International Financing of Responses to Climate Change
International Financing of Responses to
Climate Change
Jane A. Leggett
Specialist in Energy and Environmental Policy
November 23, 2010
Congressional Research Service
7-5700
www.crs.gov
R41500
CRS Report for Congress
P
repared for Members and Committees of Congress
International Financing of Responses to Climate Change
Summary
Many voices, domestically and internationally, call for the United States to increase its
international financing of measures to address climate change. Financing would help low-income
countries pay for the extra costs of development incurred to reduce their emissions of greenhouse
gases (GHG) and to adapt to climate variability and change. The United States and other
industrialized countries committed to financial assistance in the United Nations Framework
Convention on Climate Change (UNFCCC, 1992) and the Copenhagen Accord (2009). In the
Copenhagen Accord, countries pledged (1) $30 billion in 2010 to 2012 as fast-start financing, and
(2) to seek $100 billion annually by 2020, with funds to come from both public and private
sources. The Obama Administration has not yet specified what shares of the two pledges it
envisions the United States providing, nor a strategy to fulfill the 2020 pledge.
For FY2010, Congress appropriated approximately $1,007 million for all “core” international
climate assistance, up from $315 million for FY2009. The Administration requested that this
increase to $1,391 million in FY2011, with another $104 million proposed for complementary
programs in other agencies, such as the Department of Energy. Alternatives to appropriations
could generate new financing. (Some options are compared in Appendix A).
The United States incurs direct and indirect costs if subsidizing overseas investments to address
climate change, and gains a variety of benefits. Financial assistance to low income countries
could help achieve, more efficiently than domestic action alone, the global reductions of GHG
emissions deemed necessary to slow and stabilize human-related climate change. Financing could
facilitate more rapid advance and cost reductions of emerging low-emitting technologies, and
assist U.S. companies to acquire access to and sell new technologies. Additional benefits could
include suppression of world fossil fuel prices, improved international security, a reduction in
longer-term demands for development and humanitarian assistance (including relief following
natural disasters), and a boost to diplomatic credibility and effectiveness (by following through on
past pledges).
Low income countries have stated that fulfilling their commitments under the UNFCCC will
depend on financial and technical support from the industrialized countries. Low income
countries seek resources that are new, additional to previous flows, adequate, predictable, and
sustained. Studies have estimated the needs for incremental financing to range from US$4 billion
to several hundred billion annually for adaptation by the year 2030, in addition to comparable
amounts for extra investment in clean energy and agriculture (Table 1). The International Energy
Agency estimates that mitigation costs could be more than offset by energy cost savings.
Part of the U.S. pledge of climate change financing is being provided by federal appropriations.
Congress may consider new mechanisms for further amounts, especially amounts beyond 2012.
For example, the House-passed American Clean Energy and Security Act of 2009 (H.R. 2454)
provided for a portion of allowances or revenues generated by a GHG cap-and-trade program to
fund international climate-related actions. Congress also may exercise oversight of the operations
and performance of existing programs that provide financial and other assistance.
Internationally, climate change negotiators continue to debate priorities among assistance
recipients and activities, mechanisms for generating and disbursing funds, and other questions. If
negotiations were to produce a new treaty intended to be legally binding, the Congress would
have to consent to its ratification before it could legally bind the United States.
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International Financing of Responses to Climate Change
Contents
Introduction ................................................................................................................................ 1
Rationales Against and for Climate Change Financing................................................................. 2
Costs and Benefits to the United States.................................................................................. 2
Existing International Commitments and Negotiations .......................................................... 3
Avoidance of Climate-Related Damages, and “Fairness” ....................................................... 6
Should Governments of Wealthy Countries Be Engaged in Climate Change-Related
Financing? ............................................................................................................................... 8
What Kinds of Actions Might Be Financed? ................................................................................ 8
What Do Estimates of Needs Conclude?...................................................................................... 9
Should Funding Sources Be Public or Private? .......................................................................... 12
Funding Currently Pledged and Provided .................................................................................. 13
Mechanisms for Generating Funding......................................................................................... 19
Methods for Disbursing Financial Assistance ............................................................................ 22
U.S. Legislative Provisions for Potential International Finance .................................................. 26
Figures
Figure 1. One Estimate of How Climate Funding May Add to Copenhagen Accord
Pledges .................................................................................................................................. 14
Figure 2. Bilateral Overseas Development Assistance (ODA) for Climate Change from
Selected Developed Countries, Ordered by GDP per Capita in 2008 ....................................... 15
Figure 3. How Mitigation-Specific and Mitigation-Relevant Investments Flowed in 2007 ......... 23
Figure 4. Structure of the Climate Investment Funds ................................................................. 25
Tables
Table 1. Estimates of the Needs for Incremental Climate-Related Finance in Low Income
Countries ............................................................................................................................... 11
Table 2. “Fast-Track” Financing Pledged and Delivered Under Various Climate Change
Funding Mechanisms ............................................................................................................. 17
Table 3. Summary of Core U.S. International Climate Assistance .............................................. 27
Table A-1. Considerations Concerning Sources of Climate Change Financing ........................... 28
Table B-1. Glossary of Finance Options .................................................................................... 31
Appendixes
Appendix A. Comparison of Sources of Climate Change Financing........................................... 28
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International Financing of Responses to Climate Change
Appendix B. Glossary of Options for Generating and Disbursing Financing to Address
Climate Change ..................................................................................................................... 31
Contacts
Author Contact Information ...................................................................................................... 33
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International Financing of Responses to Climate Change
Introduction
The Earth’s climate has changed over the past century, and several expert assessments have
concluded that human activities, particularly emissions of greenhouse gas (GHG), have very
likely caused most of the observed change of the past three decades.1 Extra costs would be
incurred by low-income countries to the degree that they must reduce their shares of world-wide
GHG emissions to help stabilize climate change and must adapt to avoid disease and other
damages in a changing climate. These extra costs are particularly challenging to countries that
have low incomes compared to the United States, consider alleviating acute poverty as their first
priority, and conclude that they have contributed only a minor share of the historical GHG
emissions that force climate change.
Developed countries, including the United States, committed to such assistance in the United
Nations Framework Convention on Climate Change (UNFCCC, 1992) and the Copenhagen
Accord (2009).2 In the Copenhagen Accord, the wealthiest countries3 committed to provide $30
billion in 2010 to 2012 as “fast start” financing, and to seek $100 billion annually by 2020 in
climate change assistance, to come from both public and private sources. The Obama
Administration has not yet specified what shares of those pledges it envisions the United States
providing, nor a strategy for how to fulfill the long-term pledge.
