Jamie Andrews

Focusing on finance

There’s so much noise coming out of Copenhagen that it’s hard to know what to focus on.

Yesterday, Tuvalu put forward a key proposal that called for Copenhagen to have a binding agreement that included large developing country (China and India) cuts, in contrast to the Kyoto approach. This is an interesting development because lots of developing countries want a continuation of Kyoto in case the new treaty bulldozes the financial benefits they have seen from it. But small island states like Tuvalu understand that unless there is something much more radical then they will be literally underwater.

NGO groups who have traditionally been quite forthright about the division between ‘developed’ and ‘developing’ (including China and India in the latter group) are now seemingly supporting Tuvalu. As I write this, there is apparently a vote taking place that determines whether or not Tuvalu’s proposal for Copenhagen to including a binding treaty for emissions from all countries, will be accepted by member states. This is potentially a big political shift.

But what I want to focus on is economics. Finance is the key thing that could unlock a deal that could truly deliver carbon reductions. And not many people seem to be talking about it. What I have gleaned so far from key players and commentators is this:

  • the UK, Mexico, Norway and Australia have co-published an ‘unpaper’ on finance
  • the Danish Text calls for climate change financal aid to be delivered by a body other than the UN (see my previous post below)
  • George Soros has written a Comment is Free post suggesting that funds from the IMF could unlock vast amounts of money

The co-paper from UK etc. does not have much substance. It says lots of quite nice things, such as moving to a ‘programmatic’ way of funding mitigation (one of the key failings of the Clean Development Mechanism is the massive bureauracy of a ‘project-based’ format where all projects have to be assessed independently), but it doesn’t put much meat on the bones. The link to Norway’s proposal is definitely welcome but there is one key explicit concept missing (perhaps because of political expediency) and that is as follows:

AAUs should be auctioned, and the revenue raised put into a central fund along the lines of Mexico’s proposal

Talking about the fund as if national governments are going to fund it from ‘normal’ sources is pointless, mainly because of the massive budget deficit in a lot of developed country governments (not least the US and UK). George Soros makes this point in his Guardian post, and this is why he suggests the unlocking of IMF funds, but he doesn’t mention the auctioning of AAUs.

I think that taking money from the IMF could work well in the absence of national committments, but that the logic of auctioning of permits is so strong that it has to be discussed as well. Not only is it an obvious way to raise cash, but it massively incentivises carbon reduction. I’m pretty shocked that it’s not being discussed more already, and I very much hope that the UK, Mexico, Australia and Norway will be furthering this agenda as the talks continue.

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