Climate Finance

Two main issues

• Where to get the money?

• How to spend the money?

Where to get the money?

• Reallocate fossil fuel subsidies– They greatly exceed climate finance goals

• Money from:– Carbon taxes– Emissions permits– International carbon pricing– Private, bilateral and multilateral sources

How to spend the money?

• To finance mitigation & adaptation• Mitigation example:

– subsidize clean energy technology – large-scale, multilateral financing– structure per WTO TRIMS, GATT, SCM & IIAs

• Adaptation example: – subsidize subsistence farmers to adopt GMO crops – small scale, national financing– another way to address IPR problem– structure per WTO SCM and Agriculture

Multilateral Financing Mechanisms

Multilateral Financing MechanismsWorld Bank

• UNFCCC process and World Bank energy projects have been working at cross purposes

• Fossil fuel subsidies: – are expensive – inflate GHG emissions – mainly benefit middle and upper classes

• Their reduction: – encourages energy efficiency – increases relative attractiveness of renewable energy – frees up resources for poverty alleviation, including

clean energy for those without electricity

GHG Emission Under Different Scenarios

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2010 2012 2014 2016 2018 2020

Year

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BAUSubsidy Removed450 ppm

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Fast Start FinancePledges (average2010-2012)

Fossil Fuel Subsidies(2010)

Developing Country Fossil Fuel Consumption Subsidies

• 2007: USD 342.15 billion

• 2008: USD 554.44 billion

• 2009: USD 300.14 billion

• 2010: USD 408.8 billion

• 8% of 2010 total reached poorest income group (the bottom 20%)

• Goal of Green Climate Fund: USD 100 billion per year for developing countries

Percentage of subsidy received by the bottom 20% population

0% 2% 4% 6% 8% 10%

Pakistan

China

Vietnam

Bangladesh

India

Philippines

Sri Lanka

South Africa

Multilateral Financing Mechanisms UNFCCC Green Climate Fund

• Goal: USD 100 billion per year by 2020• Proposed sources:

– 30% emission allowance auctions, domestic carbon taxes – 10% carbon pricing international transportation – 10% redeployment of fossil fuel subsidies in developed countries

or a financial transaction tax – 10% private investment flows – 11% multilateral development banks

• Suggested carbon price USD 20-25 per ton of CO2e• Prioritize funding adaptation for most vulnerable

developing countries & preserving rainforests • World Bank interim trustee, Secretariat South Korea

Multilateral Financing Mechanisms Kyoto Protocol (Australia, Europe)

• Clean Development Mechanism (certified emission reduction (CER) credits)

• Adaptation Fund (2% of CERs)

• Official Development Assistance

• Mexico City examples: – metrobus, new metro line – European money, European buses & trains– Reduced my carbon footprint

Climate Finance and WTO Subsidies Law

Climate Finance and WTO Subsidies Law

• Bilateral foreign aid conditional on the use of suppliers from the donor country

• CDM projects that include bilateral official development assistence similar

• % of CDM projects for which CER recipient was technology supplier – Denmark 91%– Spain 50% – Germany 40% – Japan 37%

SCM Agreement Article 1.1(a)(1) ‘subsidy’ definition

• ‘a financial contribution by a government or any public body within the territory of a Member’ (emphasis added).

• Does ‘within the territory of a Member’ apply to ‘a government’, ‘public body’ or ‘financial contribution’?

• If the financial contribution must take place within the territory of a Member, – ‘a Member’ could mean the Member that makes the financial

contribution – or could mean any Member.

• Former interpretation might exclude foreign aid from application of SCM Agreement.

Article 1.1(a)(1) financial contribution

• Bilateral climate financing: could be a direct transfer of funds or some other form of income or price support, depending on the terms of the aid package.

• Multilateral climate financing: might take form of payments to a funding mechanism.

Article 1.1(b) ‘benefit’

• Foreign aid & CDM logic is investment would not occur without funding.

• The funding creates financing necessary for participation of the donor country’s suppliers.

• Creates opportunity that would not have existed otherwise in the market.

• That could qualify as a benefit. • BUT, if no market benchmark without aid

program, can’t prove benefit is conferred.

Export subsidies

• Deemed to be specific • Prohibited• Test of contingency in fact is met when the

granting of a subsidy, without having been made legally contingent upon export performance, is in fact tied to actual or anticipated exportation.

• Climate financing subsidy is tied to the exportation to the recipient country.

• Could be a prohibited export subsidy.

Backward WTO subsidies law

• Fossil fuel subsidies are not generally specific to a domestic industry.

• Clean energy subsidies usually are specific, but might be saved by benefit analysis.

• Specific subsidies can be subject to unilateral or multilateral action.

• Prohibited subsidies are deemed specific.

Financing Adaptation

Subsistence farmers and GMOs

Financing Adaptation by Subsistence Farmers

• Climate change will have greater impact on viability of traditional plant varieties in tropical developing countries than in temperate developed countries.

• In developing countries: – greater need for GM seeds to raise yields & adapt to

climate change – larger percentage of population depends on

agriculture (e.g. 50% in India) – poorest depend on subsistence agriculture– rely on collecting seeds to sow future crops

Subsistence farmers need

• Microfinancing for GMO seeds, fertilizer and herbicides:– to afford adaptation– to raise incomes with increased output

• Microinsurance for crop failure from drought, floods or other natural calamities

• WTO Agreement on Agriculture exemptions should allow.

Financing Mitigation

Clean Energy Projects

Financing Clean Energy Projects

• Debate regarding access to clean energy technologies should not be on IPRs

• Real issues: creating incentives for and removing obstacles to clean energy development and dissemination

• Need to reallocate fossil fuel subsidies• May need to reform WTO subsidies law • Need to remove barriers to trade in clean energy

technologies & services, investment

Cost Comparison of Electricity at Distance from Grid

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Conclusion

• Where to get the money?– Fossil fuel subsidies– Permit auctions, carbon taxes– Both raise money and reduce emissions

• How to spend the money?– Clean energy subsidies– Adaptation for the poor