Page last updated at 09:03 GMT, Saturday, 12 December 2009

The Copenhagen battle over climate change funds

Polar bear, carved out of ice, in Trafalgar Square

By Rob Young
Business reporter, BBC World Service

The Copenhagen climate summit's search for a deal to curb the world's greenhouse gas emissions won't succeed unless there is agreement on another thing too - money.

Many of the countries which are most at risk from climate change are poor.

They say they can't afford to switch to cleaner energy generation or to defend their populations from problems such as drought and the rising sea level without help from rich countries.

Industrialised countries - which are historically responsible for emitting greenhouse gases - agreed to help such nations when they signed up to the UN climate change convention (UNFCCC).

But no binding deal which includes specific amounts of money has yet been agreed. Copenhagen could be where this changes.

'Significant money'

The amounts developing countries need are vast, far beyond what they can afford to pay themselves.

For example, the government of Liberia on the west coast of Africa says it would have to spend half of its entire national budget to build sea defences for its main coastal cities.

CLIMATE CHANGE GLOSSARY

"The financing is absolutely critical," says Yvo de Boer, the executive secretary of the UNFCCC. "We need to see significant money on the table in Copenhagen."

The cash would be spent in two broad areas - in the jargon they're called adaptation and mitigation. The first is coping with a changing climate. The second is not making climate change worse by emitting even more pollutants.

Various studies have been undertaken to work out the size of the bill comes to - with results ranging from tens of billions of dollars to more than a trillion dollars per year.

Three of the most authoritative estimates fall between these extremes.

  • The British economist Lord Nicholas Stern reckons poor nations will need $100 billion a year by the year 2020 - with that amount doubling in the following decade
  • The UN calculates developing countries would need more than $500 billion a year
  • The European Commission has suggested developing countries will need $147 billion (100 billion euros) a year by 2020

In a document published earlier this year, the European Commission suggested 20-40% of this money could come from the developing countries themselves. Another 40% could come from carbon markets, it said, and the rest - 22bn to 50bn euros, or $32bn to $74bn - from industrialised-country governments.

The United States has not suggested a figure, but US chief climate negotiator, Todd Stern, has said the US does "absolutely recognise our historic role in putting emissions in the atmosphere".

Fast start

At present, the UN estimates a total of $21bn is transferred from rich to poor countries - in government aid, money from carbon markets and cash from private sources.

ADAPTING TO SEA-LEVEL RISE
Flooded fields near Liberia's capital Monrovia

This could begin to increase if plans for fast-start funding - such as the 7.2bn euros ($10.6bn) the EU is promising over the next three years - take off.

But where would the bigger sums needed in the longer term come from? Carbon markets are one source, governments another.

According to a World Bank estimate, the carbon markets already provide about $6.5 billion per year (for mitigation, not adaptation). They encourage poor nations to build schemes like wind farms instead of coal-fired power stations, under a scheme called the Clean Development Mechanism.

The EU and the UN are keen to expand the CDM, although the programme is controversial. The UNFCCC predicts it could generate between $50 billion and $100 billion a year by 2030.

The other source - public money from industrialised countries - is potentially tricky, with many governments having to make tough spending decisions as they recover from the economic downturn.

Governments have various options for raising the money. One would be through dedicated green taxes where the "polluter pays", for example, a levy on international aviation and shipping.

The United Nations Development Program estimates that a carbon tax in OECD nations could raise about $265 billion a year (based on a price of $20 a tonne).

Non-payment penalties

But few countries are keen to impose a carbon tax unless their competitors do.

Another question to be discussed at Copenhagen is how to channel the money to the developing countries.

This whole agreement and negotiation should be based on trust and confidence
UN Secretary General Ban Ki-Moon

Funds were set up for this purpose under the Kyoto Protocol but far less money was deposited in them than developing countries expected. Developed countries apparently preferred to transfer funds in bilateral deals, and it is now hard, if not impossible, to check whether funding pledges have been met.

This is one reason why many developing countries want a binding financial deal, the kind of which has not been agreed before.

Some want rich nations to be fined or penalised if they don't live up to their commitments.

This time, UN Secretary-General Ban Ki-moon wants any financial deal to be "measurable, reportable and verifiable" so countries know exactly who has paid what and where it was spent.



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