This report describes many of the questions that are under debate in international climate change
fora. It aims to inform Congressional decision-making on the magnitude and mechanisms of
financial assistance that the United States may provide to low-income countries to address
climate change. It identifies rationales presented for enhanced international financing, including
commitments made by the wealthy economies to provide financing under the United Nations
Framework Convention on Climate Change (UNFCCC) and subsequent agreements. The report
then reviews estimated levels of financing needs (Table 1), specific monetary pledges (Table 2),
and the variety of proposed mechanisms to generate (Appendix A) and disburse funding.4 The
final section summarizes international financing proposed by the Obama Administration and in
bills in the 111th Congress.
1 Among others: U.S. Global Change Research Program, Global Climate Change Impacts in the U.S. (Washington DC,
GPO, 2009) at http://globalchange.gov/publications/reports/scientific-assessments/us-impacts/key-findings;
Intergovernmental Panel on Climate Change Working Group I, Climate Change 2007: The Physical Basis (Cambridge,
UK: Cambridge University Press); National Research Council, Reconciling Observations of Global Temperature
Change, Board on Atmospheric Sciences and Climate (BASC) (Washington DC: National Academy Press, 2000);
National Research Council, Climate Change Science: An Analysis of Some Key Questions (Washington DC: National
Academies Press, 2001); National Research Council, Abrupt Climate Change: Inevitable Surprises (Washington DC:
National Academies Press, 2002). For background information on climate change science and impacts, see CRS Report
RL33849, Climate Change: Science and Policy Implications, by Jane A. Leggett.
2 For background on the history of international climate change agreements, see CRS Report R40001, A U.S.-centric
Chronology of the International Climate Change Negotiations, by Jane A. Leggett.
3 Which countries provide funds and in what amounts remains an element of negotiation.
4 Richard Lattanzio of CRS provided information included in this report, in CRS Report R41302, Climate Investment
Funds (CIFs): An Overview, and CRS Report R41165, Global Environment Facility (GEF): An Overview. Melissa Ho
of CRS also provided information regarding agriculture.
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Rationales Against and for Climate Change
Financing
Calls continue domestically and internationally for wealthy countries to increase financial
assistance to low income countries to address climate change, even though governments in most
countries are pressed for fiscal resources to address current economic challenges and to maintain
levels of public services. Financing is sought both to mitigate5 climate change and to adapt6 to
projected climate changes. Many issues surrounding climate change financing differ from broader
issues of foreign aid, and are discussed in this paper.
Many in Congress and the public may question why the United States should help to finance
other countries to reduce their GHG emissions or to adapt to climate variability and change.
International financing would incur costs, and could offer potential benefits to the United States.
Among benefits, some international financing could be more efficient than domestic actions
alone. These are outlined in the next section. Second, there are legal reasons—and binding
commitments the United States has made—for financial assistance. Third, some people identify
fairness and humanitarian reasons to help low income countries to avoid specific climate damages
and reduce GHG emissions while continuing to eradicate poverty and increase incomes toward
levels of well-being enjoyed here. The next three sections review a variety of rationales raised to
support climate change financing.
Costs and Benefits to the United States
Some advocates seek provision by the wealthiest countries of international financial assistance
that could rise to hundreds of billions of dollars annually by 2020. The costs to a donor of
extending such financing include direct outlays of funds; secondary costs to the economy for
investing abroad at concessional terms; and losses by passing funds through governments or other
intermediaries. Some Members may view additional financing as costing political capital as well,
to the degree that their constituents do not support international assistance for climate-related or
other purposes.
As for benefits, various experts have advocated financing to achieve efficiencies in addressing
climate change. Any given GHG reduction globally could be achieved most efficiently if low cost
emission reductions could be harvested in low income countries. Also, developing counties could
be motivated and enabled by financial assistance to contribute to a global effort to slow and then
stabilize climate change. In addition, providing financing for adaptation and mitigation could:
5 To mitigate climate change is to take actions that would reduce or reverse forces, such as greenhouse gas (GHG)
emissions, that contribute to global climate change. It could also entail actions that act to reduce the climate change, for
example by removing carbon dioxide from the atmosphere and sequestering it permanently, or through other
geoengineering technologies.
6 To adapt to climate change has been defined by the Intergovernmental Panel on Climate Change as “adjustment in
natural or human systems in response to actual or expected climatic stimuli or their effects, which moderates harm or
exploits beneficial opportunities” (IPCC Working Group II, Third Assessment Report, 2001).
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• avoid capital and other losses (e.g., buildings, infrastructure, etc.), domestically
and internationally, that could be damaged or need modification due to a
changing climate or intensified natural disasters;
• minimize redirection of strategic development resources to ad hoc disaster
response and urgent humanitarian needs;
• avoid chronic humanitarian crises, such as additional food insecurities,
particularly for the resource poor in developing countries who have few options
or resources for resilience or adaptation;
• boost international security by relieving climate stressors (e.g., droughts, floods)
that could aggravate weak governance and political instabilities in some
countries; some adaptation measures could also strengthen regional cooperation
and other mechanisms and help to avoid cross-boundary resource conflicts;
• provide competitive returns on investment if assistance is oriented to overcoming
barriers to commercial financing;
• improve advancement and commercialization of U.S. technologies, gaining
economies of scale by engaging in rapidly growing international economies and
by accelerating “learning by doing;” participating private entities may also make
competitive inroads into rapidly expanding markets; and
• facilitate marketing of U.S. products and services in “green” technologies and
know-how.
One reason for urgency in financing cleaner and more resilient investments is that “[e]ach year of
delay will lock in an increased amount of old technology,” according to the United Kingdom’s
Secretary of State for Energy and Climate Change.7 As pressures increase for structural changes
consistent with pollution abatement and resilience to a changing climate, old technologies limit
the flexibility and increase the costs to economies to respond efficiently. (Sometimes this is called
a problem of “stranded capital.”) Economists view some level of early investment as efficient, to
hedge against those future risks.8
Existing International Commitments and Negotiations
Most, if not all, low income countries have argued that their success in fulfilling their pledges to
abate greenhouse gas emissions and curtail deforestation will depend critically on receipt of
international financial and other support. Some believe the credibility and diplomatic
effectiveness of governments that have pledged financing may be influenced by the degree to
which they follow through on those commitments.
Under the United Nations Framework Convention on Climate Change (UNFCCC), signed in
1992, the United States and all other Parties committed to promote adaptation, cooperate to
develop and deploy new technologies, and pursue a host of additional but unquantified
7 As quoted in Greenwire, Energy Ministers Endorse Clean-Tech Measures, Back CCS Group, July 20, 2010.
http://www.eene ws.net/Greenwire/print/2010/07/20/4
8 See, for example, Robert J. Lempert, Michael E. Schlesinger, and Steve C. Bankes, “When we don't know the costs or
the benefits: Adaptive strategies for abating climate change,” Climatic Change 33, no. 2 (6, 1996): 235-274.
