feasible. 'It is in no one's interest to repeat the experience of Kyoto by delivering an agreement that won't gain sufficient support at home,' says Stern. As always, the United States wants China and other major developing countries to share the burden of cutting greenhouse gas emissions.

Sure, the global economic crisis complicates matters (see my previous blog): climate-friendly investments are not as profitable, and the domestic political economy of distributing the costs of shifting to lower carbon trajectories is complicated further by rising unemployment.

Yet, for all the reality checks, there is still nothing concrete on offer for developing countries. They want specific commitments on financing, technology transfer and adaptation measures. The trouble is that the discussions and the rhetoric focus on targets for emission reductions and the remaining issues are treated more like 'side payments' to induce cooperation by developing countries. Unless the demands of poor countries are elevated to the same status, there is little hope for progress.