Finance Working Document (preliminary draft)
April 4, 2009

Outline:
Introduction
Scale of funding needed (Tove)
Sources and mechanisms for generating financing (Tirthanker)
Governance and institutions for financing (Katerina, Anju)
Delivery of financing for Adaption and Mitigation, with MRV mechanism (Harald)

Introduction:

Negotiations towards a Copenhagen agreement are currently being held back, for two principal reasons – first, the resistance by many Annex 1 parties to advance ambitious emissions reduction targets for Annex 1, and second, and perhaps equally important, the lack of any strong political signals regarding financing, which will be crucial to a Copenhagen deal.

This document is aimed at creating a common CAN position on key elements needed to build a strong case to support a campaign for significantly scaled up public financing as part of a Copenhagen deal. To get the negotiations back on track, there must be a much stronger political signal that adequate public financing (to provide core finding and to leverage with private sector financial flows, carbon markets and domestic resources) will be available under the climate Convention to meet our goals.

To help support national campaigning efforts in all our countries to raise the ambition levels on financing, and get a strong political signal well before Copenhagen, it would be helpful for CAN to have strong consensus positions on the key elements of a financing package, including how much public financing is needed for the Convention, where the funds will come from, how they will be managed, and how to ensure they will be effectively used to being about emissions reductions and adaptation outcomes in developing countries. This document is the first step to building these consensus positions. Some parts are still very preliminary, but they will be developed here in Bonn and work will continue thereafter.

Scale of funding needed (Tove)

The mechanisms under the convention need to generate public funding for developing country adaptation, mitigation and capacity building, at the scale of at least US$ 140 billion per year.

The mechanisms need to cover the needs of support in developing countries, including:

- At least US$ 50¹ billion per year for adaptation

- At least US$ 35² billion per year for forests

- At least US$ 50³ billion per year for energy-related mitigation

- At least US$ 5⁴ billion per year for insurance

- At least US$ 5⁵ billion per year for agriculture

These resources are under the authority of the climate Convention. A small part (max 10%) could flow through channels outside the convention, but these would have to be recognized by the CoP, according to established criteria, as MRV support and count towards developed countries’ commitments to deliver on financing and technology support for mitigation, adaptation and capacity-building.

Sources and mechanisms for generating financing

International finance options exist that can provide the additional, predictable, and stable resources necessary to support adaptation in vulnerable developing countries and to fund MRV mitigation measures in developing countries, including REDD. The international aviation and shipping sectors have been identified by country delegations and observers to the UNFCCC negotiating process as sectors where it’s possible to reduce greenhouse gas emissions while generating new finance to support adaptation and mitigation activities in developing countries. Such measures can be designed as passenger or fuel levies or as emissions trading schemes with 100% of the allowances auctioned. Finance estimates vary depending on program design, the size of the levy, and the estimated cost of allowances. The CAN finance asks are based on what’s been determined as plausible finance estimates taking these variables into account.

Norway has proposed that a portion of the international emissions allowances (AAUs) allocated to each developed country with an emissions commitment should be set aside and auctioned off, rather than simply given away for free. Oxfam has estimated potential revenues from an auctioning of 10% AAUs at an allowance price of $45/ton in 2015, which is also a reasonable estimate for 2020.

The level of finance generated from the aforementioned measures is not sufficient to generate the full amount needed to support adaptation and MRV actions (including REDD) in developing countries. We therefore propose that the remaining funds be generated through assessed national contributions made by Annex 1 governments and that funding commitments be differentiated based on responsibility and capability.

Financial architecture (Katarina, Anju, Janet)

Financing for climate change mitigation and adaption in developing countries is a commitment made in the climate Convention, based on their historical and current responsibilities of developed countries for causing climate change and occupying an extremely disproportionate share of the “environmental space” of the planet through their historical emissions. It is not aid and there is not a donor-recipient relationship, but that of fulfilling established commitments to enable meeting the objectives of the Convention. This dynamic will have significant influence over the governance of the funds. Therefore, it is important to ensure that the sources of finance are additional to 0.7% commitments, and adequate to meet the needs with predictable, non-discretionary flows, stressing the importance of innovative sources of funding.