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obligations.9 The wealthier countries (including the United States) listed in Annex II also
committed to provide financial and technical assistance to underpin developing countries’ efforts
to meet their UNFCCC obligations.10 The obligations under the UNFCCC are legally binding but
vaguely defined. As a result, they have been impractical to quantify consistently and enforce.
Reliable accounting of pledges made for financing, or what has actually been provided for
climate change activities, does not exist—as potential recipients frequently point out. The
unsteady flows of financing in the 18 years pursuant to the UNFCCC have not boosted the
international credibility of the Annex II countries.11 Pledges of funding have been lower than low
income countries requested and expected.12 Many pledges remain only partially fulfilled. U.S.
accounting has been similarly ambiguous. (Table 2, discussed in a later section, summarizes
scattered information about funds pledged and provided to various funds.)
Developing countries have called for the wealthier countries to provide financial resources that
are “new, additional,13 adequate, predictable and sustained,”14 to support mitigation of greenhouse
gas (GHG) emissions, adaptation to climate change, development and transfer of technologies,
and reduction of deforestation and forest degradation (REDD). Low-income countries most often
call for the resources to be publicly financed (not private), because they believe it would be more
predictable and negotiable, and to be subsidized as grants or concessional loans. While a wide
variety of mechanisms have been established or proposed to generate and disburse funding in
conformance with the UNFCCC, most low income countries prefer assistance to flow through
specialized funds directly overseen by the UNFCCC, where they would presumably have stronger
representation than in, for example, such donor-coordinated trust funds as the Climate Trust
Funds. A set of funds and mechanisms were established by decisions under the UNFCCC, and
later under the Kyoto Protocol (to which the United States is not a Party). These and other options
are identified later.
In December 2009, Parties to the UNFCCC were unable to agree as scheduled on a legally
binding instrument to tackle climate change beyond 2012, when the first commitment period of
the Kyoto Protocol ends. Instead, a smaller set of countries negotiated the Copenhagen Accord, to
9 United Nations Framework Convention on Climate Change, May 9, 1992, 1771 U.N.T.S. 107; S. Treaty Doc No.
102-38.
10 For more information on international negotiations regarding climate change, see CRS Report R40001, A U.S.-
centric Chronology of the International Climate Change Negotiations, by Jane A. Leggett.
11 See, for example, South Centre, Developed Country Climate Financing Initiatives Weaken the UNFCCC, January
2009. http://www.southcentre.org/index.php?option=com_content&task=view&id=909&Itemid=1; or, Megan
Rowling, Murky Climate Finance Risks Undermining Trust at U.N. Talks, Reuters, June 4, 2010.
http://www.alertnet.org/db/an_art/20316/2010/05/4-161507-1.htm
12 See, for example, The National Religious Partnership for the Environment, Climate Fairness Agenda: A Religious
Call to Address Climate Change and Poverty, 2009. http://otrans.3cdn.net/32a2929fe45d623e2f_ofm6ibtl1.pdf
13 The terms “new” and “additional” are subject to different interpretations and controversy. For example, “new”
compared to what? If one funding program closes and a new one, substantially similar one opens by the same donor, is
it “new”? “Additional” is meant to denote an increment beyond what existed at a given point in time or to some
expected or projected baseyear. Observers are concerned that funding not be merely shifted from one type of
development assistance to climate change assistance, with little or no incremental increase comparable to the stated
needs. Judging “additionality” is always problematic, but particularly in a period in which overall foreign aid may
decline under fiscal pressures.
14 This is text regarding financing in the Copenhagen Accord, December 2009. http://unfccc.int/documentation/
documents/advanced_search/items/3594.php?rec=j&priref=600005735#beg,
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which more than 120 governments have acceded.15 The Copenhagen Accord lays out political but
not legally binding commitments. The finance-related pledges were made as a package with
commitments by China and other countries to implement mitigation actions, and to be subject to
reporting, review, and international “consultations” requirements. The specific finance provisions
of the Copenhagen Accord are:
• Immediate establishment of a mechanism including forest conservation
(REDD-plus),16 to enable mobilization of international financing.
• Goals for developed countries to mobilize finance for adaptation, mitigation,
technology, and capacity-building: Pledges of $30 billion during 2010-2012,
and a goal of $100 billion annually by 2020 “in the context of meaningful
mitigation actions and transparency on implementation.” Funding will come from
public and private, bilateral and multilateral, and alternative sources.
• Establishment of the Copenhagen Green Climate Fund under the Global
Environment Facility, managed by the World Bank to support international
financing.
• Establishment of a Technology Mechanism to “accelerate technology
development and transfer” and to be “guided by a country-driven approach.”
In addition, the Copenhagen Accord specified new “monitoring, reporting, and verification”
(MRV) mechanisms to apply to financial obligations as well as to GHG mitigation efforts, beyond
the reporting already required for Parties’ national communications. This partly stems from
frustrations with lack of transparency regarding countries’ financing pledges and flows to date.
In meetings since Copenhagen, more progress has been made to flesh out the financing provisions
than others elements of the Accord. However, the United States and some other countries insist
that any further agreement must be a balanced package (‘nothing is decided until everything is
decided’), including incorporation of GHG mitigation pledges and definition of MRV
commitments. China and some other countries have avoided definition of their MRV obligations
until the pledges and MRV of financing have been met.17
Even before the Copenhagen Accord, some Members of Congress and U.S. constituents pressed
for provisions in climate change legislation to generate and distribute funding to assist mitigation
and adaptation internationally. They would also finance cooperation on clean technology
development and deployment, as well as “market readiness” and capacity building. For example,
in June 2009 the House passed H.R. 2454, the American Clean Energy and Security Act (ACESA
or Waxman-Markey bill), with provisions to allow up to 1 billion emissions offsets to come from
international sources annually, which could provide a many-billion-dollars per year stream of
private finance for projects in developing countries.18
15 http://unfccc.int/home/items/5262.php.
16 “REDD-plus” is Reducing Emissions from Deforestation and Forest Degradation plus enhancing carbon
sequestration.
17 See, for example, Su Wei, “China’s Expectations for the Cancun Conference” (September 19, 2010), paragraphs 18
and 19. http://www.china.org.cn/opinion/2010-09/19/content_20964016.htm.
18 For more information on provisions in GHG proposals in the 111th Congress, see, for example, CRS Report R40896,
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733, by Brent D. Yacobucci,
Jonathan L. Ramseur, and Larry Parker.
