By Stephen Spratt
The Green Climate Fund was announced with some fanfare in 2009. Conceived as a vehicle to transfer up to $100 billion per year from developed to developing countries, it was seen as one of the few successes to come out of the wreckage of Copenhagen. Importantly, developed countries committed to provide this $100 billion as ‘new and additional’ resources.
The Fund remains a shell, but one which many hope will be filled at COP17 in Durban starting next week. Exactly how this will be achieved remains anyone’s guess. Last year the UN Secretary-General's High-level Advisory Group on Climate Change Financing proposed a combination of direct budgetary transfers, carbon taxes, carbon market instruments and private investment leveraged by multilateral development banks. They also suggested some more innovative sources, such as a Financial Transaction Tax. None of this has happened yet, and disagreements between countries are far more noticeable than any emerging consensus.
Some have suggested that pessimism is overdone. A couple of weeks ago, for example, the Economist reported on a study by the Climate Policy Initiative (CPI), which estimated annual flows of $98 billion going to developing countries already. So, maybe the Green Climate Fund is not needed after all?
The problem lies in the nature of the finance and what it is being funded. The Green Climate Fund is supposed to do two things: help fund the transition to a low carbon economy (i.e. mitigation); and help countries cope with the climate change that is already in the system (i.e. adaptation). Of the $98 billion of financing identified by the CPI, $93 billion has gone to mitigation activities such as renewable energy infrastructure. The bulk of this finance has come from private investors.
Why the focus on mitigation? Well, the obvious reason is that there is no money in adaptation. While investors can generate a return from, say, building a wind energy plant – particularly where there are subsidies to support this – the same cannot be said of things like flood defences. Some of the mitigation-focused investments that have happened are made possible by public subsidies funded by developed countries, but many would have happened anyway for commercial reasons, and so cannot be described as ‘new and additional’ sources of finance in any meaningful sense.
Adaptation is different. It is more properly thought of as compensation from the countries that have caused the problem to those that suffer most from it, rather than a mutually beneficial investment. If we rely on private finance, adaptation funding will be meagre, yet the World Bank estimates annual adaptation financing needs of between $80-$100 billion per year, or about the same as the target for mitigation and adaptation that we are struggling to reach.
And the costs are likely to be larger. The World Bank’s estimates are based on adaptation needs in a world of 2 degrees warming. But fewer and fewer people think that this is achievable. Many now talk of 4 degrees being a more realistic ambition. On current trends we are on course for 6. Last week the World Meteorological Organization reported record levels of greenhouse gas concentrations in the atmosphere – far greater than predicted a few years ago. On the same day, the Financial Times described how drilling techniques like ‘fracking’ were unlocking vast reserves of natural gas and oil (article available by subscription only), creating a new ‘age of plenty’ of fossil-fuel resources in the US. The same article described the scramble for Arctic oil reserves, made possible by the shrinking of polar ice caps.
Regardless of progress on mitigation, which looks distinctly unlikely, judge Durban on its ability to generate large quantities of new public finance for adaptation in vulnerable developing countries. It looks like it will be needed.