Leveraging Climate Finance

In February 2010, the Secretary General of the United Nations convened a high-level advisory group on climate finance (AGF) to study ways in which the Copenhagen Accord’s long-term financing goal of $100 billion (annually) by 2020 in could become a reality. The advisory group consisted of politicians and academics from both developing and developed countries. The group concluded that reaching the $100 billion annual level by 2020 is “challenging but feasible.” The AGF realized that reaching $100 billion would require a combination of scaling up existing public instruments and new public instruments (in addition to private forms of financing).

Yesterday I attended a side event at Moon Palace hosted by the Bellona Foundation and the Center for American Progress (CAP) about the specific ways in which public funding can be used to leverage private investment, specifically in terms of investing in clean energy buildup in developing countries. This  was the topic of a recently released report by the Center for American Progress, which belongs to the umbrella group, the Global Climate Network.

Richard Caperton, a policy analyst at CAP, acknowledged that giving chiefly public, or government money from the US to this climate fund is probably not politically feasible. He noted that there are some areas for US public-sources of contributions to the fund that may be politically feasible, such as taxing bunker fuels. Ultimately, he thinks, the US’ contribution will need to come from mostly private investment sources. CAP’s paper is all about how to make these clean energy developing country investments profitable, because currently they are not. He proposed five mechanisms that could be used to leverage private funds, which ultimately would 1) make capital available and 2) lower the cost of capital in the areas where it is already flowing. Some of the mechanisms relate to the debt side of the investments, while some relate to the equity side. For details on the mechanism, I urge you to read the report (I’m not exactly an investment expert). As complex as these mechanisms are, the speaker who followed Mr. Caperton brought the importance of his work to light.

The next speaker was from the International Center for Energy, Environment and Development of Nigeria. He discussed the incredible magnitude of the capital costs that are imposed on developing countries for making the shift to cleaner energy sources. His point illustrated that there is an incredible need for smarter investment strategies in clean energy. For example, for Nigeria alone, he estimated that the investment costs of these new energy sources would be $33 billion USD. He noted a greater problem though, which is that these investments also require a lot of political capital to get national leaders on board. In order to gain sufficient political capital to convince national leaders that these investments are needed, the climate investments should be linked to other investments in other development policy areas. The more assimilation there is between new climate policies and more established development policies in a country, the more likely you are to achieve political support.

So we need to use public funds to leverage private funds and we need development policies to leverage climate policies. That’s a lot of leveraging.

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US Congressional Panel on US Climate Policy

Four congressional staffers from Capitol Hill gave a presentation on US climate policy in a post- 2010 midterm election environment. Three of the staffers were Democrats and one was Republican. They all noted that uncertainty lies ahead with regard to the future of climate legislation.

When asked if there is potential for compromise, the Republican staffer did not seem too optimistic. It was his impression that a lot of newly elected Republican members viewed the 2010 midterm election as a mandate that the American public does not want a cap-and-trade system. He also cited the Republican disapproval resolutions circulating the legislative chambers, which if passed, would strip the EPA of its newly enacted regulatory authority to regulate greenhouse gases.

There are many views on whether cap-and-trade actually prompted angry voters to go to the polls this past November. Others suggest that this was not a particularly salient issue driving voter turnout. This Republican staffer is probably correct in forecasting that there will be little room for compromise with the Republicans in Congress. An area of potential bi-partisan wiggle room he did mention, though, was in promoting nuclear sources of energy through new legislation (in which Republicans would have to concede a bit to those Democrats who oppose nuclear power).

The most interesting point raised in the session was put forth by an audience member. He explained the fear amongst the American business community is that if the EPA regulations stay in place, the price of compliance with US regulations will rise for businesses in the US. Since Europe’s emissions reductions regulations are driven by market mechanisms, Europe’s cost of compliance will be lower, therefore giving them a comparative advantage. The audience member then asked the Republican staffer if he expects that the Republican caucus will recognize the disadvantage created for the American business climate, and ultimately if the staffer expects that the Republican caucus will do anything to address emissions reductions. The staffer replied that he agreed that the Republican Party should do something, but explained that there is a large split among the caucus about what to do.

As this split exists, the Democratic Party should find ways to manipulate the raft in their favor. We should figure out who are the Republicans who support any type of climate action, how much weight they carry, and if they are willing to compromise. It seems like this is the only way to accomplish anything politically, during this “softening up” period until the 2012 presidential elections are over (unless we want to increase the prevalence of nuclear power, which I don’t think many Dems want to do.

