TWN Info Service on Finance and Development (Jun08/03)
13 June 2008
Third World Network

G77 & CHINA AFFIRM THAT CLIMATE FUNDS SHOULD BE WITHIN UNFCCC

The Group of 77 and China has stated that the developed countries’ commitment to provide developing countries with financing for climate change should be carried out under the UN Framework Convention on Climate Change and its Conference of Parties.  They said that funding pledged outside of the UNFCCC shall not be regarded as the fulfilment of commitments by developed countries under Article 4.3 of the Convention.

Additionally, the funds to be provided should meet the incremental costs for the implementation of developing countries’ commitments, and they should be in the form of grants rather than loans.

The group’s position was made known at a finance contact group meeting on 7 June afternoon under the UNFCCC’s ad hoc working group on long-term cooperation (AWG-LCA) which is tasked with following up on the Bali Action Plan (BAP), and to reach a decision by December 2009.

Below is a report on the position of the G77 and China on this issue. It was published in SUNS # 6493, Wednesday 11 June 2008. This article is reproduced here with the permission of the SUNS.  Reproduction or recirculation requires permission of SUNS (sunstwn@bluewin.ch).

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Martin Khor
TWN

G77 & China Affirm That Climate Funds Should Be Within UNFCCC

By Meena Raman, Bonn, 9 June 2008

The Group of 77 and China has stated that the developed countries’ commitment to provide developing countries with financing for climate change should be carried out under the UN Framework Convention on Climate Change and its Conference of Parties.

“Any funding pledged outside of the UNFCCC shall not be regarded as the fulfilment of commitments by developed countries under Article 4.3 of the Convention,” said the group.

Also, the funds to be provided should meet the incremental costs for the implementation of developing countries’ commitments, and they should be in the form of grants rather than loans.

The group’s position was made known at a finance contact group meeting on 7 June afternoon under the UNFCCC’s ad hoc working group on long-term cooperation (AWG-LCA) which is tasked with following up on the Bali Action Plan (BAP), and to reach a decision by December 2009.

Finance and technology are the key issues being discussed at this second session of the AWG-LCA. Several developing countries have been tabling more concrete proposals on these two topics, and the G77 and China (which comprises over 130 developing countries) has also been providing more concrete ideas.

At the 7 June meeting, several developing countries including China, India, Argentina, the Africa Group and the small island states also presented statements, as did developed countries such as the United States, European Union and Japan.

The AWG’s Chair, Luiz Machado of Brazil said the issues should include the scale of financial resources needed and options for scaling up, and the scope of funds under the convention, as well as new and additional resources under the convention with the spirit of looking at now, up to and beyond 2012. The group may also look into a new financial framework along with elements and principles that should apply. He called for concrete ideas and proposals.

The G77 and China, represented by Bernaditas Muller of the Philippines, said that the basis of the group’s position on financing under the BAP is Article 4.7 of the Convention.

[The article states that “The extent to which developing country Parties will effectively implement their commitments under the Convention will depend on the effective implementation of developed country Parties of their commitments under the Convention related to financial resources and transfer of technology and will take fully into account that economic and social development and poverty eradication are the first and overriding priorities of developing countries”].

Muller said that the finance objective under the BAP is full implementation of commitments for the provision of financial resources under Art. 4.3, 4.4, 4.5, 4.8, 4.9 of the Convention, in accordance with Article 11 defining the financial mechanism.

“The G77 and China have laid out the principles for enhanced action on the provision of financial resources and investment to support action on mitigation and adaptation and technology development and transfer: (1) operate under the authority and guidance, and be fully accountable to the COP; (2) have an equitable and balanced representation of all Parties within a transparent system of governance (Article 11.2) ; (3) enable direct access to funding by the recipients, and (4) ensure recipient country involvement during the stages of identification, definition and implementation, rendering it truly demand driven,” said the statement.

“The Group is developing a proposal based on these principles that would put financing for implementation of the Convention under the governance of the COP. The goal is to bring about coherence in the global financial architecture for financing under the authority and governance of the COP.”

