The role of the Copenhagen Climate Change Treaty

The convention and the Kyoto Protocol foresee financial assistance from developed country parties to developing country parties. Developed country parties (Annex II parties) committed to provide new and additional financial resources to assist developing country parties comply with their obligations under the convention (Article 4.3) and the Kyoto Protocol (Article 11.2). The financial assistance may be provided through a 'financial mechanism' established by Article 11 of the convention or through bilateral, regional or other multilateral channels.

The GEF was designated as an entity entrusted with the operation of the financial mechanism of the convention on an interim basis in 1995. The financial mechanism is accountable to the COP, which decides on its policies, programme priorities and funding criteria. However, it is a very minor player in the financing of climate change - representing less than 1 per cent of total investment.

The fourth review of the financial mechanism has been initiated and will be completed by the COP at its 15th session in 2009. The review will determine the fifth replenishment of the GEF. A key question that should be addressed through the current review of the financial mechanism is what role the financial mechanism should play in the overall financing challenge for climate change. Should it aim to take a niche role in financing by targeting key gaps, or should it also take a strategic role in financing for climate change across all sources and technology stages?

While the proliferation of financing mechanisms outside of the convention is an encouraging sign in the sense that it creates competition and innovation as each entity finds a suitable role within the financing landscape, it has also resulted in duplication and lack of overall efficiency. It is a sign that there is a lack of leadership on the issue of financing climate change as each institution is vying for power to take the commanding role. The convention is the preeminent expression of global efforts to address climate change, and surely it should embody the necessary political power that can provide the leadership and direction for financing, maximize efficiency and shape the financing landscape so that it delivers in a manner consistent with the objectives of the convention.

FINANCING A CLIMATE CHANGE TECHNOLOGY REVOLUTION 263 Table 24.5 Options for enhancing convention finance for technology

Maturity Proposal stage

Targets for national research, development and demonstration expenditure

§ Convention Research, ro Development and to Demonstration Fund n o m e d d ro Global Network of Innovation en Centres me p lo el

S National targets for technology demonstration h cr ar e s ce Innovation prizes

UNFCCC Technology Fund

National targets for technology deployment

Public procurement mechanism

S International project

^ development mechanism pl e

Carbon financing io si u

Options

• Targets for the provision of financial support for research and development in developing countries

• Targets for reducing or eliminating support for research, development and demonstration for environmentally harmful technologies

• Pooling of national research, development and demonstration expenditures

• Developing countries' financial assistance for participation in international technology agreements

• Investment guarantee or risk reduction tool

• Public-private partnerships

• Intellectual property sharing

• Technology transfer

• Various financing tools

• Global technology roadmaps

• Technology agreements

• Commitments to demonstration financing in developing countries

Could include the following sub-funds:

• renewable energy;

• venture capital;

• mezzanine finance;

• investment risk tools

• Five- to ten-year national targets

• Financial support through the financial mechanism of the convention or the proposed technology fund

• Tendering programme

• Price guarantees

• Coordinated public procurement

• Advanced purchasing commitments

• Market analysis

• Programme/large-scale project feasibility and scoping

• Structure financial packages

• Expansion of interlinked domestic emissions trading schemes

• Enhanced/expanded project-based Clean Development Mechanism (CDM)

• Expansion of the CDM through scale-up of programmatic approaches

• Sectoral approach to the CDM

• Sector no-lose targets and crediting

• Crediting for nationally appropriate mitigation actions

Table 24.5 Options for enhancing convention finance for technology

Maturity Proposal stage

Options

Technology agreements and programmes

International investment facilitation

Concessional financing

National renewable energy and energy efficiency targets

Scale-up Convention Financial Mechanism

National technology transfer plans

Export credit agencies

UNEP-proposed International Technology Transfer Programme

Sectoral technology-oriented agreements (priority for steel production, coal-fired power plants, cement and road transportation) International technology barriers programme to address barriers faced by specific technologies; this could include purchase of licences or patents Global adoption of energy-efficiency standards and mandates

Technology scale-up partnerships Expansion of the Private Finance Advisory Network and other similar investment facilitation programmes

Loan facility for energy-efficiency measures Credit line for senior debt; green bonds Support for commitments to national renewable and energy-efficiency targets in developing countries

Fifth replenishment of the Global Environment Facility (GEF)

Country-driven building upon technology needs assessments and national adaptation plans of action

Use financial instruments to provide reduced interest rates, credit guarantees and insurances for technology transfer

Limit support for technology exports by their export credit agencies to environmentally sound technologies

An integrated programme of related initiatives

Source: Haites et al (2009)

This is not to say that the actual mechanisms for financing emissions reductions projects should reside within the convention. Such an approach would essentially require the creation of a new financing institution under the convention with similar capability to the Bretton Woods institutions. It should be possible to harness the existing institutions to deliver the objectives of the convention. However, to do so requires a financing mechanism under the convention that has both the authority and the means to do so. The moral suasion of the UNFCCC is not enough. In terms of the means, adequate financial leverage under the convention is critical. It would be necessary for the convention to possess sufficient financial resources to leverage shifts in global financial institutions on the scale necessary.

The financial mechanism of the convention could function as a large fund of funds. Under the guidance of the COP, it would define the desired global strategic outcomes and how to hold to account the recipient financial institutions, and make the allocation of funds conditional upon reforms in these institutions that further contribute toward the financing of climate change technologies.

A possible model for an enhanced technology financial mechanism of the convention is illustrated in Figure 24.7, with policy options corresponding to those presented in Table 24.5.

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