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Status of Negotiations on International Climate Change Financing
Since agreement on the Copenhagen Accord in December 2009, countries have continued negotiations on how to
address climate change beyond the year 2012, when the first (and only negotiated) commitment period of the Kyoto
Protocol ends. Although 120 governments formal y acceded to the Copenhagen Accord, the commitments embodied
in it are political, not legally binding. Negotiations proceed on two tracks: further commitments for “Annex I” Parties
under the Kyoto Protocol (to which the United States is not a Party); and, long-term cooperation among all Parties to
the UNFCCC. How the single Copenhagen Accord might be translated into those two tracks, or an alternate
approach, remains a key disagreement. Some countries appear to be backing away from the Copenhagen Accord,
insisting that a new instrument be based on the 2007 Bali Action Plan. Currently, finance is one of six topics of
discussion, the others being a shared vision, mitigation of climate change, adaptation, technology, and capacity-
building.
A number of meetings have been held throughout 2010, to lead to the next Conference of the Parties in Cancun,
Mexico in December 2010. Some meetings proceed under the auspices of the UNFCCC, but others, such as the UN
Secretary-General’s High Level Advisory Group on Climate Change Financing, are pursued through alternative paths.
Few expect that these negotiations will lead to a legally-binding agreement by Cancun. Rather than proceeding with
the Copenhagen Accord, China contends that developed countries must first agree on deeper, legally binding GHG
mitigation commitments beyond 2012 in an extended Kyoto Protocol, and “set up a mechanism for developed
countries to fulfill their promises to provide funding, technology and capacity training to developing countries.”19
China’s chief negotiator in Copenhagen, Su Wei, says that “the [Kyoto] protocol negotiations are a vital precondition
for the success of other negotiations,” which would include GHG mitigation by lower income countries, and
monitoring, reporting, and verification of commitments. India’s environment minister has expressed pessimism
because “the financial commitments made by developed countries at Copenhagen have not been fulfilled.”20 In
contrast, the United States and other countries have urged the major economies (including China, India, and others)
to “maintain the fundamental balance achieved in Copenhagen” among elements of the package of issues and across
countries. The United States’ position is that GHG mitigation and monitoring of national pledges must be agreed,
along with financing, as part of a “balanced” package.
Finance is high on the agenda, regardless of how negotiations proceed, and particularly the details of establishing a
new climate fund, sometimes called the Copenhagen Green Fund. While there is general agreement to establish a
climate fund, likely recipient countries prefer a new entity to coordinate and oversee funding, while likely contributing
countries prefer to build on existing organizations. Differences of view exist over the balance of the fund’s board
among representatives of net contributing and net receiving countries. A few Parties propose contributions of 6% or
more of Gross Domestic Product, likely aware of the roadblocks to agreement that such proposals can create.
In paral el, the Secretary General’s High-Level Advisory Group on Financing is due to present its recommendations to
the Conference of the Parties in Cancun. It is studying possible sources of funds, both public and private, that could
provide new and additional financing of $100 billion per year by 2020.
Avoidance of Climate-Related Damages, and “Fairness”
Repeated scientific assessments have concluded that the global climate is changing,21 and
scientific expectations are strong that natural and/or human-related changes will continue in
largely unpredictable degrees and patterns. Those changes driven by greenhouse gases22 are
19 Su Wei, “China and the Cancun Climate Change Conference” (September 22, 2010, China.org.cn).
20 Financial Express Bureau, “‘Climate Negotiations at Cancun Headed Nowhere’” (India, September 21, 2010), at
http://www.financialexpress.com/news/Quick-view/684927/.
21 See footnote 1.
22 There is strong but not unanimous agreement among experts on climate that greenhouse gases have very likely been
responsible for most of the global warming that has occurred since the late 1970s, and the proportion of GHG- to
natural-driven climate change will continue to increase for decades after GHG concentrations in the atmosphere are
stabilized. See, for example, Intergovernmental Panel on Climate Change Working Group I, Climate Change 2007: The
Physical Basis (Cambridge, UK: Cambridge University Press, 2007).
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expected to continue for centuries after the emissions occur. No matter whether future climate
changes are driven by natural or human-related causes, the range considered likely in coming
decades could lead to property and ecosystem damage; human illnesses and deaths; interruption
of food and water supply for some populations; and potential catastrophes. For example, the
International Food Policy Research Institute (IFPRI) predicts that climate change will result in
yield declines and food price increases globally for important food crops, which could reduce
both meat and cereal consumption, as well as overall calorie availability in developing
countries.23 By 2050, IFPRI predicts that child malnutrition globally would increase by 20%
relative to a world with no climate change. Several reports have warned of adverse effects on
economic development and security. At the same time, it is also likely that some regions and
populations would benefit by future changes in climate, such as greater access to vast fuel and
mineral wealth under the Arctic Ocean.
There is general agreement that some populations will be better off, at least in the short term,
while others will be worse off. Expectations are that populations will be best able to manage if
they have the resources to make use of new opportunities and otherwise to adapt to climate
changes; the most vulnerable populations will be those that experience the most acute climate
change and that lack the financial, technical, or governance capabilities to adapt (including by
migration).
Many advocates make an ethical argument for concessional financing to address climate change:
To the degree it is driven by greenhouse gases, the major contribution has come from the
currently wealthy countries. The responsibility of developed countries for current and near-term
climate change arguably calls for them to provide funding to reduce the current and future risks
imposed on others by past behavior. Some would contend that developed countries should pay
because their emissions per person are many times those in poor countries, and they have the
ability to pay. A few stakeholders would argue that financing is owed as compensation to those
already experiencing adverse effects of climate change to which they contributed very little.
A wide array of religious coalitions, opposed by others, have called for “climate justice,” to avoid
human interference with the climate and to help poor populations respond to potential floods,
natural disasters and droughts associated with warming temperatures. For example:
[m]any religious groups consider international adaptation assistance to help developing
nations cope with climate change a moral responsibility and a matter of climate equity.
Those who benefited from years of indiscriminate pollution must now make provisions for
developing nations to chart a prosperous path for their people through a cleaner energy
economy while protecting their populations from the harmful effects of climate change.24
23 Gerald C. Nelson and International Food Policy Research Institute, Climate change: impact on agriculture and costs
of adaptation (Washington, DC: Intl Food Policy Res Inst, 2009).
24 See, for example, Center for American Progress, “Religious Communities Press for Climate Justice” (April 22, 2010)
http://www.americanprogress.org/issues/2010/04/climate_justice.html; or Christa Marshall, “New religious coalition
joins push for adaptation funding” ClimateWire, October 9, 2009, http://www.eenews.net/climatewire/2009/10/09/10.
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Should Governments of Wealthy Countries Be
Engaged in Climate Change-Related Financing?
