TWN Info Service on Climate Change (July12/01)
11 July 2012
Third World Network

Trillions needed for climate finance, UNFCCC workshop told
Published in SUNS #7408 dated 11 July 2012

Bonn, 10 Jul (Meena Raman) - Studies on climate change financing estimate that trillions of dollars are required in new or additional investments worldwide if the climate change crisis is to be addressed adequately.

A summary of recent studies was presented by speakers on 9 July, the first day of a workshop on long-term climate finance organised by the United Nations Framework Convention on Climate Change (UNFCCC) and held in Bonn.

Of the global financing requirements, the needs of developing countries for mitigation and adaptation are in the range of $600 to $1,500 billion a year, according to economist Dr. Manuel Montes of the South Centre, who based his estimate on studies published by various sources.

Montes said that the amount needed by developing countries was at least 5-10 times the prospective financing flows, referring to the $100 billion per year goal by 2020 agreed to under the Cancun decision in 2009 of the Conference of the Parties (COP) to the UNFCCC.

Another speaker, Eric Usher from the United Nations Environment Programme (UNEP), cited figures of the International Energy Agency (IEA), that there would be $15.2 trillion of additional global mitigation costs (for both developed and developing countries) related to a new policies scenario, growing from $160 billion presently to $1.1 trillion in 2035.

He added that another IEA report showed that annual global investments for power generation only, in a 2 degree Celsius scenario, would involve $370 billion from 2010 to 2020; $630 billion between 2020 to 2030; and $760 billion between 2030 to 2050.

The UNFCCC's three-day workshop (9-11 July) is being held under a mandate given by the Durban conference last December, and is co-chaired by Zaheer Fakir (South Africa) and George Boersting (Norway), who are also co-chairs of the work programme on LTF (long-term finance).

The Durban Conference of Parties decided to undertake a work programme on long-term finance in 2012, including workshops, in order to make progress on long-term finance in the context of the Cancun decision.

Explaining the background to the session, Fakir said that at the Durban meeting, the COP President (South Africa) had appointed Boersting and him to prepare a report for the COP on LTF and it was up to Parties to decide on how to use the report.

In her introductory remarks, the UNFCCC Executive Secretary, Christiana Figueres, said that the LTF Co-chairs had sought to address four main topics at the workshop -- climate finance needs of developing countries based on robust and analytical work; sources of climate finance, be it public, private, bilateral or multilateral; options for mobilising climate finance; and lessons learnt from fast-start finance that can be used post-2012.

In the session on "Understanding the LTF needs of developing countries", South Centre's Montes said that analytically-based climate change estimates of the needs of developing countries exceed by at least 5-10 times current and prospective financing flows.

These studies point to a scale of mitigation and adaptation financing needs of $600 to $1,500 billion a year, versus the $100 billion by 2020 goal agreed to in Cancun. While there are a variety of estimates and approaches to estimating needs, there is a degree of convergence in the magnitudes among different studies, added Montes.

Montes referred to various studies in relation to mitigation. He said that the UNFCCC (2009) expert group on technology indicated that $300 to $1,000 billion a year until 2030 is required globally for technology development and diffusion, mainly to transform energy systems, and that the developing country share of this would range from $182 to $505 billion per year.

Referring to the World Bank's World Development Report 2010, Montes said that the report suggests that mitigation could cost developing countries additionally $140-$175 billion a year over the next 20 years in order to participate in meeting a global emissions target of 450 ppm.

The same report suggests that developing countries require associated financing needs, for the required level of investments, in the range of $265-$565 billion.

Montes also referred to a 2011 study of the UN Department of Economic and Social Affairs (UN-DESA), which estimates that developing countries will require $1,100 billion a year in new investments to undertake the needed energy transformation, as well as $20 billion for new agriculture investment.

Montes also referred to bottom-up mitigation financing estimates from case studies on India and China.

A study by the Centre for Science and the Environment found that the additional cost of generating power from renewable technologies in the low-carbon strategy over business-as-usual until 2030-31 is estimated at $203 billion at 2010 constant prices, or about $10 billion a year.

A study on climate change in China (the 2009/10 China Human Development Report published by the UN Development Programme) estimated that in the most ambitious emissions abatement scenario, $14.2 trillion will have to be invested between 2010 and 2050 or $355 billion per year. In a less ambitious scenario, the annual investment required would still be at the level of $240 billion.

In relation to adaptation, Montes said that the UNFCCC's 2007 study suggested that global costs are in the order of $49 to $171 billion a year. Adaptation costs to developing countries were estimated to be in the order of $27 to $66 billion a year.

The World Bank's adaptation cost estimates indicate a range of $75 to $100 billion per year. Within $102 billion annual adaptation cost based on a wetter weather scenario, the World Bank estimates that $29 billion are needed for East Asia and the Pacific, $23 billion for Latin America and the Caribbean, $19 billion for Sub-Saharan Africa, $17 billion for Europe and Central Asia, and $4 billion for the Middle East and North Africa.

According to Montes, another study by a team of scientists (Martin Parry et al. 2009) found that the UNFCCC seriously underestimated the adaptation financing required. This was due to three reasons.

First, it left out several sectors (mining, manufacturing, tourism, among others) and underestimated the costs in the sectors it covered by two to three times.

Second, the adaptation costs to protect/revive ecosystems worldwide, not included in the UNFCCC estimate, would cost $65 to $300 billion.

Third, the "remainder costs', or the costs of damage from climate change, were not included.

The third factor, including losses due to extreme weather events, could cost $200 billion a year, according to a 2007 study for the UNFCCC by Dlugolecki. Recent events, such as the estimated $40 billion losses from the floods in Thailand in 2011, reinforce the estimates of high costs of recovery from natural disasters.

