Tackling climate change will not be cheap. There are plenty of stories to tell about how to find, manage, access and spend the money.
The action needed to tackle climate change will cost tens or even hundreds of billions of dollars each year, but many analysts say that this will save money in the long-term by reducing the costly future impacts of climate change.
Finance is needed for two main things — mitigation activities that reduce the concentration of greenhouse gases in the atmosphere, and adaptation activities that increase the vulnerability of communities, infrastructure and ecosystems to the impacts of climate change.
Much of the money needed for these activities in developing nations will have to come from industrialised countries, and this is a principle that all parties to UN Framework Convention on Climate Change (UNFCCC) have agreed to.
The UNFCCC has set up four funds. The Least Developed Countries Fund and the Special Climate Change Fund are both managed by the Global Environment Facility (GEF, see below), while the Adaptation Fund has its own board and reports directly to the conference of parties to the UNFCCC.
The Green Climate Fund, created in 2010, will work under the guidance of the conference of the parties to the UNFCCC. The membership of its board will be balanced between developed and developing nations and it will require monitoring, reporting and verification of how the funds it delivers are spent.
The GEF, the World Bank, European Commission and other donors also have a number of other climate funds, such as the World Bank’s Carbon Finance Unit, which uses money from governments and companies in OECD countries to pay for project-based greenhouse gas emission reductions in non-OECD countries.
The private sector also plays a more direct role in climate finance — through investments in renewable energy projects, for instance.
So far, however, finance from all of these sources is just a small fraction of what will be needed. Estimates vary but all suggest that tens of billions of dollars will be needed each year for adaptation and mitigation measures. They tend to agree with the 2007 Stern Review on the Economics of Climate Change, which said the costs of doing nothing would be much higher.
In 2007, parties to the UNFCCC agreed that finance would be one of four essential building blocks of a comprehensive global agreement on climate change. One strand of their negotiations towards that global agreement, has focused on how to generate, manage and spend the money.
By 2009′s UNFCCC conference however, countries had failed to reach an agreement. Instead the meeting produced a non-binding political accord — the Copenhagen Accord. In it rich nations agreed to provide $10 billion a year from 2010-12, with a goal of US$100 billion a year from 2020, to help poor nations deal with climate change.
These funds are meant to be ‘new and additional’ — in other words, they should not come from existing aid budgets — but already many countries have made pledges that include repackaged aid money.
Nongovernmental organizations and developing nations argue that this is morally wrong, because industrialized nations have contributed most to climate change and should pay compensation. They add that any diversion of aid would remove funding for education, health and other existing development challenges.
There are also concerns that this funding will come in the form of loans, rather than grants, and that this would create additional debts.
Various proposals exist for new and innovative ways to raise the funds needed to tackle climate change. In 2010, the UN Secretary-General Ban Ki-Moon established a High-Level Advisory Group on Climate Change Financing (AGF) to study potential sources of finance to meet the targets in the Copenhagen Accord. It is looking at six possible sources of public money:
- direct budget contributions
- carbon market auction revenues
- revenue from international transport (shipping and airline taxes)
- carbon taxation
- multilateral funds (most notably, International Monetary Fund Special Drawing Rights)
- an international financial transactions tax
It is also considering two streams of private finance.
- Using public finance to leverage private investment (including debt swaps and insurance schemes)
- carbon markets (which includes money generated through reform of the Clean Development Mechanism)
The advocacy organization Oxfam believes that these moves could generate large amounts of finance –- as much as US$100 billion a year from a global financial transactions tax and US$20-30 billion a year through the creation of emissions trading schemes for international aviation and shipping, for instance.
Journalists will have many opportunities in the coming years to report on the need to find, manage, access and spend climate finance.
One area for media attention is whether rich countries keep their promises to fund climate action in developing nations, and whether the money really is ‘new and additional and not from existing aid budgets.
The government of the Netherlands, with support from some other developed and developing countries has created a similar website to “to provide transparency about the amount, direction and use of fast start climate finance”.
Another topic to report on is the battle for control of the funds the Copenhagen Accord is meant to generate. The GEF, World Bank and other agencies are all keen to control the money.
The GEF currently controls a number of climate funds, but developing nations have been critical of it because there is a lot of bureaucracy involved in applying to it for funding and it can take years for the GEF to make a decision and disburse funds.
The United States and some other donor nations favor the World Bank because they trust it to deliver. Yet developing nations are less trusting in the World Bank and would prefer the money to be managed through the UNFCCC — like the Adaptation Fund is (see Case Study, below).
As climate finance begins to flow, other areas for journalists to report on will emerge. Countries will begin to compete to access the money.
Until 2010, the priority countries for funding were identified as the Least Developed Countries, the Small Island Developing States and countries in Africa. But now other countries argue that they too are vulnerable to climate change and need finance (as described in this story by Maria Clara Valencia).
There will also be a big debate about how much climate finance should come from public funds and how much from the private sector (which would be unlikely to show interest in funding small-scale adaptation projects that are needed because they offer little chance of a return on any investment).
Lastly, there will be plenty of opportunities to report on how the money is spent, particularly in countries where governments have weak capacity or poor governance.
CASE STUDY – The Adaptation Fund
The Adaptation Fund is the first fund that developing countries can — if they choose — access and spend without needing to apply through a third party such as the UN Development Programme. It was created under the UNFCCC’s Kyoto Protocol and it generates finance by charging a two percent levy on all transactions made through the protocol’s Clean Development Mechanism.
Although the fund was set up in 1997, it was only in 2007 that parties to the UNFCCC agreed on how the fund would be governed and how countries could access it. The GEF had wanted to control the fund but developing nations resisted this and in the end they got their way. The fund’s board has representatives from all world regions, but a majority are from developing nations.
In 2010, the Adaptation Fund approved its first funding, for projects proposed by Pakistan, Nicaragua and the Solomon Islands. In each case the country accessed the fund through a third party.
To access the fund directly a country must first have an accredited National Implementing Entity, and in March 2010 Senegal became the first country to achieve this. Six month’s later, the Adaptation Fund’s board approved Senegal’s proposal for direct access to funding to tackle coastal erosion caused by rising seas.
Many years passed between the Adaptation Fund’s creation and the day money started to flow from it. And with only about US$150 million in the fund as of 2010, many other sources of finance will be needed to support adaptation across the developing world.
Assessing the Costs of Adaptation to Climate Change
Climate Equity – Germany “recycles” most of its 2010 climate aid
Little Book of Climate Finance
Oxfam briefing note – Climate Finance Post-Copenhagen [PDF]