On the one hand, many experts have articulated economic reasons that some special financing to
address climate change is merited: Many potential actors who would seek to invest in abating
emissions or avoiding future damages have limited access to financial capital. They may have
low incomes, few assets to offer as collateral, or high debt loads already. Many of the actions to
address climate change are not profitable unless the external costs25 of climate change are
factored into prices in efficient markets; even if entities are willing to undertake such
investments, private financiers may not be willing to invest. In other cases, the benefits of
investments (e.g., for higher seawalls) may be spread too far into the future to be justifiable using
market interest rates or rates of return. In many cases, the projects may be too risky, because of
novel technologies, politically risky locations, or other factors.
On the other hand, in the United States, funding for international purposes in general is
unpopular.26 Many constituents are unaware or unconvinced of the risks of climate change or of
reasons to offer financing to other countries.27 Some commentators argue that international
financing would create more benefits if applied to other priorities, such as improving public
health systems or stimulating entrepreneurial activities in low income countries.28 Others argue
that Americans need any available funds to foster renewed economic growth and create jobs
domestically, and should not be burdened with higher taxes or prices for investments abroad.29
What Kinds of Actions Might Be Financed?
There is an extremely wide array of possible projects or programs that could be financed to abate
greenhouse gases, avoid deforestation or forest degradation, or to reduce vulnerabilities to current
climate variability and future climate changes. On the GHG mitigation side, financing may
develop, test, and deploy advanced new technologies, such as carbon capture and sequestration,
electric vehicles, or shade-grown crops. It could assist “market readiness” in transitional
countries, to create governance, skills, and other conditions favorable to investments. For
25 “External costs” or “externalities” are the costs born by people, social systems, or the environment, other than those
who pay market prices for a product or service. For example, buying fossil-fuel generated electricity leads to air
pollution and health effects, the costs of which (monetary, and non-monetary such as suffering or curtailed activities)
must be carried by other people, not necessarily those electricity consumers. In most cases, those external costs are not
factored into the price of electricity. Economists say that, to be efficient, markets need to internalize into prices all
those external costs.
26 For example, see PollingReport.com/Foreign Aid: http://www.pollingreport.com/defense.htm#Foreign%20Aid.
27 For example, Anthony Leiserowitz et al., “Climate Change in the American Mind: Americans’ Climate Change
Beliefs, Attitudes, Policy Preferences, and Actions” is based on a nationally representative survey of 2,164 American
adults conducted in October 2008. http://www.climatechangecommunication.org/images/files/
Climate_Change_in_the_American_Mind.pdf; But see also PollingReport.com/ Environment:
http://www.pollingreport.com/enviro.htm.
28 For example, Bjorm Lomborg and the “Copenhagen Consensus.” However, Lomborg considers mainstream climate
change science to be hyperbole and currently is engaged in evaluating alternative options to mitigate it and to adapt.
See, for example, http://www.cup.cam.ac.uk/uk/catalogue/catalogue.asp?isbn=9780521138567.
29 Economist, “Americans want to cut foreign aid…to whom?” http://www.economist.com/blogs/democracyinamerica/
2010/04/deficit_reduction.
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example, civil servants or others may be trained on the importance of protection of intellectual
property, on developing legal frameworks, and on enforcing them; alternatively, workers may be
trained and certified in accounting and verification of GHG reductions to facilitate certification
for sales of emission offsets.
Some projects may serve both mitigation and adaptation, such as construction of more energy
efficient and weather resistant buildings, or improved forest fire detection and management. More
specific adaptation investments may, for example, distribute malaria bed nets in areas newly
infested with parasite-carrying mosquitoes; improve water management infrastructure; or
establish early drought or storm warning systems. Adaptation efforts could test and deploy
improved cooling systems to prevent shut-down of nuclear power plants when temperature
tolerances for cooling water are exceeded. Or, adaptation may mean managing retreat from some
shores vulnerable to rising sea levels.
What Do Estimates of Needs Conclude?
A variety of international institutions and non-governmental organizations have tried to estimate
the extra costs of adaptation and GHG mitigation in low income countries, and from these, the
associated needs for additional financing. (Many estimates assume that some portion of the
incremental costs will be covered by the recipient countries themselves.) Methods, definitions,
and scopes of adaptation in these studies vary, accounting for some of the differences in cost
estimates. In particular, some studies attempt to consider “all” costs of adaptation to climate
change and remaining damages (although none are comprehensive); some include just large-scale
adaptation costs (i.e., not most private measures taken by individuals); and some try to discern
just the need for public financing for adaptation. As a result, figures range from $4 billion to
several hundreds of billions of dollars annually by the year 2030.30
The United Nations Development Programme estimated that an additional US$86 billion per year
would be needed in 2015. In a 2008 update of earlier estimates, the UNFCCC Secretariat
estimated that, by 2030, an additional US$200-210 billion per year (2005 dollars) would be
needed for mitigation, and for adaptation, an additional US$8 billion to US$130 billion annually.
For adaptation alone, the World Bank updated a previous study in September 2009, now
estimating the average adaptation cost from 2010 to 2050 to be $75 billion to $100 billion
annually.31 For GHG mitigation in the energy sector, the International Energy Agency’s World
30 Martin Parry et al., Assessing the Costs of Adaptation to Climate Change: A Review of the UNFCCC and Other
Recent Estimates (London: International Institute for Environment and Development (IIED), August 2009),
http://74.125.93.132/search?q=cache:KCCoQ47xQdMJ:www.iied.org/pubs/pdfs/
11501IIED.pdf+%22Assessing+the+costs+of+adaptation%22&cd=2&hl=en&ct=clnk&gl=us&client=firefox-a.
31 World Bank, Economics of Adaptation to Climate Change: New Methods and Estimates (Consultation Draft) (World
Bank, September 2009), http://beta.worldbank.org/climatechange/content/economics-adaptation-climate-change-study-
homepage. Concerning the problem of defining adaptation costs, this report says,
One of the biggest challenges of the study has been to operationalize the definition of adaptation
costs. The concept is intuitively understood as the costs incurred by societies to adapt to changes in
climate. The Intergovernmental Panel on Climate Change (IPCC) defines adaptation costs as the
costs of planning, preparing for, facilitating, and implementing adaptation measures, including
transaction costs. But this definition is hard to operationalize. For one thing, “development as
usual” needs to be conceptually separated from adaptation. That requires deciding whether the costs
of development initiatives that enhance climate resilience ought to be counted as part of adaptation
costs. It also requires deciding how to incorporate in those costs the adaptation deficit, defined as
(continued...)
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Energy Outlook 200932 concludes that, in a scenario to stabilize atmospheric GHG concentrations
at 450 ppm,33 “the energy sector in non-OECD34 countries would need around $200 billion of
additional investment in clean energy and efficiency in 2020—including $70 billion for nationally
appropriate mitigation actions (NAMAs) and a similar amount to achieve sectoral standards in
transport and industry.” The extra investments would be more than offset in the industry,
transport, and buildings sectors, says IEA, by savings from energy efficiency improvements.
