Financial transfers in climate negotiations

Contents of this page#

• Background
• Uses of funds
• Sources of funds
• Phase-in of funding
• References

Background#

A key issue that has emerged in climate negotiations is whether developed countries should provide funding to help developing countries defray the costs associated with reducing their greenhouse gas emissions and coping with the effects of climate change.

Prior to the December 2009 Copenhagen meeting, the G77, the UN negotiating bloc for developing countries, had called for funding that would grow to total $400 billion annually by 2020, an amount equal to approximately 1% of the GDP of developed nations.

At Copenhagen in December 2009, Meles Zenawi, the prime minister of Ethiopia prime minister, put forward a scaled-down proposal, calling for funding of of $50 billion per year by 2015 and $100 billion by 2020.

Zenawi’s figures were in line with those in a proposal made by UK prime minister Gordon Brown in mid-2009 and approved by the European Union prior to Copenhagen.

At Copenhagen, U.S. Secretary of State Hillary Clinton pledged U.S. backing for an international fund of comparable scale to that proposed by Zenawi and Brown.

Uses of funds#

To undertake mitigation policies consistent with limiting temperature increase to 2 degrees Celsius, it is estimated that the developing countries will require funding of between €65-100 billlion ($85-135 billion) per year on average over the 2010-2020 period.

This total is broken out as follows:

• €55-80 billion ($73-107 billion) total abatement costs
  • €35 billion ($47 million) baseline abatement costs
  • €15-40 billion ($20-53 billion) for higher financing and transaction costs
  • €5 billion ($7 billion) for deployment of technologies with steep learning curves (such as solar photo-voltaic or carbon capture and storage)
• €10-20 billion ($12-28 billion) adaptation costs

Sources of funds#

A sizable portion of funding provided to developing countries could come from already existing carbon market structures.

The remainder will have to come from new taxes, low cost loans, and general government budgets of developed countries.

Specific estimates regarding potential sources of funding are:

• €20-50 billion ($27-67 billion) from carbon markets
• €10-20 billion ($13-27 billion) from taxes on international air and sea transport
• €4-8 billion ($5-11 billion) from subsidized loans
• €31-22 billion ($40-30 billion) from general government funds

Phase-in of financing#

Funding for developing nations is expected to be phased in gradually over the course of the next decade.

Three primary financing periods have been identified:

• Fast start, 2010-2012, €9 billion ($12 billion) per year on average
• Transition, 2012-2015, €40 billion ($60 billion) per year on average
• Full scale financing, 2015-2020, €115 billion ($170 billion) per year on average

The totals above assume €65 billion (approximately $100 billion) per year on average total funding over the 2010-2020 period.

References#

Project Catalyst, Briefing Paper: Overall Financing Needs, December 2009 (4 page pdf file)

Project Catalyst, Briefing Paper: Climate Finance, 2010-2020, December 2009 (4 page pdf file)

Project Catalyst, Scaling up Climate Finance, September 2009 (44 page pdf file, including appendices on Mitigation financing requirements and Adaptation financing requirements)