TWN Info Service on Finance and Development  (Sep08/02)
8 September 2008
Third World Network

HEATED DEBATES ON FINANCE AND TECHNOLOGY AT UNFCCC

Heated debates took place in the group on financing and technology at the climate talks under the UN Framework Convention on Climate Change (UNFCCC) which ended in Accra last month. A large number of developing countries responded to attempts by developed countries to distinguish between or “differentiate” developing countries, and commented on the historical responsibility of developed countries for causing climate change.

Delegates also debated the various financing proposals that had been presented by countries. Many developing countries spoke out in support of the G77 and China’s proposal on an enhanced financial mechanism operating under the Conference of Parties, and highlighted the urgent need for improved institutional arrangements to support technology, finance and capacity building to developing countries.

Below is a report on the UNFCCC deliberations on finance and technology. It was published in SUNS #6541, Wednesday 3 September 2008.

This article is reproduced here with the permission of the SUNS.  Reproduction or recirculation requires permission of SUNS (sunstwn@bluewin.ch).

With best wishes
Martin Khor
TWN

Heated Debates on Finance and Technology at UNFCCC 
By Lim Li Lin and Matthew Stilwell, Accra, 30 August 2008

The climate talks under the UN Framework Convention on Climate Change (UNFCCC) ended in Accra last week after an intense week (21-27 August) of discussion on key aspects of the Bali Action Plan.

The discussions in the Ad Hoc Working Group on Long-term Cooperative Action (AWG-LCA), which is tasked with reaching decisions on the Bali Action Plan by December 2009, were structured in three “contact groups” on mitigation, adaptation and delivering on finance and technology.

Heated debates took place in the group on financing and technology. A large number of developing countries responded to attempts by developed countries to distinguish between or “differentiate” developing countries, and commented on the historical responsibility of developed countries for causing climate change.

Delegates also debated the various financing proposals that had been presented by countries. Many developing countries spoke out in support of the G77 and China’s proposal on an enhanced financial mechanism operating under the Conference of Parties, and highlighted the urgent need for improved institutional arrangements to support technology, finance and capacity building to developing countries.

Developing countries including India, Qatar and Singapore spoke out against attempts by a few developed countries to divide developing countries into different categories for the purposes of assigning them new emission reduction obligations or establishing new obligations relating to finance and technology.

They pointed out that developed countries have so far largely failed to implement their mitigation, technology and finance obligations under the Convention and its Kyoto Protocol and that it is unfair to now attempt to pass this onto those countries who have contributed little to causing climate change and are most vulnerable to its impacts.

In particular, they responded sharply to attempts to re-frame the principle of “common but differentiated responsibilities and respective capabilities” as a means to differentiate among developing countries, when the principle was included in the Convention and Kyoto Protocol principally to distinguishing between developed and developing countries according to their historical responsibility for causing climate change.

India, for instance, noted that its historical contribution to climate change since the industrial revolution is a mere 27 tonnes of CO2 per-capita, whereas the United Kingdom and United States have each contributed around 1,100 tonnes per-capita.

Parties also discussed proposals on financing and technology, with many countries speaking out in support of the G77 and China’s proposal for an enhanced financial mechanism operating under the Conference of Parties. Developing countries also highlighted proposals for specific funds, such as a Convention Adaptation Fund proposed by AOSIS. A number of countries also asked questions and commented on the finance proposals of Mexico, Norway, South Korea and Switzerland.

The Chair of the contact group, Luiz Machado of Brazil, opened the meeting by explaining that this is the “how” part of the exercise - i. e., how to enhance delivery of financing and technology for both adaptation and mitigation. He summed up the discussion of the previous day as having touched on issues of public funding, the role of the private sector, the role of markets, links with other institutions and mechanisms that deliver finance, and the issue of fragmentation of finances.

Barbados, on behalf of the Alliance of Small Island States (AOSIS), highlighted the special and unique challenges that they face. These include insufficient funding for adaptation and mitigation technology, burdensome criteria to access the funding, limited access to funding, difficulty in measuring the true economic cost associated with adaptation. In addition, priority given to mitigation and adaptation is seen as peripheral.

