A Panacea for UN Climate Change Financing

“Climate change financing is one of the most important aspects of the world’s efforts to address the climate change challenge”. With this statement, United Nations Secretary General, Ban Ki-Moon, presented the high-level advisory group on climate change financing. In addition, “it is crucial to have adequate financial support to build trust”. With the aim of building a “safer, cleaner, healthier future for us all”, the report of the group presented a comprehensive report on how to obtain the $100 billion for climate change financing, as engraved in the Copenhagen accord.

In a sense, global climate change financing is a panacea – it can cure most diseases linked to the climate change problem: building trust between developing and developed nations; generating actions on the ground; improving sustainable development. In the words of Ernesto Cordero Arroyo, Minister of Finance of Mexico: “we have the opportunity to approach climate change from a different perspective,” namely poverty, development, and economic growth.

Yet, the co-chairman of the high-level advisory group, Mr. Meles Zenawi, Prime Minister of Ethiopia, expressed the concern that in the current difficult environment, it is a challenge to raise $100 billion annually for climate financing. And, although this report provides a set of options, the details are left to the parties: it is they who have to decide what the share between public and private financing will be, and they have to decide on the implementation mechanisms. This shortfall is directly linked to the mandate given to the advisory group by the Copenhagen Accord.

One tool in the toolbox is carbon pricing. This is not an innovative idea, neither is it a theoretical one. The Emissions Trading Scheme (ETS) active in the EU is an example of what is expected to happen on the global level. Jens Stoltenberg, Prime Minister of Norway and co-chair of the advisory group, stated that there are three key actions to be taken for raising funds:

  1. Auctioning emissions allowances: this can raise an estimated $30 billion annually.
  2. Carbon taxation of transport and aviation industries: can raise a further $10 billion.
  3. An innovative idea of re-allocating fossil-fuel subsidies in developing countries for ‘green’ development.

These three major instruments have one thing in common: they put a price on carbon. This can produce a double effect on the fight against climate change – they are all large sources of revenue, and they can give the right incentives for developed world to reduce emissions.

Whether this list of potential sources will be endorsed by the parties and any of them will be implemented has not become clear. The UNSG’s high-level advisory group has provided national governments with the tool-box, and it is up to the political leaders to use those tools.

Yet, Prime Minister Stoltenberg expressed a note of optimism based on two insights. Firstly, the report presents an exhaustive list of options for all actors to use, which could result in mobilizing revenue and providing the right incentives for battling climate change. Secondly, and more importantly, the representatives of the advisory group managed to agree. It shows that political representatives from both developed and developing countries, multinational companies, and experts can agree on a compromise on the issue of finance. This is important because “without an agreement on finance, we will not have a comprehensive agreement on other issues”.

The report’s conclusion paints a mixed picture: “The Advisory Group found that raising $100 billion per year is challenging but feasible. Now is the time to take decisions”. The toolbox is now in the hands of political leaders.

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