Climate Change Finance:

Thematic Overview

PRODIPTO GHOSH, PH.D

DISTINGUISHED FELLOW
THE ENERGY & RESOURCES INSTITUTE
NEW DELHI:
TASHKENT: 02 MAY 2010

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 Themes
2

 Background
 Costs of addressing climate change
 Is the “Aid” paradigm relevant in climate change
finance?
 Sources of climate change finance
 Carbon market finance
 Developing country contributions
 Issues in global climate change finance governance
and architecture
 Background
3

 “Common but differentiated responsibility” (CBDR)

 UNFCCC: Art 4.3, 4.7, etc.
 Bali Action Plan, para 1(b)(ii)
 Copenhagen Accord
 AWG (LCA) and AWG (KP)
 Costs of addressing climate change
4

 Costs of actions vs costs of climate change impacts

 Costs depend upon the level of GHG mitigation and
time frame assumed; and level of protection from
climate risk and global temperature stabilization
level assumed.
 Number of studies by multilateral
organizations/researchers have attempted to
estimate costs. Studies vary in assumptions,
methodologies, data. Some examples:
Study Adaptation costs  estimates Mitigation costs estimate Total costs estimates

75‐100 billion ($) per year on 
World Bank, 2009 _ _
average from 2010‐2050
0.5%  of  global  GDP  in  2030 
OECD, 2008 _ _
and 2.5% in 2050
0.6%  of  global  GDP  in  the 
IPCC, 2007 _ year  2030  and  about  1.3%  _
of in the year 2050
1.6%  of  global  GDP 
UNDP, 2007 86 billion ($) by 2015 _
between 2007 and 2030
approx. 248‐381 billion ($) 
from  private  and  public 
indicatively  at  least  48‐171  sources  in  the  year  2030 
UNFCCC, 2007  approx. 200‐210 billion ($)
billion ($) to  return  global  GHG 
emissions  to  the  level  of 
2004
Oxfam, 2006 approx. 50 billion ($) per year _ _

Stern Review, 2006 _ 1 % of global by 2050 _

World Bank, 2006 10‐200 billion ($) per year 70‐100 billion ($)

10‐40 billion ($) per year
No  clear  estimate  due  to  approx.  40  billion  ($)  per 
World Bank, 2006 difficulty  in  making  direct  year  between  2006  and  _
accurate calculations. 
5 2050
 Copenhagen Accord
6

 Intuition: 0.5% of global GDP in 2030 is

c. $ 560 - 675 billion (2008 prices)
 Copenhagen Accord: indicates c.$ 30 billion total
during 201- - 2012, and c. $ 100 billion a year till
2020.
 Is the “Aid” paradigm relevant in
climate change finance?
7

 “Aid Paradigm”:
 No acknowledgment of responsibility of “donor” for the
underlying condition (e.g. lack of development)
 Discretionary provision of resources by “donors”
 Administered through multilateral/bilateral agencies over which
“donors” have overwhelming governance control
 Countries/programs/modalities (loan, soft loan,
grant)/conditionalities determined through the unbalanced
governance structures
 Conditionalities may have little to do with ensuring that the
money is properly spent, and instead have to do with political,
cultural, economic, strategic objectives of “donors”
 Climate Change Finance
8

 Based on “responsibility”: CBDR + UNFCCC assertion

on historical responsibility: the greatest share of
emissions causing climate change have originated in
developed countries.
 Implications: No discretionary contributions but
‘assessments” related to respective responsibility and
capability
 Finance must be coursed through balanced governance
structures accountable to the UNFCCC Conference of
Parties
 No covenants unrelated to proper implementation of
actual programs to be funded
 Sources of climate change finance:
9

 Public vs private finance:

 GHG mitigation: “Incremental costs” – private sector will
not fund incremental economic or financial costs, but
may finance incremental investment costs., so long as
somebody else picks up the incremental economic or
financial costs and their EIRR (or IRR) is unaffected
 “Adaptation”: Few opportunities for profitable private
sector involvement
 “Mainstreaming” climate change actions in development
programs – need safeguards to prevent diversion of
development resources (whether ODA or of own
resources of developing countries) to incremental climate
change costs
 Public Finance
10

 Disaggregation of public finance:

 Budgetary resources
 Regulatory approaches
 Rents from national GHG endowments (i.e. mitigation
targets)
 “Innovative sources”: e.g. levies on international
shipping & aviation
 International taxation of global “bads”, e.g. levies on
(speculative) capital transfers between developed
countries
 Public finance from developing countries – international
accountability of actions based wholly on domestic
finance of developing countries
 Carbon Market Finance
11

 “NAMA crediting”: Transfers of credits to developed

country entities thru carbon market would be
“double counting”!
 “Retirement carbon credits”: Carbon credits are
purchased by Annex I firms under legal obligation
and “retired” i.e. not used for Annex I commitments:
little traction in negotiations so far!
 Developing Country Contributions
12

 Proposals: Include assessed contributions from ALL

countries (except LDCs, below defined thresholds) based on
aggregate emissions/aggregate GDP, Clearly aimed at
targeting “major developing economies”, and infringement of
the categorical distinction between developed and developing
countries in the UNFCCC.
 Issues:
 Provision of incremental economic or investment cost by
developing countries – adverse impact on growth/poverty
eradication;
 Diversion of investment from social and physical
infrastructure/MDGs to climate change;
 International accountability for actions by developing
countries that are strictly domestically supported.
 Governance and architecture of financial
mechanism
13

 Issues include:
 Legal obligations, no discretion
 Balanced governance structure
 Accountability to Conference of Parties (provision of
finance, delivery in accordance with CoP guidelines)
 No extraneous conditionalities
 Direct access by developing countries
Figure 1: Illustrating the Proposed Climate Change Finance
Architecture
Information
Conf of
Finance
Parties
Accountability

Executive
Board &
Secretariat Climate Change
Fund under
UNFCCC+ Trustee
Technical
Panels

Mitigatio Adaptation Technolog Capacity

n y Building

MFIs/ RDBs/
Bilaterals outside
UNFCCC

Country level
Operating
Country level operating
entities/projects entities
15