Column: Even climate is about the money

A lottery would not get many ticket sales if it disclosed the prize after the draw. With

this observation, a developing country delegate expressed frustration over the lack of a

climate finance mechanism. Why, he argued at climate negotiations earlier this year, would

poor countries undertake costly climate-related actions without guarantees that funds would

be available? As the Copenhagen meeting begins, it looks less like lottery and more like

poker.

Lotteries are games of pure chance. Poker is a game of part chance, part strategy. Climate

negotiations hinge on, among other things, creating a pool of finance to share the burden of

mitigating and adapting to climate change. The game is not one of a winner taking all by

sheer luck, but of who contributes how much to the common pot. No country is willing to act

first; doing so would be to fold. Countries are taking a chance on the level of aggregate

effort needed to avoid dangerous climate change, but their strategy is to avoid revealing

preferences.

Several countries have announced plans for emission cuts (Brazil, EU, Indonesia, Japan,

Russia, South Korea, the US) or carbon intensity reduction (China, India). These are,

however, opening gambits to guess how far others would go. For instance, China's offer of

40-45% reduction in carbon intensity by 2020 is a continuation of its already existing

policy, which began in 2006. If other countries had expected more, China was not going to

oblige. By 2020 the US aims to reduce emissions by 17% relative to 2005, which is way below

desired levels (using the Intergovernmental Panel on Climate Change's 1990 baseline, this

means only 4% reduction). For rich countries as a whole, the IPCC recommends reductions of

25-40% by 2020; offers on the table amount to only a 12-19% cut. Further, many leaders have

suggested that Copenhagen will not deliver a legally binding treaty.

The absence of internationally enforceable mitigation commitments means that the burden on

climate finance will increase. Unilateral promises will depend on whether sufficient

financing is available to achieve the scale of actions needed. So, who will pay? The

Commonwealth Heads of Government backed a British-French proposal for a $10-billion fund to

help developing countries reduce emissions and adapt to a changing climate. This was one

more push to secure at least a political deal in Copenhagen.

But larger issues remain unresolved. The first is the scale of funding required. Estimates

for additional annual investments for climate mitigation in developing countries vary, but

they hover around $100 billion annually by 2020. A tiny fraction of that is spent at present

with even new funds failing to disburse significant amounts. Funding for adaptation shows

similar gaps, with only $1 billion being spent when the needs are perhaps 40 times more.

Many argue that significant increase in official development assistance (ODA) is difficult.

Therefore, a second issue is the funding mix. No doubt a large share of financing has to

come from private, market-based sources. But, as currently configured, carbon markets will

not generate funding to match the actions required. The incremental costs of moving up the

technology ladder—R&D, capital costs, intellectual property—imply public financing

support. It is unhelpful to pretend that market failures in cleaner energy technologies will

correct themselves without support.

Needed then are arrangements that generate win-win situations. These arrangements involve a

mix of political commitment, public finance and private investment. In October, delegations

meeting in New Delhi endorsed India's proposal for a network of technology research centres

across developed and developing countries. Again, the US and China announced several joint

initiatives during Obama's recent visit, on energy efficiency, research on cleaner coal

plants, electric vehicles, carbon capture & storage and renewable energy, among others.

Such bilateral initiatives, while important, are still small scale. Moreover, they must not

divert attention from multilateral arrangements. Otherwise, financing might indeed turn into

a lottery for a few countries while others are left without access to clean technologies.

That raises a third issue of 'additionality' of funding. This is jargon for climate funding

being over and above existing ODA allocations. Developing countries worry that climate

finance will simply substitute money intended for education, health and other development

needs. The EU has sought to delete references to additional funding from the Copenhagen

text.

There is a long history of unmet commitments that has resulted in an atmosphere of sheer

mistrust and bad faith between rich and poor countries. Despite its bilateral initiatives,

the US has yet to table any substantial offer regarding climate finance. President Obama

admitted at the G8 summit in July that the US had 'sometimes failed to meet its

responsibilities so let me make it clear those days are over'. Those days are not over yet;

the game of poker continues.

There is an alternative: a multilateral Low Carbon Technology and Finance Facility that uses

public finance to leverage private investment, underwrites project risks, covers

intellectual property fees, and offers rich and poor countries equal voice in governing

climate finance. Will negotiators at Copenhagen play this new game?