Where will the money come from to pay for climate change? Lessons from Day two of UNFCCC finance workshop

By John Parnell

Day two of the UN climate change agency’s finance workshop turned its attention to identifying specific sources of finance.

The issue is a political hot potato at the climate talks with its Green Climate Fund already behind schedule, the current system expiring this year and unilateral funding schemes attracting criticism. Delegates showed again how adept they are at passing it among themselves.

Familiar divides, long-running arguments and little agreement.

A number of ideas that have been floated as sources of climate finance were dismissed during the session.

Ending fossil fuel subsidies was a strong theme among NGOs and campaigners at Rio+20. (Source: Flickr/Avaazorg)

Fossil fuel subsidies

NGOs (largely in the western world) are calling for the end of fossil fuel subsidies which they argue could free up as much as $1 trillion.

Sadly its not that simple. In the developing world, the removal of fossil fuel subsidies for the poor has created civil unrest.

“Fossil fuel subsidies often benefit the rich. But there could be genuine social challenges that result from cutting fossil fuel subsidies,” said Paul Watkinson from the French delegation. “If real, these need to be addressed.”

Financial Transaction Tax (FTT or Robin Hood tax)

New French President Francois Hollande revealed tax on financial transactions is under construction between nine EU nations.

Britain has summed up the argument against, saying that if it takes part businesses will leave for another market.

Paul Bodnar from the US State Department doesn’t see a future for an FTT in climate finance.

“The FTT is almost impossible to impose globally. The private actors involved would work around the attacks and could erode tax base further by driving activity to offshore havens,” he said.

“Market based efforts to price carbon emissions are promising. We need sources of finance that are linked to emissions.”

Erik Haite, a Canadian consultant on the panel agreed, adding that it would be impossible for the 195 parties to negotiate a global FTT.

Transport Levies

The idea is simple enough, to charge airlines and shipping operators for every ton of carbon they emit while going about their business.

However, the EU angered many when it set up an EU-wide scheme that was applicable to airlines using airports in its territory, regardless of where the flight originated. Opposition came from China, the US and India.

Rajasree Ray, from the Indian Ministry of Finance summarised her country’s argument against such schemes.

“If transport taxes are levied on developing countries, it will be against the principle of Common But Differentiated Responsibilities,” adding that carbon trading should not be categorised as climate finance and nor should any form of loan.

With three of the main single mechanisms seemingly out of the running then, what’s left?

Many governments have point to the recession as a reason why they are unable to foot the bill for climate finance.

“The burden of financing cannot be shifted from public to private. If we decided to go to war tomorrow billions of dollars would be available, it’s not about availability it’s about political will,” said Andrew Bishop, lead negotiator for Guyana.

If India’s Ray is correct and her delegation oppose loans, carbon trading and any tax that is not exclusively for the developed world, what’s left?

The Clean Development Mechanism, currently used for small to medium sized projects is one option but as Standard Bank’s Geoff Sinclair points out, it would need to be significantly scaled up.

Old divides

Cuba expressed its dismay at seeing too many western organisations sitting on the panel, which left many delegates shuffling uncomfortably in their seats.

The delegate then made a crucial point that was seized upon by other participants that climate finance is too often expressed as rich nations paying money to poor country and then never seeing it again.

Much climate finance will however be reinvested in developed world technologies, loans will be repaid and ultimately, all benefit from any carbon abatement.

Surya Sethi, a former Indian climate negotiator who moderated the first session took issue with the State Department’s Bodnar for suggesting countries were designated rich or poor in the eyes of the UN climate talks based on their GDP. He appeared to take pleasure in correcting the Washington official, stating that historical emissions were in fact the basis of this categorisation.

Bodnar took his next speaking opportunity to suggest that using any indicator from 1992 was unwise.

“If you think historical responsibility should be based on a list drawn up in 1992 you’re welcome to that opinion. As other countries’ capabilities evolve, I would have thought that you would want them to ramp-up their responsibilities?” he retorted.

The session finished with few answers but its aim is not to find solutions, simply to tee up the debate at the next all-in round of negotiations in Doha this November. With existing financial commitments expiring the following month, the issue could well be at the heart of any progress, or the cause of an impassable stalemate.

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