Transcript Estimates of Climate Change Financing Requirements

Estimates of Climate Change
Financing Requirements
Manuel F Montes, South Centre
African Climate Policy Centre
Addis Ababa , 13-17 August 2012
Main Messages
• Climate change financing needs of developing
countries exceed by at least 5-10 times
prospective flows
$600 to $1,500 billion a year vs $100 b/year
• While there are methodological issues, researchbased estimates should guide political decisions
• Climate financing delineated by existing
obligations of developing and developed
countries
Methodology
• Greater precision with more detailed, sectoral
studies but how to add up
• Many implicit, hard-to-measure, costs are
ignored in overall estimates
– Skills upgrading, local implementation capacity, etc.
– Costs of adapting technology to local conditions
• Uncertainty in estimates of proportion of
investment subject to climate change
• Many estimates are not independent of each
other, partake of flaws in other studies
Mitigation –Estimates of Global Costs
• IEA (2010) “Blue Map” scenario
up to 2030
$750 billion a year
2030-2050 $ 1,600 billion a year
• Global Energy Assessment (2011)
2010-2050 $ 1,700-2,100 billion a year
• Edenhofer et al. (2009) “RECIPE”
up to 2030 $480 – 600 billion a year
in 2050
$1,200 billion a year
• Mckinsey (2009) Pathways to a Low-Carbon Economy
in 2020
$ 660 billion a year
in 2030
$1,000 billion a year
Mitigation - 1
• UNFCCC (2009) expert group on technology
• Global additional financing required
$300 to 1,000 billion a year until 2030
• Developing country share in costs of
technology deployment and diffusion (excl.
research and development)
$182 to 505 billion a year
+more with R&D+
Mitigation - 2
• World Bank Development Report 2010
• Incremental mitigation costs in development
countries
$140 to 175 billion a year
• “Associated financing needs”
$265 to 565 billion a year
Mitigation - 3
• UNDESA (WESS 2011)
• Global investments for energy transformation
$1,800 billion a year
• Developing country requirements
Energy transformation - $1,080 billion a year
Agric. investment
20 billion a year
Total
$1,100 billion a year
Mitigation – Bottom Up Estimates
• India (Centre for Science and Environment 2010)
- 6 key sectors
$10 billion a year for power sector alone
• China (Human Development Report 2009/10)
2010-2050 $ 240 – 355 billion a year
pattern of increasing cost as economy grows
2030
2050
269
523
269
1,584
Adaptation - 1
• UNFCCC (2007) developing country needs
$27 to 66 billion a year
• World Bank (2010)
$75 to ~100 billion a year
of which in a $102 b a year “wetter” scenario
East Asia/Pacific
- $29 b
South Asia
- 17
Latin Am/Caribbean - 23
Sub-Saharan Africa - 19
Europe/Cent. Asia - 11
Middle East
- 4 (rounding errors)
Adaptation – 2
• Parry et. al (Imperial College 2009) Peer reviewed
Evaluation of UNFCCC estimates
(Parry former IPCC co-chair working group on impacts,
vulnerabilities, and adaptation)
- missing important sectors – ecosystem services, mining,
manufacturing, energy, retail, finance, tourism
- underestimation by 2-3 times in each included sector
• Water (adapting to floods not included)
• Infrastructure – low infrastructure levels to continue in
Africa and LDCs
• Residual damage (Dlugolecki 2007)
Adaptation - 3
• More realistic estimate of adaptation costs
• Fuller cost: 2 times top of UNFCCC range
$54 – 132 billion a year
$132
• Ecosystem services $65 – 300 billion a year
one half of maximum 150
• Residual damage - $450 billion a year
2/3 of maximum residual damage
300
Total
582
or approximately $ 550 - 600 billion a year
• Still excluding mining, manufacturing, tourism, etc.
Adaptation – Indicators from Disasters
• Loss of life, homes, infrastructure, livelihoods
• BP Deepwater Horizon - $ 7.8 billion
(excluding claims from public sector entities)
• Pakistan 2011 floods, 14 million affected,
$10-15 billion for reconstruction (MSNBC)
• Thailand 2011 floods, $46 billion (WB 2011)
• US 2011 Mississippi flooding, $9 billion (WSJ)
• Growing number of natural disasters and economic loss – 1999:
$150 b; 2008: $260 b; 2011: $380 b (Geneva Report 2011)
• Importance of expanding support for bottom-up approaches, such
as the NEEDS study (UNFCCC 2010)
Costa Rica, Egypt, Ghana, Indonesia, Jordan, Lebanon, Maldives,
Mali, Nigeria and Philippines
Mitigation & Adaptation
• Developing Country Needs
• Mitigation $500 to 1,100 billion a year
• Adaptation 100 to > 550 billion
• Range
600 to >1,650 billion a year
Climate Finance under Convention
• Climate finance versus climate finance under the
Framework Convention
• Climate finance or climate-related finance
–
–
–
–
–
ODA
FDI
Debt-creating instruments
Guarantees
Offsets that mobilize funding
• But many do not meet the obligations under the
Convention
Climate Finance Obligations - 1
• Non-Annex 1 have obligations in mitigation,
adaptation, and reporting under the Convention
• In meeting these obligations, Art. 4.3 says
developed country parties and countries in Annex
2 “shall…provide such financial resources . . .
needed by developing country Parties to meet
the agreed full incremental costs . . .”
Climate Finance Obligations - 2
• Article 4.7
• The extent to which developing country Parties will effectively
implement their commitments under the Convention will depend
on the
effective implementation by developed country Parties of their
commitments under the Convention related to financial resources
and transfer of technology
and will take fully into account that economic and social
development and poverty eradication are the first and overriding
priorities of the developing country Parties.
Implications
Climate Finance Obligations - 1
• Full incremental costs of measures
– means additional to Business as Usual (BAU)
– BAU : social and economic development and poverty
eradication
• ODA modalities, which are voluntary and conditional do not
meet developed country obligations
• Financial resources must be
–
–
–
–
New
Additional
Adequate
Predictable
(Bali 1(e))
(Bali 1(e))
(Art 4; Bali 1(e) )
(Art 4; Bali 1(e) )
Implications
Climate Finance Obligations - 2
• Resource transfers discharge the obligation
–
–
–
–
–
Grants, grant components of loans
Subsidy component of loans but not loans, which must be paid back
Not Private foreign direct investment
Public to public, not private, transfers
Not create obligations on part of recipient countries – such as
guarantees on loans from IFIs or investment insurance agencies
• Limits of private sector finance
– Short-term; mitigation projects and technology change projects 5
years or more
– Large scale projects exceed normal private sector capacity
– High risk projects normally require steady public sector policy and
public sector insurance/guarantee
Limits of Private Sector Finance
• Long-term finance workshop, Bonn, July 2012
• Limits of private sector finance
– Short-term; mitigation projects and technology
change projects 5 years or more
– Large scale projects exceed normal private sector
capacity
– High risk projects normally require steady public
sector policy and public sector insurance/guarantee
Innovative Sources of Financing
• Carbon taxes in developed countries
• Special drawing rights
• Tax cooperation
• Global public finance system for a global
public good
– Responsibility of developed countries
– Developing countries can be supportive
Thank you
"I say ‘High’, you say ‘Low’
You say ‘Why?’, I say ‘I don’t know’”
"You say ‘Yes’, I say ‘No’
You say ‘Stop’, and I say ‘Go, go, go’”
-Lennon and McCartney [1968]
“Hello Goodbye”