Update 12/10/10: Politico has a terrific article on US resistance to contribute to Secretary Clinton’s climate finance pledge from Copenhagen here: http://www.politico.com/news/stories/1210/46222.html

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“An Incredible Gift”

Global natural gas supply provides incredible potential for a transportation revolution in Latin America, a message highlighted here at a side event here in Cancun. On Sunday, December 5 2010, the Worldwatch Institute and the International Gas Union co-hosted a day-long event on the future of natural gas in a low-carbon global economy. Guest speakers included:

Senator Timothy Wirth’s presentation in particular properly highlighted a little known, important fact –which is that that there is an enormous natural gas supply across world just waiting to be used. In a world with conflict emerging between the demands for economic growth and the demands for a low carbon economy to mitigate the impacts of global climate change, we should take advantage of low-carbon, prevalent natural gas.  He deemed natural gas “a remarkable gift” that brings opportunities for replacing coal, transitioning to a low carbon economy, and transitioning as a transportation fuel for truck transport and urban fleets.

Mr. Brett Jarman, Executive Director of NGV Global, a company which is involved in the development of natural gas vehicles, picked up where Sen. Wirth left off on natural gas vehicles. In particular, he noted that three Latin American countries—Argentina, Brazil and Columbia all are already among the top ten nations using natural gas vechicles.

The fact is, supply is abundant, growing, and globalized in Latin America. In 2008, Brazil began operating floating liquid natural gas operations and since then Argentina and Chile have followed suit. More recently, this Monday, Karoon Gas Ltd. of Austrailia announced that it plans to invest over $300 million in the South American natural gas markets of Brazil and Peru. The Wall Street Journal deems this investment “just a start” in South America.  With the right incentives and policies in place, this industry provides a very exciting opportunity for Latin American economies.

The problem, as noted by Senator Wirth, is that the final negotiating text from Copenhagen mentions natural gas in two or three sentences. In other words, there is very little discussion of the viability of this source at the global level.  Some efforts are underway such as the United States State Department’s Global Shale Gas Initiative, developed to assist countries that have vast unconventional gas supplies (such as Argentina) with science, technology and regulatory assistance for extracting shale natural gas. Other efforts to promote the resource are bubbling, and Sunday’s forum was an informative addition.

Source: IEA

 

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When the Numbers Don’t Align…

Mexico was discussed as a case study at an International Institute for Sustainable Development side-event on Low Carbon Growth and Development Cooperation. Christa Clapp, economist for the Organization for Economic Co-Operation and Development ‘s Climate Change Expert Group, discussed the results of a study she led on the GHG mitigation potential of seven high-emitting countries.  The study looked at economic modeling variance, which in Mexico’s case ranged significantly.

The baseline modeling used was SEMARNAT and there were five other economic models used to determine GHG emissions reduction and mitigation potential of Mexico:

  • LEAP/MEDEC, which was the World Bank’s Model
  • DNE21+
  • ENV-Linkages
  • McKinsey v2.0
  • WEM

Source: OECD

The models employed underlying assumptions such as GDP growth, fuel prices and population growth. In terms of baseline GHG reduction through 2020, the variations between models were substantial and varied between 561 and 937 MTCO2e. For 2030, the variance was between and 647 and 1200 MTCO2e. Average annual growth rates from 2010-2030 ranged from 1.2% to 2.5%.  The following chart explores the modeling result differences in baseline emissions reductions:

Ms. Clapp admitted that these types of results are very confusing for Mexico and Latin America, more generally.  In particular, Mexico has a good foundation of GHG-related data, produced through national greenhouse gas inventories. Since this data has not been collected systematically in other Latin American nations, it might be more efficient for other nations to focus on a sector-by-sector approach (as opposed to an overall national baseline strategy) until significant sources of data are collected.  There is a substantial need for increased modeling capacity in these nations—particularly on data collection, technical expertise, human resources, and analysis.

This study begs the question– what types of climate policy choices are countries like Mexico supposed to make when modeling projections don’t align? Economic modeling is confusing enough—what is a nation to do when the models paint different pictures? Increased guidance and an international standardization of assumptions would be helpful to ensure that modeling results are as accurate as possible for these high-emitting nations. It doesn’t seem like the UNFCCC is actively doing anything to promote this capacity and it is unclear if the UNFCCC has the legal mandate to do so.  It seems to be in everyone’s best interest to re-examine the ways in which we assert quantitative and economic truth–particularly before other developing nations, like those in Latin America, embark on their own data collection and modeling endeavors.

A link to OECD’s study is: http://www.oecd.org/dataoecd/42/33/44050733.pdf

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Peso by Peso

This year, the COP is split up into two locations– Cancun Messe and Moon Palace. Cancun Messe is where non-governmental and country delegation booths are located. Moon Palace is where the plenary sessions and official delegate offices are located.  There are significant, symbolic differences between the locations. Let’s just say that one is more luxurious than the other…

As glorious as the Moon Palace is, the UNFCCC process itself isn’t grand or sweeping. As my Institutions in Public Policy professor would say, the UNFCCC process represents “incrementalism,” or small bits of change over time. Since I was in Copenhagen, I have grown at ease with this fact. An event I attended yesterday on climate financing made me realize that a lot has been accomplished–even in the year since Copenhagen.

