Kate Mackenzie The Green Fund

How would financing for the developed world to mitigate and deal with climate change – should it ever be agreed upon – actually work? Whatever the final agreement, it is likely there will be tens of billions of dollars worth of funding deployed over the next few years.

And the ‘transfer’ part of financing agreements is a lot more complex than it might seem. There is the vexed issue of who should manage the doling out of funds. Speculation that the World Bank or the IMF, institutions some developing countries are wary of, might be involved fueled much of the outrage over the ‘Danish draft’.  There is also domestic politics among the donor countries to take into account, concerning who is deserving (the US believes China is not – but fortunately China agrees).

Then there is the matter of how the money is spent: to make the big industrial and agricultural changes needed to reduce GHG emissions, or to live with the effects of climate change, stability and scale of funding is important.

To begin addressing some of these issues, Norway and Mexico have combined their respective proposals to come up with a framework on how funds might be gathered and distributed.

Many of the ideas were identified in a “non-paper” floated earlier by both countries together with Australia and the UK, although some, such as discussion of whether funding should be additional to existing Millennium Development Goals commitments or not, are left out. Mexico, which originally came up with the Green Fund moniker, wants contributions and payments to be based on emissions, GDP, and population. Norway meanwhile suggested a mechanism for raising funds using proceeds from auctioning international carbon emission allowances.

The proposal is extremely broad-brush – necessarily so, because although Australia and the UK have signalled they could support such a scheme, that leaves another 185-odd countries with whom to reach consensus, if Mexico’s president Felipe Calderón and Norway’s prime minister Jens Stoltenberg are to achieve their goal of winning broad support.

Many aspects of this could be hideously complex, but it’s a start.

First, donating proceeds from cap-and-trade auctions. To date, most proposed and actual CO2 cap-and-trade systems have involved giving away a large proportion of initial allowance allocations to win political support from businesses. Proposed US schemes earmark any auction revenue raised for subsidising higher energy costs for some users, or for clean technology development. The auctioning or giving away of allowances is already such a fraught and often confuse subject that it’s easy to see how complex this could become.

Ideas about how to spend the money are similarly:

Funding for mitigation actions, including REDD (Reduced Emissions from Deforestation and Degradation), should primarily be delivered through result based mechanisms, for fully additional verified emission reductions relative to predetermined agreed reference levels.

Verification of things such as additionality (determining that projects actually need the funding and wouldn’t just happen anyway) would be essential, one would imagine. There are tomes worth of debate about these matters.

The point on governance is a little more specific, however:

The Green Fund should have a high-level board under the policy guidance of, and accountable to, the Conference of the Parties, with equal representation of developed and developing countries, and an equitable, efficient and transparent governance structure.

Talks on that topic, however, might be a little easier. But the subsequent paragraph refers to an ‘existing institution’, which could be more controversial.

Related links:

Are financial instruments the right tools to help developing countries? (FT Energy Source, 11/12/09)
Chichilnisky on how to solve ‘carbon leakage’ with carbon trading (FT Energy Source, 11/11/09)
The EU’s €15bn for developing countries: a turning point or just more of the same? (FT Energy Source, 09/09/09)