McKinsey and Company reaches a similar conclusion for an increment of more than $1 trillion in
2030 to projected fixed asset investment.35 For agriculture and food security, an IFPRI study
estimates that agricultural productivity investments in the range of US$7.1-7.3 billion annually
are needed to adapt and raise productivity rates in order to overcome the negative impacts of
climate change on the health and well-being of poor children globally.36
Table 1 compiles a variety of estimates for incremental climate-related financial needs in low-
income countries. As mentioned above and in the table footnote, these different estimates are not
comparable though some are the basis for certain amounts of financing proposed.
Some studies are available that are not globally comprehensive and therefore generalized, but
estimate needs of specific countries or activities. For example, a 2010 report from the UNFCCC
Secretariat37 has itemized the mitigation and adaptation measures needed and associated costs in a
number of countries.38 These types of studies are likely to provide greater clarity and confidence
in the more general estimates of global financing needs to address climate change.
(...continued)
countries’ inability to deal with current and future climate variability. It requires defining how to
deal with uncertainty about climate projections and impacts. And it requires specifying how
potential benefits from climate change in some sectors and countries offset, if at all, adaptation
costs in another sector or country. (p. 19)
32 IEA, World Energy Outlook, November 2009. http://www.worldenergyoutlook.org/.
33 Current atmospheric concentrations of all GHG are roughly 435 ppm (parts per million), more than one-third higher
than around 1850. Without aggressive public policies to abate GHG emissions, a number of analyses anticipate that
GHG concentrations could rise to 750 ppm or higher by the end of the 21st Century.
34 Organisation for Economic Cooperation and Development.
35 McKinsey & Company, Version 2 of the Global Greenhouse Gas Abatement Cost Curve, 2009.
36 See footnote 23.
37 This study is not included in Table 1 because it is much narrower in scope than the others referenced.
38 UNFCCC, National Economic, Environment, and Development Study for Climate Change (NEEDS): Initial
Summary Report, 2010, http://unfccc.int/resource/docs/publications/needs_initial_sum_rep_2010.pdf.
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Table 1. Estimates of the Needs for Incremental Climate-Related Finance
in Low Income Countries
(billions of real US$; excludes savings from investments, such as lower energy or health expenditures)
2010-2020
2030
2050
Source of Estimate for:
(annually)a
(annually)
(annually)
Mitigation Needs
UNFCCC (2008)
$200-210
McKinsey & Co. (2009) for al
in 2010, $706 (5-6% of
$1,080 (5-6% of al fixed
countriesb
all fixed asset
asset investment)
investment)
International Energy Agency
$200
(energy only)
Adaptation Needs
UNFCCC (2008)
$8-130
International Monetary Fund (IMF)
$10-60
World Bank (2009)
$75-100
$75-100
$75-100
World Bank (2010)
$275
UNDP $86-109
by
2015
IFPRI (agriculture sector only)
$7.1-7.3
Source: UNFCCC, Investment and financial flows for a strengthened response to climate change: an update,
FCCC/TP/2008/7, November 26, 2008; McKinsey & Company, Version 2 of the Global Greenhouse Gas Abatement
Cost Curve, 2009; Martin Parry et al., Assessing the Costs of Adaptation to Climate Change: A Review of the
UNFCCC and Other Recent Estimates, (London: International Institute for Environment and Development
(IIED), August 2009); World Bank, Economics of Adaptation to Climate Change: New Methods and Estimates
(Consultation Draft) (World Bank, September 2009); IEA, World Energy Outlook, November 2009; Hugh
Bredenkamp and Catherine Pattillo, Financing the Response to Climate Change, IMF Staff Position Note, March
2010.
Notes: Figures are developed with differing scopes and methods. The figures are not additive, nor are they
comparable. They also are in different years’ dollars (i.e., not adjusted for inflation by year).
a. Some estimates are for a particular year; others seem to be the annual average during the decade.
b. McKinsey concludes that “many of the opportunities would see future energy savings largely compensate
for upfront investments.”
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International Financing of Responses to Climate Change
Should Funding Sources Be Public or Private?
Countries differ on the appropriate sources of funds for climate change financing internationally.
The G-7739 and China argue that contributing nations’ governments should provide public funds
as the main source of climate change financing for mitigation, adaptation, technology
cooperation, and capacity building. They may believe public financing would be easier to
generate and direct, and therefore more predictable and sustained. They may not recognize (or
care about) the challenges in the United States and some other countries in appropriating federal
funds for international purposes. Many people in developing countries are deeply suspicious of
foreign private investors; some would prefer the funding to be under the control of local
governmental decision-makers, hoping this would better reflect local priorities and indigenous
cultures. An opinion piece in the Jakarta Post adds that, “Financial support from [public and
multilateral] entities is also necessary to signal, in particular to the private sector, the need to shift
investment flows towards decoupling economic growth from increasing emissions, and towards a
low carbon and climate resilient future.”40
The wealthier, contributing nations tend to underscore the importance of private sector finance
through GHG trading mechanisms, foreign direct investments, or other mechanisms. They may
see public funds as appropriately a much smaller share, used for selective purposes. The United
States and the European Union (EU) generally agree that some public financing should be
provided, in particular for capacity building and adaptation, but seek mechanisms so that the large
majority of financing would flow from the private sector through market incentives. (For
example, GHG “offsets” would be authorized by H.R. 2454, the American Clean Energy and
Security Act (ACESA or Waxman-Markey bill).41
To support private sector financing internationally, views diverge on whether to retain and revise
the existing international GHG trading mechanisms under the Kyoto Protocol as vehicles for
private investment in GHG mitigation.42 Many countries seek to retain the Kyoto Protocol’s
trading and offset system (the Clean Development Mechanism) because they are established (and
took many years to become so) and function, though not as efficiently or transparently as desired.
The EU and United States have pressed for new, more efficient mechanisms than, for example,
the Clean Development Mechanism has been thus far.
Many different proposals for new mechanisms have surfaced, including crediting for GHG
reductions in Nationally Appropriate Mitigation Actions (NAMAs); NAMA-based emissions
trading; and sectoral crediting and trading.43 Many such options are identified in the glossary in
Appendix B of this report.
39 G-77 is short for “The Group of 77,” established in 1964 to represent developing country signatories, formed at the
end of the first session of the United Nations Conference on Trade and Development (UNCTAD). It is a means for
developing countries to articulate and promote their economic interests and negotiating capacity on major international
economic issues, http://www.g77.org/doc/.