The event was part of a side series of events hosted by Resources for the Future. It was about climate financing–specifically the AGF, or the high level UN advisory group that was commissioned after the Copenhagen Accord was noted. The purpose of the AGF was to figure out how the long-term financing goal of $100 billion annually by 2020 could be accomplished. Four members from the group, moderated by Stanford Law Professor and AGF group member Thomas Heller, discussed the conclusions of their advisory group. They were all pleased to report that reaching $100 billion by 2020 is feasible–difficult–but feasible. Now the findings of the AGF report need to be implemented.

This is where things get tricky. The $100 billion projections released by AGF rely heavily on carbon taxation. The panelists acknowledged that without the US pricing carbon, reaching $100 billion is much more difficult (because the revenue generated from carbon credits substantially contribute to the $100 billion). By all projections, US policymakers are nowhere near where they need to be to enact a price on carbon.

This is where I am reminded of incrementalism. Though in the US, Tea Partiers and Conservatives outnumbered climate activists and other interested stakeholders at the US 2010 midterm election polls, and though comprehensive climate legislation is dead, there is still room for bit-by-bit changes. Personally, I don’t know what these changes will look like ( travelled all the way to Cancun and I can’t even see into the Plenary session because it is closed!). I do know that we should keep trying.

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Women and REDD+

Indigenous people’s rights have increasingly come to the forefront of REDD+ projects. However, one dimension that has been neglected has been gender and women’s rights.

At a side event organized by Norway on Monday, indigenous women talked about the importance of including women in the crucial decision-making process on the future of REDD that is currently underway. The urgency of the issue is due to the fact that a decision on REDD is expected by the completion of the COP16 negotiations next Friday. Lorena Aguilar, the Global Senior Advisor on Gender for IUCN, announced the launch of the Global Initiative of Women and REDD happening during the COP16 in Cancun.

An indigenous woman from Nepal spoke about the exclusion of women in the crucial decision-making process that will decide the future of REDD+ which is currently underway. According to her, the focus of implementing organizations is on technology, monitoring, and other such logistic-type issues, and not so much on making it equitable by including women as key right-holders. She expressed concern that if women are not present when the key decisions are made, they will be left out when the communities begin to reap the financial benefits of REDD+ programs.

A representative from the Asian Indigenous Women’s Network spoke about the role of indigenous women in managing forests to ensure their continued health and survival. According to her, in indigenous communities throughout the world, it is the women’s job to fetch water and find firewood for fuel. Because of this, indigenous women are traditionally the stewards of the forest and carry the ancestral knowledge on the best forest management practices. She emphasized the need to include a gender dimension in any REDD+ framework; women are not mentioned at all in the current language of REDD+ frameworks and negotiations.

The presentation ended on a cautiously optimistic note, and a call to action: women are a critical component of REDD+ and their voices need to be heard- they need to be in positions of leadership at the decision-making table so that benefits may be shared equitably. When REDD first began, there was no mention of indigenous people’s rights to their culture and traditions. After a surge in activism, they begun to be incorporated into the framework. The hope of the Global Initiative of Women and REDD is to achieve such a level of civil participation to bring the issue of women to the forefront of REDD negotiations so that women’s participation may be an integral component of REDD.

In indigenous communities throughout the world, it is the women’s job to fetch water and find firewood for fuel. Because of this, indigenous women are traditionally the stewards of the forest and carry the ancestral knowledge on the best forest management practices.

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Preliminary Thoughts

Less than a day away from the official start of the insanity that is the COP, many things come to mind about the days ahead.

So, what is the importance of COP16? To the people who were disappointed by results of the COP15 (and they are in the majority) the COP16 might not seem very promising at all. However, some see it as one of the three important conferences which will determine the future of international action on climate change following the Kyoto Protocol: COP15 in Copenhagen, COP16 in Cancun, and next year’s COP17 in South Africa.

What happens in Cancun will be crucial to the next decade of climate negotiations and treaties.

So, what is being discussed?

Unfortunately, emission reductions is an extremely divisive issue, and no one can seem to get an agreement on how much each country should reduce and how it should be implemented policy-wise. It is looking increasingly difficult for an over-arching treaty such as the Kyoto Protocol to be achieved, but instead a more varied patchwork of policy will be pursued.

Because of this, the focus is shifting away from prevention and mitigation (which is what emission reduction is, essentially) and towards more pragmatic solutions, such as adaptation, clean energy technologies, and REDD+.

This shift in focus represents an acknowledgment of the immediacy of action: it is too late for only preventive measures, we must now act to contain damage and adapt.

Of course, emission reductions are and will continue to be an important topic, but now they will share the center stage with other emerging issues.

Note: This article was written on Nov. 28, 2010

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