The G77 and China outlined the elements for enhanced amount of financial resources provided under the Convention:

-- The main source of funding would be the implementation of developed countries’ commitments under Article 4.3, and “new and additional” financial resources, outside of ODA to ensure predictable and stable funds.

-- Any funding pledged outside of the UNFCCC shall not be regarded as the fulfilment of commitments by developed countries under Art. 4.3 of the Convention;

-- Agreed full incremental costs for the implementation of developing countries’ commitments under Art. 4.1,

-- Agreed full costs for the preparations of national communications;

-- The financial resources would be grant-based rather than loans.

On the design aspect, the G77 and China said that the Conference of Parties should establish specialized funds under its governance, such as a Convention Adaptation Fund, a multilateral technology acquisition fund, a venture capital fund, a risk management fund and an insurance mechanism. The fund may also be open to market sources and other sources.

The funds should also finance the implementation of action programmes, such as the NAPAs and TNAs, developed under the Convention, said the group.

China, supporting the China/G77 position, suggested an assessment of concrete proposals to see if they are in line with the focused mandate of the Convention. The UNFCCC is an international treaty with clear objectives and principles and commitments. Annex 1 parties are committed to provide for technology and finance, so that developing countries would join effectively to address climate change. Articles 4.3 and 4.7 make the direction clear, that the extent of developing countries’ implementation is dependent on technology and finance from developed countries, not vice versa. Developing country actions depend on provision of financial resources. This should be clear.

In view of differences in understanding, the secretariat should prepare a technical paper on the Convention provisions to enhance implementation. On the ODA issue, China supported the Chair’s understanding that funding under the Convention should be new and additional.

South Africa, speaking for the Africa Group, said a central element for a strengthened climate architecture is full accountability to the COP; as well as direct access and a country driven approach. Most of the funding has gone to mitigation; the future climate regime must include finance for adaptation with emphasis on vulnerable countries.

Africa is extremely vulnerable, and has a low adaptive capacity. Funding for adaptation should be scaled up more than 100 times what is now available and it has to be additional. Sources of funding can include the carbon market. However the atmosphere is a global commons and a global public good, thus responsibility lies in the public domain through governments. State parties have a central role is in setting the parameters. Governments must take responsibility, including providing public funds.

The funding should include tailor made packages that respond to priorities of regions. It proposed an Africa climate change facility as part of the broader financial architecture.

Brazil also stressed the principle of new and additional resources. The financing should be directed to meeting the full incremental costs of developing countries. If funding of full incremental costs had been met, then actions by developing countries could have been met and enhanced. On the “measurable, reportable and verifiable” (MRV) actions (mentioned in the BAP) this term cannot be considered as actions to attract financing. It is the enabling of support that must be measurable, reportable and verified. It is clear that financing for climate change is additional to ODA.

Algeria agreed that in the financial mechanism under the Convention is crucial for process, and that financial resources must be available for developing countries to take actions at national level.

Bangladesh said funding so far is little compared to needs. Financing has to be new and additional, and not be from ODA. Arising from the proposals put forward, a new financial architecture is needed, a Convention Fund. The principles include equity, common but differentiated responsibilities, polluter pays, adequacy, grant financing for adaptation, simplified funding and direct access. Funding is urgently required now.

The US reaffirmed commitments to enhance finances under the convention and that the US is meeting in full its obligations under Art. 4, mentioning full costs of national communications and agreed incremental costs. There are proposals before Congress on clean technology and reducing emissions from deforestation. It said the discussions should be based on reality. There is private capital in annex 1 and non-annex 1 countries. The funding mechanism should take into account the new reality of financial capacity, and also what governments can do to encourage the flow of private capital.

The US added we cannot commit to new funding unless we know what is it we are funding. It referred to enhanced action from developing countries. The UNFCCC is not a development aid convention. Scaling up financing will be under scrutiny from US tax payers. Developing countries should report their actions (in a MRV way) as measures to attract financing in clean technology investment.