Climate funding must come under the authority of the COP. Political oversight by the COP on fund policies and safeguards is essential to enabling effective accountability and political palatability. The role and remit of the COP must be clear – setting operational guidelines, electing Executive Board members, and approving final budgets, and auditing the financial mechanism - and differentiate between political oversight and operations/ administrative decisions.

The Governing Council/ Executive Board is responsible for operationalizing the directions of COP. It provides overall strategic guidance by setting the guidelines for the implementation of MRV financing and MRV actions and for project assessments and evaluation, approves final project proposals and publicly lists the reasons for approval or rejection, and carries out country disbursement based on COP criteria. It should consist of majority non-Annex 1 countries with one non-A1 and one A1 CEO. The Council/Board decides by consensus – with a one-member-one-vote basis as a matter of course. NGOs are granted observer status at governing council meetings and are provided a regular time slot for a presentation at the Governing Council sessions. Lessons should be learned from the Adaptation Fund Board.

Operating Entit(ies)

Multiple Technical assessment bod(ies) made up of representatives of government environment ministries, NGO experts, industry and academia that screen proposals and ensure latest scientific knowledge is taken into account; evaluate and recommend to the Council/Board when support should be granted

Monitoring and evaluation office runs regular and systematic internal audits, ensures real-time learning of lessons, makes assessments based on a criteria of result delivery and performance indicators.

Secretariat in charge of day-to-day administration, led by an executive secretary, provides logistic support.

Implementing Agencies would operate under the rules and guidance of the Operating Entit(ies), and could be any existing entity that meets the OE’s process and competency criteria, with regular review and according to common principles:

National and regional level structures should be developed to assess country needs that cooperate with Convention fund. A regional presence should be established through regional offices or country programs in relevant regions

Safeguards, guidelines and policies should be based on existing strong and binding environmental and social safeguards and guidelines, which will ultimately drive and provide guidance for the decision-making of the Board. Regular review of safeguards must be subject to inclusive consultation and approved by COP.

Transparency and timely access to information, regardless of document type, should be enshrined in rules on automatic disclosure and provision of information to all those concerned by transaction without prior request. Individuals who in good faith disclose information revealing a concern about malpractices should be protected from any reprisal. Regular review by __

Participation As well as being accountable to the COP, an independent complaints procedure and civil society consultative platform should be established. Exchange and dialogue with civil society actors must happen at the national level, and indicators should be developed for civil society participation

Useful and used documents

GTI: Transparency Charter for International Financial Institutions: Claiming our Right to Know

Melanie Nakagawa

Benito Muller

Delivery of financing for Adaption and Mitigation, with MRV mechanism (Harald)

Still under discussion – we will discuss the concept of “International Mitigation Obligations (IMOs) that Tomas Wyns outlines 

A mechanism for MRV support must avoid the following three possibilities:

1. Money are provided, but the reductions never happen (or contain a deficit)

2. The reductions are provided, but the real abatement cost is either higher or lower than expected.

3. Both money and reductions are provided (equal), but they both fall short of the overall target.

The first could be solved with the MRV containing a level of concessional grants/loans.

The second have to be solved by transfering the surplus/deficit from one year to the other. Hence, there is a need (at least for the first period) to enable the mechanism to scale up/down its sources.

The last have to be solved by applying binding commitments to both A1and nA1. However, only A1 will have financial commitments, while the nA1 have commitments to provide and facilitate (the A1-funded) appropriate and needed actions.

Therefore, I think the registry that we point to in our previous position (and which fits well with Tomas' non-paper) needs to include a mandate to require further action by the NA1 if not adequate, and similarly further funding by the North if insufficient. (Such a mandate could only be given by the COP...)