EC Outlines Global Financing Plan to Fight Climate Change
September 11, 2009 // Published as a news service by IHS
On Sept. 10, the European Commission (EC) released a communication providing a blueprint for scaling up international finance to help developing countries combat climate change.
The plan aims to maximize the chances of concluding an ambitious global climate change agreement at the December United Nations climate conference in Copenhagen.
According to the EC, by 2020 developing countries are likely to face annual costs of around €100 billion to mitigate their greenhouse gas emissions and adapt to the impacts of climate change.
Much of the finance needed will have to come from domestic sources and an expanded international carbon market, but international public financing of some €22-50 billion a year will also likely be necessary.
The EC proposed that industrialized nations and economically more advanced developing countries should provide this public financing in line with both their responsibility for emissions and ability to pay. This could mean an European Union (EU) contribution of some €2-15 billion a year by 2020, assuming an ambitious agreement is reached in Copenhagen.
EU President José Barroso said, "With less than 90 days before Copenhagen we need to make serious progress in these negotiations. That is why the EC is putting the first meaningful proposal on the table on how we might finance the battle against climate change. The sums involved are potentially significant, both ambitious and fair. I am determined that Europe will continue to provide a lead, but developed and economically advanced developing countries must also make a contribution."
EC Environment Commissioner Stavros Dimas added, "The European Union has led the way in committing to ambitious emission reductions and agreeing [upon] the measures to achieve them. We are well on track to achieve our Kyoto reduction target. Now we must break the impasse in the Copenhagen negotiations. That is why the Commission is putting forward a balanced blueprint for financing the necessary action by developing countries to limit their emissions growth as well as their adaptation to climate change. Our initiative reflects the strategic priority we attach to a strong Copenhagen agreement."
International Negotiations
Negotiations to draw up a global climate change agreement to succeed the Kyoto Protocol are due to be concluded at the Copenhagen climate conference on Dec. 7-18. The EU is pushing for an ambitious and comprehensive deal that will prevent global warming from reaching the dangerous levels - more than 2°C above the pre-industrial temperature - projected by the scientific community.
Financing Needs
Based on the EC's best estimates, assuming an ambitious global agreement, developing countries will need financing of roughly €100 billion a year by 2020 to mitigate their emissions and adapt to climate change.
Three main sources of finance should play a role in meeting these needs. Domestic public and private finance in developing countries could cover 20-40%, the international carbon market could cover around 40% and international public finance could contribute to the remainder, as detailed below:
- Domestic finance - In developing countries, as in industrialized nations, private finance from domestic sources will need to provide a large part of the investment necessary for mitigating emissions.
- An expanded carbon market - The EC estimates that a well-designed, expanded international carbon market could generate financial flows to developing countries of as much as €38 billion a year by 2020. However, this assumes that, as the EU advocates, developed countries take on a collective 30% emission reduction target and a sectoral crediting mechanism is introduced for advanced developing countries in place of the project-based Clean Development Mechanism from the Kyoto Protocol.
- International public finance - The more ambitious the carbon market is, the less need there will be for international finance from public sources. International public finance should be provided not only by industrialized countries, but also by economically more advanced developing nations. Each country's contribution should be based on an agreed upon scale reflecting its responsibility for emissions and its ability to pay. Depending on the relative weighting given to these criteria, the EU's contribution would be between 10-30% of the global total.
The EC estimates that developing countries could need €9-13 billion a year from international public financing in 2013, rising to €22-50 billion a year by 2020. These figures would imply EU contributions of €900 million to €3.9 billion in 2013 and €2-15 billion a year by 2020, respectively.
Fast-Start Funding
Assuming a Copenhagen deal consistent with limiting global warming to no more than 2°C above the pre-industrial level, a fast start should be made to international public funding for developing countries. Some €5-7 billion of assistance annually is likely to be needed in 2010-2012, as detailed in Table 1.
Based on the proposed common scale, the EU's contribution would be €500 million to €2.1 billion annually. However, the EC proposed that the EU should consider increasing its contribution beyond this range.
Table 1.
Estimated Annual International Public Finance Requirements
for Developing Countries, 2010-2020
(in € billion, at constant 2005 prices)
| |
2010-2012 |
2013 |
2020 |
| Mitigation |
1 |
3-7 |
10-20 |
| Energy and industry |
|
|
3-6 |
| Agriculture and reducing emissions from deforestation and forest degradation |
|
|
7-14 |
| Adaptation |
2-3 |
3 |
10-24 |
| Capacity building |
1-2 |
2 |
1-3 |
| Research and technology dissemination |
1 |
1 |
1-3 |
| Total |
5-7 |
9-13 |
22-50 |
Next Steps
The European Parliament and European Council are now invited to consider the key elements of the EC's Sept. 10 communication.
Further Information
For more information, see the EC's FAQ on this climate change financing communication and the EC's web page, A post-2012 global climate regime: the EU's contribution.
Source: European Commission (EC).