Climate Change: Commission sets out global finance blueprint for ambitious action by developing nations

A EU Press Release reveals that the European Commission has put forward a blueprint for scaling up international finance to help developing countries combat climate change. This initiative aims to maximise the chances of concluding an ambitious global climate change agreement at the December U.N. climate conference in Copenhagen.

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 is also likely to be necessary. The Commission proposes that industrialised nations and economically more advanced developing countries should provide this public financing in line with their responsibility for emissions and ability to pay. This could mean an EU contribution of some €2-15 billion a year by 2020, assuming an ambitious agreement is reached in Copenhagen.

President Barroso said, “With less than 90 days before Copenhagen we need to make serious progress in these negotiations. That is why the Commission 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 “.

Environment Commissioner Stavros Dimas added: “The European Union has led the way in committing to ambitious emission reductions and agreeing 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 7-18 December. 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 Commission’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 around 40% and international public finance could contribute to the remainder.

1. Domestic finance

In developing countries, as in industrialised nations, private finance from domestic sources will need to provide a large part of the investment necessary for mitigating emissions.

2. An expanded carbon market

The Commission 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.

3. 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 industrialised countries but also by economically more advanced developing nations. Each country’s contribution should be based on an agreed 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 and 30% of the global total.

The Commission 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-3.9 billion in 2013 and €2-15 billion a year by 2020, respectively.

‘Fast start’ funding

Assuming a satisfactory Copenhagen deal, a fast start should be made to international public funding for developing countries. Some €5-7 billion of assistance a year is likely to be needed in 2010-2012.

Based on the proposed common scale, the EU’s contribution would be €500 million-2.1 billion a year. However, the Commission proposes that the EU should consider increasing its contribution beyond this range.

Next steps

The European Parliament and Council are invited to consider the key elements of the Communication.

READ the Communication “Stepping up international climate finance: A European blueprint for the Copenhagen deal” – pdf

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