At the Copenhagen climate talks in December 2009, one of the most contentious issues was financing: money to assist developing countries to both adapt to and mitigate climate change. To develop proposals on this critical issue, the United Nations Secretary-General’s High Level Advisory Group on Climate Change Financing (AGF) was launched in February 2010. The AGF is “guided by the Copenhagen Accord in which developed countries commit to the goal of mobilizing $100 billion a year by 2020, to support the processes of adaption and mitigation, in particular in the poorest and most vulnerable developing countries.” Thus far, the best estimate of government pledges of “fast start” financing towards reaching this goal is about $29 billion, with Japan committing $15 billion, the European governments $10 billion and the United States $3.2 billion. Estimates of the annual global cost of mitigation and adaption investments vary widely but are perhaps 10 to 20 times the current “fast start” total pledge.
At an informal September 2–3 meeting of high-level government officials in Geneva, developing country representatives continued to insist that climate finance be largely a public fiduciary duty of developed countries. But developed countries insisted on a large role for private financial firms to raise and manage climate change finance. The recent bailout of the financial services industry represents a large portion of the global public finance deficit that constrains developed-country government sources for climate finance. The U.S. delegate Todd Stern said that no “fast start” financing would flow to developing countries until governments agreed to a climate change “package.”
Because the Copenhagen Accord was negotiated outside of the U.N. Framework Convention on Climate Change process, the Conference of Parties (CoP) to the UNFCCC merely “took note” of the Accord in December 2009. However, with the assistance of the U.N. secretary-general, the UNFCCC secretariat and the Danish secretariat to the CoP, and the support of the U.S. and EU, efforts have been made to make the Copenhagen Accord the de facto framework to replace the de jure documents agreed by previous CoPs.
The AGF’s proposals for climate change finance are intended to significantly shape the negotiations at the next CoP in Cancun, Mexico in November/December. This analysis outlines what is thus far known of the AGF’s approach to identifying climate change finance sources for developing countries. While the AGF will be looking at a variety of proposals for climate finance—including direct contributions, revenue from transportation taxes, carbon taxes, and financial taxes—it is likely the AGF will count on carbon trading as its primary source of revenue for developing-country climate change finance. According to the AGF work plan,the first draft of its report is to be finalized by mid-September, and a briefing of its contents may be presented at a UNFCCC side event on October 7 during the negotiations in Tianjin, China.
This paper will examine the AGF mandate, lessons for carbon from excessive speculation on agriculture markets and why carbon markets are also vulnerable to the destabilizing effects of financial speculators. We conclude that the AGF should not report to the UNFCCC Parties that carbon markets are a reliable and practical source of climate change finance. As critics have pointed out, “Carbon trading is a cost-management tool that incentivizes companies to prioritize short-term savings and end-of-pipe changes over long-term investments into low-carbon technology, energy use and production.” Instead, the AGF should present policy options that will more directly and rapidly finance investments in a low-carbon economy, particularly in developing countries.