It highlighted the Convention Adaptation Fund that AOSIS has proposed. It supported the proposal by the LDCs and China to set the level of contribution by Annex I Parties to a fixed percentage of GNP, which is over and above the 0.7% ODA (overseas development assistance) commitment.

The Convention Adaptation Fund proposed by AOSIS should complement the Kyoto Protocol Adaptation Fund and should fall under the overall financial mechanism that has been proposed by the G77 and China.

Indonesia posed three questions: how to collect the funds, how to manage the funds (this relates to governance and institutional arrangements), and how to associate the collected funds with Parties’ obligations.

It said that there are three tracks of funding sources: (1) Mandatory contributions from Annex I Parties (this must be above and additional to ODA and the level of contribution could be between 0.5-1% of GNP) which must be measurable, reportable and verifiable to ensure adequacy and predictability; (2) voluntary contributions by non-Annex I Parties; (3) the market, by extending the scope of the Clean Development Mechanism (CDM).

South Africa stressed that finance, technology and capacity building are all critical means of implementation, and a coherent architecture should address them all. On public finance, it stressed the importance of assessed contribution towards fulfilling commitments of Annex I Parties to provide new and additional funds, and that it was critical that this was under the COP. Commitments by Annex 1 Parties can only be considered measurable, reportable and verifiable if they are under the guidance and authority of the COP.

China stressed that the transfer of financial resources is the responsibility of the developed countries, and the resources should be “new and additional”. New financial and technology transfer mechanisms should be an important part of the future Copenhagen agreement.

The technology mechanism should include an executive board to develop strategies, policies and an action plan. An effective technology mechanism and a technology fund to support the technology transfer to developing countries to ensure its affordability is essential. It should also cover costs of technology diffusion in developing countries, joint research and development for future technologies, and costs of capacity building on technology.

It said that developed countries should show their political will to overcome barriers to technology transfer such as intellectual property rights and other policy constraints.

There is a huge financing gap to implement the Convention, it said. In China, for example, 2,000 billion RMB will be needed to meet its own targets on renewable energies. It said that for the financial mechanism, a board under the COP should be established, to support different activities and actions, including mitigation, adaptation, technology transfer, capacity building and so on.

The financial mechanism must have a transparent governance system and a reliable trustee. It emphasized that establishment of funds should follow the principle of common but differentiated responsibilities, and the funds should come from the public sector, and from developed countries. They should be new and additional to ODA, sufficient, expandable, and sustainable.

Argentina said that non-Annex I countries could adopt sustainable development policies and measures to contribute towards mitigation and adaptation. There needs to be full cost support for capacity building to create the enabling environment, and full incremental cost support for the commercialization of new and emerging technologies, joint technology development and the acquisition of low emissions technology. It stressed that the work of the Experts Group on Technology Transfer (EGTT) can make an important contribution.

The United States stated that we are in a different world from 1990, when the financial architecture of the Convention was first negotiated. Major economies and non-Annex I countries have a level of technological capacity far greater than 20 years ago. It also asked what national governments can be reasonably expected to do with their own policies and measures, and at what point beyond that does it become reasonable for other countries to share in that effort.

Brazil fully supported the G77 and China’s proposal on financing and stressed that predictability, stability, transparency, efficiency, and participation of all in the governance structure is a priori.

The Philippines elaborated further on the financing proposal of the G77 and China. It said that finance and technology transfer are lacking in implementation. The most prominent problem is the multiple levels of governance, and institutions that deal with financing as a donor/donee relationship, whereas financing by developed countries is a legally binding commitment under the Convention.

It questioned the governance of the trustee of the existing operating entity of the financial mechanism. (The Global Environment Facility is currently the only operating entity of the financial mechanism under the Convention. It is also the trustee). Currently, the implementation is handled by implementing and executing agencies, all of them under different systems of governance, guidance and authority, and this involves administrative costs. Direct access to financing is necessary and possible, as ultimately, it is the countries that implement these projects. It stressed the importance of a country-driven exercise and that is not tied to loans, or otherwise used as “bait”.

It said that the Paris Declaration is a non-legally binding declaration of principles, and it is being used as conditionalities for climate change implementation projects. In the Philippines, two renewable energy projects have been held up because of this.