40 Ardiansyah, Fitrian, “Climate Solutions: Climate Financing: The devil is in the details,” Jakarta Post, May 11, 2010.
41 For explanation of how “offsets” may contribute to financing GHG reductions, see CRS Report RL34241, Voluntary
Carbon Offsets: Overview and Assessment, by Jonathan L. Ramseur.
42 Because the United States is not a Party to the Kyoto Protocol, its trading and offset credit mechanisms are not a
mechanism for U.S. private financing to furnish part of the U.S. total contribution, as they contribute, for example, to
the European Union’s pledged financing.
43 See, for example, UNFCCC, Ad Hoc Working Group on Long-Term Cooperative Action Under the Convention,
(continued...)
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International Financing of Responses to Climate Change
Funding Currently Pledged and Provided
Before and since the UNFCCC entered into force, funding has been provided by the United States
and other donors to low income countries to build cleaner energy and transportation systems and
to make them more efficient; to encourage greater renewable energy production; to improve
capacities for environmental and energy management; and to many other climate-related projects.
Expectations for increases in financing after 1992 were raised by the UNFCCC and its vague but
legally binding financial obligations. Many times, countries or groups of countries have pledged
to increase funding for climate change mitigation and adaptation activities; often the follow-
through on such pledges was arguably met partly by shifting funds from one development
assistance account to another (no “additionality”). In other instances, pledges were followed by
no change in funding at all. Funds sometimes are delivered years late, and/or in amounts well
below the pledges. Weaknesses in reporting on financial commitments and delivery, particularly
the meaning and transparency of data, have been an on-going topic of evaluation and negotiation,
and will be addressed in future negotiations under the Copenhagen Accord.44
The “monitoring, reporting, and verification” (MRV) for financing is generally expected to mirror
analysis and consultation procedures and other MRV of mitigation action taken by non-Annex I
Parties. China, for one, insists that MRV of financing precede discussion of MRV for developing
country actions.
A number of different sources of funds have been used to finance climate change-related projects:
foreign direct investment (FDI), bilateral overseas development assistance (ODA), donations to
multilateral development banks (MDBs) and the Global Environment Facility (GEF, the official
financial mechanism of the UNFCCC), offering of export credits, loan guarantees, etc. Private
philanthropy has provided a large share to date, but often is not counted in the flows. Figure 1
shows one group’s recent estimates of how these different sources of finance may add up.
However, and in line with many countries’ complaints about lack of transparency of financing, it
is challenging to find consistent statements on contributing countries’ pledges, and on what they
have already committed or provided, to meet the aggregate Copenhagen Accord pledge of $30
billion in fast-start funding during 2010 to 2012. So the estimates in Figure 1 must be viewed
with caution.
(...continued)
Ideas and Proposals on the Elements Contained in Paragraph 1 of the Bali Action Plan: Submissions from Parties, May
22, 2009, http://unfccc.int/resource/docs/2009/awglca6/eng/misc04a01.pdf
44 Jan Corfee-Morlot et al., Financing Climate Change Mitigation: Towards a Framework for Measurement, Reporting,
and Verification, Organisation for Economic Cooperation and Development, October 2009.
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Figure 1. One Estimate of How Climate Funding May Add
to Copenhagen Accord Pledges
(billions of US dollars)
Source: CRS, reproduced from Project Catalyst, “Making Fast Start Finance Work” (Climate Works Foundation
and the European Climate Foundation, June 2010).
Foreign Direct Investment45 (FDI) has been, and may continue to be, the largest source of finance
for climate-related projects. FDI is not shown in Figure 1 (but see Figure 3) in large part because
whether and how it could be counted under the UNFCCC is debatable. Nonetheless, FDI is
critical in establishing the economic foundation that largely determines GHG emissions and a
population’s vulnerability to climate change impacts; FDI also creates economic and physical
opportunities to reduce GHG emissions and vulnerabilities.
Using data that are available, amounts of climate-related financing provided by selected OECD
economies are compared in Figure 2. On average for the period 2003 through 2007, the United
States reported having provided $25,678 million annually in that period in total Overseas
Development Assistance (ODA), and $31.1 million annually specifically relating to climate
change, according to OECD.46 The United States contributed the lowest percent of Gross National
Income (GNI) to total ODA (0.16%) of any OECD country except Greece (not shown), and the
lowest percentage of ODA to climate change-related assistance (0.1%) except for Luxembourg
(not shown).
A frequent theme in negotiations and international public discussions is whether the United States
will provide its “fair share” of financial assistance internationally to address climate change.
Moreover, the United States’ credibility is likely undermined by being almost $170 million in
45 Foreign Direct Investment is a lasting investment of foreign assets into another country’s infrastructures, equipment,
or organizations. FDI does not include investments in stocks, as through a stock market, as these are not considered
“lasting.”
46 Ibid. Table 1.
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arrears for its assessed contribution to the Global Environment Facility—a major international
fund for environmental loans and grants to low income countries.
Figure 2. Bilateral Overseas Development Assistance (ODA) for Climate Change
from Selected Developed Countries, Ordered by GDP per Capita in 2008
(averaged over 2003-2007, in billions of constant 2007 US dollars)
1.00%
2000
0.90%
1800
$
0.80%
me
1600
S
o
U
0.70%
Inc
1400
llions
onal
ti 0.60%
1200
mi
a
n
i
N
A
s 0.50%
1000
0.40%
800
ted OD
of Gros
la
e
% 0.30%
600
as
A
ate R
0.20%
400
lim
OD
C
0.10%
200
0.00%
0
ay
m
a
w
any
do
alia
ad
ates
or
ance
m
str
an
Japan
N
Fr
er
ng
C
G
Au
nited St
ited Ki
U
Un
All ODA as % of GNI 2007
Climate Related ODA (millions US$)
Source: Data from Jan Corfee-Morlot et al., Financing Climate Change Mitigation: Towards a Framework for
Measurement, Reporting, and Verification, Organisation for Economic Cooperation and Development, October
2009. Table 1.
Notes: ODA is Overseas Development Assistance (bilateral). Climate related assistance amounts are “Rio
Climate Change Related” as determined in cited source from data reported by countries to the Development
Assistance Committee Creditor Reporting System.
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An important part of the fast-start (and long-term) funding will likely flow through multilateral
mechanisms, including the MDBs, the Global Environment Facility, the Climate Investment
Funds, and other funds (discussed later). Table 2 identifies the monies pledged and delivered as
of June 2010 to the most prominent international climate change funds. (The funding actually
disbursed to date by the various funds is a minor portion of the total pledged.) The two fund
mechanisms promised in the Copenhagen Accord—the Copenhagen Green Climate Fund and a
REDD-plus mechanism—have not yet been established.
