FT Energy Source Climate experts’ forum: financial commitments

FT Energy Source is posting a daily question for our panel of expert commentators. Below are replies from Jeremy Leggett of Solarcentury, Robert Stavins of Harvard University, Julian Morris of The International Policy Network, Vivienne Cox, chairman of Climate Change Capital, and Lord Browne of Madingley, president of the Royal Academy of Engineering.

Is it essential for developed countries to offer a clear commitment to long-term financing for developing countries at Copenhagen?

Jeremy Leggett:The Pope could not have put it better yesterday: “It is important to acknowledge that among the causes of the present ecological crisis is the historical responsibility of the industrialised countries.” We owe the developing countries, because the vast majority of the greenhouse-gas concentrations in the atmosphere have been put up there by the small minority of us that live in the rich countries, whatever the trend is today in China’s rising economy.

We acknowledged this historical responsibility two decades ago, in the run up to the Rio earth summit, and called it the principle of differentiated responsibility. There is something distasteful in watching US and European diplomats, almost two decades later, attempt a squirming rewrite of this history: the more so since China’s declaration last week that it wants none of the developed world’s compensatory finance for itself, but that it should go to other developed countries.

Imagine the reaction of an experienced developing-world diplomat reading the newly compiled figures from our bank bail-outs to date. Governments in the richest countries have so far spent $9,800bn curing the self-inflicted wounds of their banking system, an average of $10,000 for every one of their c. 1bn people, and as much as $50,000 per person in the case of the UK. The US has allocated $3,600bn, 25.8 per cent of gross domestic product. The UK has allocated $2,400bn, fully 94.4 per cent of GDP. Here in Copenhagen, with a liveable future on the planet at stake, they trifle over mere tens of billions. If Ben Elton had scripted this spectacle in a 1990s novel, people would have thought he was taking fantasy too far.

The other issue is that the African nations have a very focused appreciation of what the science is saying these days. They know that the current emissions commitments leave the world on track for an increase in global average temperature of approaching 4 degrees Celsius. This means utter ruin for many of them, and in the shorter term. Why should they accept a deal that offers with the one hand trifling financial help with adaptation and low-carbon mitigation as they develop, and with the other, little hope of the world below 2°C that they so desperately need to keep their economies from ruinous climatic assault even if they can lift themselves from poverty?

Combine that with being asked to queue for freezing hours in business clothes even before they are allowed any kind of voice in the negotiating chamber, glared at by surly gun-toting Danish police. No wonder they are angry.

So yes, it is very much essential that the developed give a clear commitment to long-term financing of developing countries, as well as lifting our emissions commitments while we are about it.

Jeremy Leggett is an author, founder and executive chairman of Solarcentury, a solar energy company, and ambassador to the Global Observatory at Copenhagen.

Robert Stavins: The only conceivable route for large-scale finance of the magnitude demanded by developing countries is through foreign direct investment by the industrialised world, not government-government transfers (foreign aid). Government policy is surely needed to facilitate this by providing meaningful incentives to the private sector through appropriate carbon pricing schemes, including cap-and-trade.

Such FDI is also the more efficient route, because funds will be used for the intended purpose, unlike foreign aid, which poor countries may understandably use – at least in part – for other (possibly meritorious) purposes.

This private-sector route of finance should be the focus of the discussions in Copenhagen. Unfortunately, this has not been the case up until now.

Robert N. Stavins is Albert Pratt Professor of Business and Government at Harvard University.

Julian Morris: Like Rio in 1992 and Kyoto in 1997, the only reason most leaders of poor countries have come to Copenhagen is that they believe they can extract some additional money from the taxpayers in rich countries. It seems unlikely that they would agree to any deal without such transfers being promised. However, my guess is that they are interested more in short-term than long-term transfers.  Actually, a few million in cash deposited into the right Swiss bank accounts would probably suffice for many of the leaders.

Julian Morris is an economist, author and director of The International Policy Network.

Vivienne Cox

Vivienne Cox: I think that it is pretty clear that commitment to long-term financing for developing countries is a key to any agreement but the question being asked by the voters of developed countries is: Where is this money going to come from? It is not enough to just divert existing aid money, and voters are unlikely to back too much new money being given away especially given the levels of debt that many of the developed countries now have. It has been clear to Climate Change Capital, from its foundation six years ago, that much of the trillions of pounds needed over the next decades for investment in preventing and adapting to climate change will have to come from the private sector. But for this money to flow globally there has to be a regulatory framework to encourage it and make it worthwhile. In particular there needs to be as much clarity as possible about the framework over the long term. A significant price on carbon is one answer.
My colleague at CCC, James Cameron, has been advocating the use of “green bonds” as a way of encouraging the use of private money. This could work both locally and internationally. There are lots of other ideas that will encourage investment, with a decent return, in developing countries. Proposals for preserving rain forests, making trees worth more alive than dead, is one. We call these ideas, where private capital is used for a public good and the solving of a systemic problem, the creating of wealth worth having. And, to blow the company trumpet just this once, this is what we do.

Vivienne Cox is chairman of Climate Change Capital, the environmental investment and advisory group.

Lord Browne of Madingley: It is critical that the developed countries agree, in principle, to fund climate projects in the developing world. The rich countries must, of course, take action at home, although it is clearly unacceptable if emissions associated with manufacturing are simply shifted from the developed to the developing world. Moreover, recent research suggests that developed countries are likely to deliver only a third of the necessary cuts towards a 2ºC path. An effective global deal must find a way to finance the other two-thirds in the developing world.

Some of those cuts will be self-financed. In many developing countries policymakers have recognised that energy efficiency programmes will make a positive economic contribution as well as reducing emissions. But many other projects will need extra money to get off the ground – money that developing countries do not have.

A combination of market and public funding mechanisms will be needed. A commitment to carbon market reform – in particular, upgrading the Clean Development Mechanism to reward reduced emissions from entire industrial sectors, not just from single projects – could stimulate renewable energy investment in emerging markets. A similar mechanism (based on the REDD credit – Reduced Emissions from Deforestation and Degradation) could help to reduce emissions from deforestation, although it seems likely that using public funds to pay local communities to protect standing forests may be more effective. Meanwhile adaptation projects will have to be paid for from public funds.

The developed world should provide money for all these things because of its historical responsibility for climate change. But this does not mean the money is a mere ‘hand-out’; nor is wealth being transferred at a disadvantage to the countries that provide it. Quite simply, it is cheaper to reduce emissions in the developing world than it is at home and it makes sense to exploit those opportunities.

Lord Browne of Madingley is president of the Royal Academy of Engineering, managing director at Riverstone LLC, and was chief executive of BP from 1995 to 2007.