On “incremental costs”, it said that the Montreal Protocol’s Multilateral Fund examined this concept and how to implement it in practice. “Agreed full costs” in the Convention has never been really met, and neither agreed full incremental cost.

It said that it is very important to have less administrative costs. Every layer of governance is associated with increased costs. There should be open bidding for trustees, following the example of the Montreal Protocol’s Multilateral Fund. There, the World Bank’s bid was four times higher than what they went with.

The Convention allows for developed countries to provide financial resources through bilateral, regional and multilateral channels. According to the Philippines, this was forced into the financial mechanism because developed countries said that they had other sources for financing, but the language is of voluntary support, and does not impose conditionalities. Decision 11/CP. 1, paragraph 2(a), stipulates that consistency should be ensured between activities including funding outside the framework of the Convention, and the guidance of the COP. It said that the Secretariat must report this; it must not contain new conditionalities.

It said that a Convention Adaptation Fund, venture capital and insurance mechanisms are also needed. There is a need to involve host countries in this, as in many current projects, there is host country participation.

France, on behalf of the European Union, said we are underestimating the need for finding new innovative ways of financing mitigation and adaptation and the huge amount of money needed has to be generated in a new way. It agreed that so far these multilateral funds have not served their purpose. It suggested a levy from high carbon activity and a levy from carbon markets.

On the financial mechanism, it said that the EU’s and G77 and China’s positions were not that far from each other. However, it said that their views might be different on which countries might be eligible for financing.

The EU sees the need for an enhanced framework for technology cooperation, but does not yet know what form such an enhanced framework should look like. This issue is key to many of their constituencies and politicians, and must be taken more seriously than ever.

Saudi Arabia said that technology transfer is the main challenge, and has been a challenge for many decades. There needs to be political momentum and will to design a system that delivers, and that can break through government policies. The solution is not just a fund that subsidizes intellectual property rights in different countries. Technology transfer has not worked so far because of market and institutional problems and constraints. It wanted an architecture that brings in facilitative funding that helps break though the institutional and IPR-like barriers, otherwise, no matter how much funds there are, it will not be enough.

Bangladesh stressed the need for a new financial and technology transfer architecture, under the framework of the Convention, and under the absolute guidance of the COP. It should be guided by the Executive Boards, which should be balanced geographically, and regionally. It suggested that new funding can be set at the level of 1% of GDP of Annex 1 Parties.

Singapore responded to comments that it has a high per-capita GDP and should therefore be grouped with Annex I countries by saying that it is a small island with few natural resources or rivers and is thus dependent on fossil fuels and would have difficulty shifting to renewable alternatives. It noted that larger resource-rich developed countries have exported their energy-intensive industries abroad. If we are to agree a viable climate agreement, it is unhelpful to introduce criteria that distinguish between developing countries, it said.

New Zealand agreed that no single criterion should be used for determining actions that should be taken. On financing, it suggested that we will need to look to the private sector for around 80% of funding for climate efforts.

Pakistan noted that there has been very little practical transfer under the Convention - the operation of principles, mechanisms and actual transfer has yet to be effected. Barriers to transfer include intellectual property and monopoly pricing, which must be addressed. Patents should not be a barrier and compulsory licensing should be promoted to make technologies available. Jointly planned research and development with patent sharing is also desirable.

Japan, proposing differentiation of developing countries, cited the polluter pays principle and noted that the contribution of Annex I and non-Annex I Parties to 2005 global emissions levels is almost the same (one to one). It cited a number of studies on the relative historical contribution of developed and developing countries to climate change. According to Japan, using per-capita emissions is unfair. It therefore seeks the right set of criteria to differentiate between developing countries.

Australia welcomed the debate on differentiation. On financing, it said that new and additional financing is “open to discussion”.

India highlighted the importance of research and development, and of mechanisms for effective technology transfer. Clean technologies must be made affordable to fossil fuel-reliant developing countries. India said that the current intellectual property regime should be amended to ensure availability on an affordable basis. Such an approach is already taking place in the pharmaceutical industry.

To address climate change, demand-driven research and development supported by IPR sharing will play a key role. We also need a multilateral funding mechanism that provides venture capital for research, and that procures available technologies and makes them available to developing countries to accelerate technology adaptation and diffusion. Multilateral mechanisms must ensure that new resources are available without diluting overseas development assistance and development funding.