India, represented by Surya Sethi, responded that listening to the US, it failed to understand the Convention. The US said all its obligations have been met and the private sector will take care of what remains. In that case “we can close shop and get out.” It was intrigued to read the convention again. These incremental costs are to be met by resource transfers. No private sector is transferring resources. Only the CDM mechanism is transferring resources. If negative emissions commitments are not undertaken by annex 1 countries, there would be no carbon market left.

Mexico said it would formally propose to establish a world fund on climate change, which would have positive incentives for developing countries. The governance would be inclusive and transparent and there would be additional committees to provide effective support.

Slovenia, speaking for the EU, said the EU believes this issue can only be addressed in close connection with mitigation, adaptation and technology, and in particular the level of ambition for mitigation efforts and adaptation needs. The proposals should be part of a broader framework: a financial architecture based on all possible tools and means that address the climate change challenge.

The architecture should deliver predictable and sustainable resources and bring together existing and new instruments and initiatives in order to be coherent and cost-effective.

On the substance to be covered, the EU said the price for carbon is essential for mobilising private flows. Broadening and deepening the global carbon market is essential. Also, national policies supporting an investment friendly environment play a significant role in leveraging flows, for example through energy efficiency targets, taxes, subsidies.

Innovative financing approaches can mobilise the additional financial resources. The EU suggested focusing on mechanisms that leverage private investment flows, enhance mitigation and adaptation efforts and transfer of technologies, and generate predictable finance in relation to the needs. In addition we could also include auctioning allowances, global CO2 tax, carbon levies on aviation and maritime transport.

The EU said the role of the financial mechanism under the Convention is to ensure enhanced efficiency and complementarity with other sources. The GEF currently has a unique role to play.

The fourth review should also examine ways to leverage private investments. It noted suggestions of creating new funds under the Convention. Many different and interesting proposals seem in particular to be calls for new funds to address adaptation and technology.

The EU also proposed to establish an “analytical platform”, including engaging private sector, IFIs and experts. It could analyse proposals made, considering potentials in terms of cost-effective delivery of finance with respect to different country needs. This will accelerate and deepen negotiations on finance.

On the way forward, the EU proposed that between now and Accra, Parties should submit more detailed views about this topic; in Accra, we would examine tools on the basis of cost-effectiveness, leveraging potentials, potential to support mitigation and adaptation efforts; and by Poznan, we should agree on which tools to develop, and how to develop them.

Norway reiterated its proposal on auctioning and South Korea mentioned its proposal on NAMA credits, while Japan repeated its Cool Earth initiative and on Africa.

Barbados for the small island states said the role of the private sector was limited for small countries as FDI goes to where there are resource endowments, there will be return on investments, and is risk free. FDI thus is hugely concentrated in a few countries and we need to be honest about that. There is need to differentiate between financing for mitigation and adaptation - both should be given equal priority.

In adaptation planning in Japan, to address sea level rise of 1 meter, $93 billion is required. In the UK, $1.2 billion is spent annually protecting coastal areas. Developing countries face the same challenges and now have to provide for new and additional challenges. Governments are going to have to do it. It will not come from the private sector. The funds would have to come from governments in developed countries. We should not adopt a business as usual approach in financing for adaptation.

Singapore said one proposed source of funding is a levy on international air travel and bunker fuels. However this will have an adverse impact on developing countries whose maritime and aviation industry would be affected.

Malaysia supported establishing a new financing architecture under authority of Convention, with equitable governance, and funds that are additional to ODA. Venezuela emphasised article 11.1, a mechanism for provision of financial resources on grant or concessional basis.

India presented slides, with data showing that with a global emission reduction target of 50% by 2050, compared to 1990 levels, and with the current proposed cuts for annex I parties, there would be buyers in the carbon market but no sellers. He concluded there would be no basis for a carbon market unless some parties agree to take on “negative emissions”.

Philippines said that the nature of the investment flows is crucial, to ensure environmental soundness. It added that predictability of financing is important to enable developing countries to develop long term of strategies. The quality of the transfer is also key, which is why governance of funds should be in the convention. If financing is put in another institution, will they do capacity building and vulnerability assessments, for example?