Climate Finance

Two main issues Where to get the money? How to spend the money?

Where to get the money? Reallocate fossil fuel subsidies –They greatly exceed climate finance goals Money from: –Carbon taxes –Emissions permits –International carbon pricing –Private, bilateral and multilateral sources

How to spend the money? To finance mitigation & adaptation Mitigation example: –subsidize clean energy technology –large-scale, multilateral financing –structure per WTO TRIMS, GATT, SCM & IIAs Adaptation example: –subsidize subsistence farmers to adopt GMO crops –small scale, national financing –another way to address IPR problem –structure per WTO SCM and Agriculture

Multilateral Financing Mechanisms

Multilateral Financing Mechanisms World Bank UNFCCC process and World Bank energy projects have been working at cross purposes Fossil fuel subsidies: –are expensive –inflate GHG emissions –mainly benefit middle and upper classes Their reduction: –encourages energy efficiency –increases relative attractiveness of renewable energy –frees up resources for poverty alleviation, including clean energy for those without electricity

Developing Country Fossil Fuel Consumption Subsidies 2007: USD billion 2008: USD billion 2009: USD billion 2010: USD billion 8% of 2010 total reached poorest income group (the bottom 20%) Goal of Green Climate Fund: USD 100 billion per year for developing countries

Multilateral Financing Mechanisms UNFCCC Green Climate Fund Goal: USD 100 billion per year by 2020 Proposed sources: –30% emission allowance auctions, domestic carbon taxes –10% carbon pricing international transportation –10% redeployment of fossil fuel subsidies in developed countries or a financial transaction tax –10% private investment flows –11% multilateral development banks Suggested carbon price USD per ton of CO2e Prioritize funding adaptation for most vulnerable developing countries & preserving rainforests World Bank interim trustee, Secretariat South Korea

Multilateral Financing Mechanisms Kyoto Protocol (Australia, Europe) Clean Development Mechanism (certified emission reduction (CER) credits) Adaptation Fund (2% of CERs) Official Development Assistance Mexico City examples: –metrobus, new metro line –European money, European buses & trains –Reduced my carbon footprint

Climate Finance and WTO Subsidies Law

Bilateral foreign aid conditional on the use of suppliers from the donor country CDM projects that include bilateral official development assistence similar % of CDM projects for which CER recipient was technology supplier –Denmark 91% –Spain 50% –Germany 40% –Japan 37%

SCM Agreement Article 1.1(a)(1) ‘subsidy’ definition ‘a financial contribution by a government or any public body within the territory of a Member’ (emphasis added). Does ‘within the territory of a Member’ apply to ‘a government’, ‘public body’ or ‘financial contribution’? If the financial contribution must take place within the territory of a Member, –‘a Member’ could mean the Member that makes the financial contribution –or could mean any Member. Former interpretation might exclude foreign aid from application of SCM Agreement.

Article 1.1(a)(1) financial contribution Bilateral climate financing: could be a direct transfer of funds or some other form of income or price support, depending on the terms of the aid package. Multilateral climate financing: might take form of payments to a funding mechanism.

Article 1.1(b) ‘benefit’ Foreign aid & CDM logic is investment would not occur without funding. The funding creates financing necessary for participation of the donor country’s suppliers. Creates opportunity that would not have existed otherwise in the market. That could qualify as a benefit. BUT, if no market benchmark without aid program, can’t prove benefit is conferred.

Export subsidies Deemed to be specific Prohibited Test of contingency in fact is met when the granting of a subsidy, without having been made legally contingent upon export performance, is in fact tied to actual or anticipated exportation. Climate financing subsidy is tied to the exportation to the recipient country. Could be a prohibited export subsidy.

Backward WTO subsidies law Fossil fuel subsidies are not generally specific to a domestic industry. Clean energy subsidies usually are specific, but might be saved by benefit analysis. Specific subsidies can be subject to unilateral or multilateral action. Prohibited subsidies are deemed specific.

Financing Adaptation Subsistence farmers and GMOs

Financing Adaptation by Subsistence Farmers Climate change will have greater impact on viability of traditional plant varieties in tropical developing countries than in temperate developed countries. In developing countries: –greater need for GM seeds to raise yields & adapt to climate change –larger percentage of population depends on agriculture (e.g. 50% in India) –poorest depend on subsistence agriculture –rely on collecting seeds to sow future crops

Subsistence farmers need Microfinancing for GMO seeds, fertilizer and herbicides: –to afford adaptation –to raise incomes with increased output Microinsurance for crop failure from drought, floods or other natural calamities WTO Agreement on Agriculture exemptions should allow.

Financing Mitigation Clean Energy Projects

Financing Clean Energy Projects Debate regarding access to clean energy technologies should not be on IPRs Real issues: creating incentives for and removing obstacles to clean energy development and dissemination Need to reallocate fossil fuel subsidies May need to reform WTO subsidies law Need to remove barriers to trade in clean energy technologies & services, investment

Conclusion Where to get the money? –Fossil fuel subsidies –Permit auctions, carbon taxes –Both raise money and reduce emissions How to spend the money? –Clean energy subsidies –Adaptation for the poor