Montes said that based on these, the developing countries' needs for adaptation actions could be estimated at around $450 billion a year, not including the other sectors not explicitly represented in the UNFCCC (2007) estimate.

Eric Usher of UNEP said that adaptation costing is still new and there were few agreed approaches. On the costs of adaptation in Africa, Usher said that integrated assessment models indicate that the central economic costs of climate change for Africa could be equivalent to 1.5% to 3% of GDP each year by 2030.

In relation to mitigation, referring to the IEA, Usher said that there would be $15.2 trillion of additional mitigation costs based on a new policies scenario, growing from $160 billion today to $1.1 trillion in 2035. Of the total costs, 40% would be in transport, 27% in buildings, and 20% in power generation.

Referring to another IEA study, on energy technology perspectives (2012), Usher said that new annual investments in power generation alone, in a 2 degree Celsius scenario, would involve $370 billion in 2010-2020; $630 billion between 2020 to 2030; and $760 billion between 2030 to 2050.

Another speaker, Ulric Trotz from the Caribbean Community Climate Centre, referred to studies done on the impact of a sea level rise of 1 metre in the Caribbean Community.

He said that at least 16 multi-million-dollar tourism resorts would be lost, with a replacement cost of over US$ 1.6 billion and the livelihoods of thousands of employees and communities affected. The total economic impact of a 1 m sea level rise would involve a GDP loss of more than US$1.2 billion per year, permanently lost land value of US$70 billion and reconstruction and relocation costs of $4.64 billion.

Anthony Nyong from the African Development Bank said that the projected adaptation costs for sub-Saharan Africa was around 2% of GDP.

He said that Africa required about $22 to $31 billion per year by 2015 and $52 to $68 billion per year by 2030. Climate proofing will add 40% to the costs of meeting the Millennium Development Goals (MDGs) in Africa, which is about $30 billion.

Current climate change investment flows in the region are massively short of what will be required. Cumulative mitigation investment in the period 2003-2010 was less than $2 billion while cumulative adaption investment to date has been less than $500 million, added Nyong.

In a keynote speech via video-conferencing, Jeffrey Sachs from the Earth Institute said there were fundamental economic issues in climate change that required rapid and deep decarbonisation; deep technological change and climate adaptation and resilience and these needs will impose significant incremental costs. These costs however are much less than the costs of business-as-usual.

Sachs added that $100 billion was easy to state but hard to mobilise as rich countries make promises that they do not fulfil.

He criticised the political class in the United States for not wanting to contribute anything when the larger public was willing to do more. He proposed an assessment rule for each country which is based on the polluter pays principle and the ability to pay and categorised countries according to their GDP.

This proposal by Sachs drew very sharp responses from several developing countries including India, China, Brazil, Guyana and Saudi Arabia, which pointed out that the proposal (that developing countries excepting low-income countries also pay assessed amounts) was not consistent with the provisions of the UNFCCC and also disregarded the principle of historical responsibility of developed countries for climate change.

Sachs also said that at the national level, there was need to create incentives for technological change with a long-term predictable price for CO2 emissions at $30 to $50 per tonne. He said that having a carbon tax was the simplest and most transparent method of applying the carbon price.

He added that carbon trading was a deficient method, and it did not give a long-term price signal for CO2 as it was based on the spot price of tradable permits and does not promote the deep transformation needed. He proposed the use of carbon taxes and feed-in tariffs.

Helen Mountford from the Organisation for Economic Cooperation and Development (OECD) said that OECD countries needed to identify potential sources of climate financing so as to scale up and shift investments. One source was eliminating subsidies for fossil fuels, which was about $45 to $75 billion a year. Another source was through raising carbon taxes and auctioning of carbon allowances.

Mountford also advanced the need for export credits to be provided for renewable energy and advanced technologies such as carbon capture and storage and waste-to-energy plants.

She said that since the majority of the finance was in the private sector, the role of the public sector was to have policies to improve the risk-return profile of green infrastructure and to use limited public finance to leverage private sector investments.

Delegates from several countries spoke during the discussion session. Mohammed Nasr of Egypt said that the UNFCCC provided the guiding principles. Adaptation costing had no clear methodology and this was a big gap. Policymakers needed assurances as to where to access climate finance.

He said that the capitalisation of the Green Climate Fund was important. Needs assessments in developing countries was also important.

The Philippines said that it was important to see what has not been working thus far in climate finance. It is important to have predictable sources of finance as developing countries could not be relying on ad hoc sources.

Dr. Surya Seti of India, a university professor based in Singapore, said that it is important to understand what "climate financing" is. Under the Convention, this is grants or concessional finance.

In reference to Jeffrey Sachs' "assessment rule", Guyana said that the polluter pays principle must be tempered with historical responsibility.

India, in reference to Sachs, also said that long-term finance was rooted in the provisions of the Convention. It is the developed countries who had commitments to providing climate finance and there cannot be a call to developing countries to contribute to this.

India also said that when one talks of carbon tax at the international level, it also must be rooted in the principles of the Convention.

It added that revenues from carbon markets are not climate finance, as they come from carbon credits that are "offsets" relating to the mitigation of developed countries.

Brazil said that the discussions must be in the context of the Convention, where the principles of equity and common but differentiated responsibility (CBDR) are important. Developing countries cannot be expected to contribute to climate financing.

Saudi Arabia also stressed that climate financing is part of meeting historical responsibility of developed countries.

China also stressed the need to bear in mind the Convention and the CBDR principle. China needed international climate finance as it had a large population and had to address development and poverty needs. It also had to face many natural disasters.

Nicaragua said that Special Drawing Rights (at the International Monetary Fund) could be viewed as a possible option for climate finance.