India reiterated that discussions on conditionalities and differentiation should not be pushed by developed countries. The UNFCCC is not the place for a discussion of conditionalities. Moreover, since the industrial revolution, India has contributed as little as 23 tonnes of CO2 per capita, while the country that triggered the industrial revolution (the UK), and the world’s richest country today (the US), have each contributed 1,100 tonnes per-capita. Equality of all people across all times and places suggests an equal right to the benefits of the atmosphere.

France said the EU has proposed a technology diffusion plan with four parts: (1) institutional arrangements to support the delivery of national technology needs assessments, capacity building, information and awareness building, and measuring and monitoring actions; (2) enabling environments, in terms of national policies and measures; (3) technology oriented agreements to guide technology cooperation including country deployment schemes, demonstration projects and energy programmes; and (4) financial mechanisms and tools.

Philippines, for the G77 and China, said the group has prepared a comprehensive proposal on technology under the UNFCCC. The proposal sets out the rationale, criteria and institutional arrangements for such a mechanism, which include an Executive Body on Technology and a Multilateral Climate Technology Fund operating under the Conference of Parties. The proposal also describes a Technology Action Plan as well as the eligible activities and categories of costs that would be covered by the mechanism. These elements build on a previous proposal under the Convention by the G77 and China.

It agreed that Article 11.5 says that funding “may” be provided through bilateral, regional or multilateral institutions - but this is a conditional phrase. Indeed, the Conference of Parties has decided that activities outside the Convention, including those relating to funding, should be reviewed for consistency with guidance by COP and should not introduce new conditionalities.

Yet the GEF and other implementing and executive agencies responsible for climate funding have largely failed to follow this guidance. Problems relating to access, disbursement, the project cycle, availability of resources and so on remain. We need to overcome these problems to enhance implementation of the Convention. How can we have a shared vision if we are not sure we can deliver on implementation of the Convention?

Barbados said the selective use of per-capita GDP should be examined carefully. Some Caribbean countries have relatively high GDP per-capita. However, their economies are really quite small. When a hurricane hit Grenada, for instance, the scale of damages was twice its national GDP (90% of the housing stock was destroyed). Viewed in this light, the use of per-capita GDP is grossly unfair and really not appropriate.

The Chair suggested that Parties should avoid focusing on issues that are not covered by the Bali Action Plan. GDP per capita is one such extraneous issue, and discussions of it are robbing our time. He suggested that Parties focus on the Bali Action Plan and on delivering on what we have to for 2009.

Cuba asked why the EU proposal focuses so much on the market and so little on the public sector in financing technology cooperation. Experience suggests that market-based approaches have largely failed to deliver. We cannot afford to ignore the importance of mobilizing public sector resources to implement the Convention.

Qatar supported the G77 and China and expressed concern that some Parties are seeking to extend the Convention’s central principle of common but differentiated responsibilities to differentiate between developing countries on the basis of their relative economic development. In Qatar’s view, the principle was included in the Convention to draw the line between those who have historical responsibility, and those who do not. On differentiation, it said that developing countries, even those with relatively high GDP, are still developing. Levels of development can only be captured by an evaluation of human development, analysis of infrastructure, and so on.

China supported the G77 and China statement on technology and finance. It responded to Japan by noting that China has 1.3 billion citizens - ten times Japan. Its emissions per capita are below the world’s average level, which is one quarter of Japan’s. China’s historical per capita emissions since 1970 is 92nd in the world. One third of China’s emissions results from products produced for consumption in other countries. As a developing country, China has done what it can to combat climate change. It will continue to make new contributions. With effective technology transfer and financial support, the developing countries can do even more. This, according to China, is what long term cooperative action means.

Brazil congratulated Japan on bringing in the topic of historical emissions. Brazil expressed interest in reading the studies cited by Japan and suggested that the time-frame for considering historical emissions should extend to before 1900. We need to consider the effective permanence of emissions in the atmosphere.

The impact of emissions over time has a strong impact. According to one study, the CO2 emissions of the transport and energy sector of industrialized countries in 1888 are the same level as Brazil’s in 2004, it said. Historical emissions can help to frame discussions in a way that is equitable, but should not be used as a means of establishing criteria for categorizing countries.