The pledges identified in Table 2 to flow through multilateral funds are not additive. For
example, the U.S. Department of Treasury has identified about $500 million in 2010 and $750
million in 2011 that would flow through USAID grants or other mechanisms. The
Administration’s budget proposal for FY2011identified another $104 million that would flow
through “complementary agencies.”47 Private financing, especially for Kyoto Protocol Parties,
may contribute billions more (Figure 1).
A High-Level Advisory Group on Climate Change Financing has been established by United
Nations Secretary General Ban Ki-moon to study potential sources of revenue to finance
mitigation and adaption to climate change. Rather than focusing on the “fast-start” pledges, most
of the work of the High-Level Advisory Group focuses on “mobilizing jointly $100 billion a year
by 2020,” as envisaged in the Copenhagen Accord. While the results of this group are not yet
finalized, the report will likely contain a number of market-oriented options. Some of the possible
mechanisms to generate funding are identified in the next section, including fees on sales of
international shipping or aviation fuels.
47 U.S. Department of State et al., FY 2011 Budget for International Climate Change Financing.
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Table 2. “Fast-Track” Financing Pledged and Delivered
Under Various Climate Change Funding Mechanisms
(millions of US dollars, as of June 2010, where authoritative data are available; U.S. pledges and funds
delivered are identified in parentheses where available)
Financing for Mitigation
Authority or Agreement and
Host Organization(s)
Financing for Adaptation
Total (US) Contributions
Financial Mechanisms Agreed Under the Copenhagen Accord
Copenhagen Green Climate Fund, to
be established under the Global
Environment Facility (to be an
operating entity of the GEF, see
below)
Mechanism
for
REDD-plus
Climate Investment Funds
World Bank Group, African
Strategic Climate Fund: Pilot
Clean Technology Fund (CTF)
Development Bank, Asian
Program for Climate Resilience
Development Bank, European Bank
Pledged: $4,200 (US: $1980)
for Reconstruction and
Pledged: $920 (US: $145
Delivered: $a (US: $300)
Development, Inter-American
proposed)
Development Bank
Delivered:
Leveraged: $36,000
$263 (from US: $55 )
Strategic Climate Fund: Forest
Investment Program (FIP)
Pledged: $522 (US:a)
Delivered: $98 (US:a)
Strategic Climate Fund: Program for
Scaling Up Renewable Energy in Low
Income Countries (SREP)
Pledged: $283 (US:a )
Delivered: $22 (US:a)
World Bank/Global Environment Facility (GEF)
Funds established under the United
Least Developed Countries Fund
Nations Framework Convention on (LDCF)
Climate Change (UNFCCC)
Pledged: $222 (US: $50)
Delivered: $169 (US: a)
Special Climate Change Fund (SCCF): Windows on (1) Adaptation; (2)
Transfer of Technologies; (3) Energy, transport, industry, agriculture, forestry,
and waste management; and (4) Activities to assist developing countries whose
economies are highly dependent on fossil fuels.
Pledged: $121
Delivered: $101
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Financing for Mitigation
Authority or Agreement and
Host Organization(s)
Financing for Adaptation
Total (US) Contributions
Financial Mechanisms of the Kyoto Protocol
Adaptation
Fundb—financed by 2% of
Clean Development Mechanism
the proceeds from certified emission
(CDM)
reductions under the Clean
Development Mechanism
No estimate identified of incremental
financing of CDM projects during
Estimated 2008-2012: $300-600
2010-2012
Pledges: $2.78 (US:$0.01)
Delivered: $2.78
Global Environment Facility
GEF Trust Fund (Fifth
(GEF):
Replenishment, 2010–2014)c
Additional Climate Change Funds
Pledged: $4250 (from US: $116d)
Delivered: $a (from US: $26)
Leveraged from other sources:
$17,200
Forest Carbon Partnership Facility
Pledged: $174 (from US: $25)
Delivered: $ 86 (from US: $10)
Forest Investment Program (FIP)
Pledged: $522 (US proposed:
$115)
Delivered: $ 98 (from US: $20)
Carbon
Partnership
Facility
Pledged: $500
Delivered: $a
African Development Bank
Congo Basin Forest Fund(CBFF)
Pledged: $161 (from US:a )
Delivered: $161 (from US:a)
European Investment Bank
Global Energy Efficiency and
Renewable Energy Fund (GEEREF)
Pledged: $170
Delivered: $ 33
United Nations
United Nations-Reduction of
Deforestation and Forest
Degradation (UN-REDD)
Pledged: $50
Delivered: $a
Source: Primarily, Statement on Fast Start Financing, Presented by Australia, Canada, Japan, New Zealand,
Norway, and the United States, June 2010; The Climate Funds Update, http://www.climatefundsupdate.org/. Also,
Corfee-Morlot, Jan et al., Financing Climate Change Mitigation: Towards a Framework for Measurement, Reporting, and
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Verification, OECD, October 2009; GEF, Record Funding for the Global Environment Facility, Press Release,
http://thegef.org/gef/node/3010.
Notes: “Delivered” means that the funds have been transferred from the pledging entity to the fund or
mechanism that will disburse the funds. A lesser amount than that “delivered” has been disbursed by the funds
and mechanisms identified here.
a. If no figure is provided then no amount has been identified authoritatively.
b. The Adaptation Fund is financed by proceeds from the Clean Development Mechanism (CDM). The
estimate in this table for funding is based on an estimate of the Certified Emission Reductions forecast to be
issued by the CDM in the period 2010 to 2012.
c. The GEF pledged figure includes pledges for all “windows” of the facility, not only those related to climate
change and forests.
d. The United States remains about $169 million in arrears to the Global Environment Facility.
Mechanisms for Generating Funding
Public finances have been proposed to come from a variety of levies, including emissions fees
(e.g., carbon taxes); levying a percentage of sales of GHG offsets internationally (such as exists
now under the Kyoto Protocol’s Clean Development Mechanism); contribution of a share of
national allowances to auction (i.e., where emission permits are auctioned); charges on maritime
and aviation fuels, etc. Below is a sampling of the options that are being used or have been
proposed.
Revenues from Emission Allowances or Permits, including “Cap and Trade” and Emission
Reduction Offsets
• A share of emissions allowances or certified emission reductions48 could be
transferred to one or more entities which could sell them to raise revenues for
international finance.49 This could occur through a cap-and-trade program, or by
sale of non-tradeable permits (in which case, it would essentially be an emissions
fee). If the latter, the fee could be graduated to reflect emissions performance
relative to sectoral benchmarks.
• A government issuing permits or allowances to emit GHG (or other pollutants)
could sell or auction them to emission sources and use a share of the revenues for
international finance. (In this case as well, the permits or allowances operate like
emission fees, see below.)
• A fee could be levied by a government for registering the transfer of an emission
allowance or emission reduction credit to another entity, or for banking it for use
in the future. This is similar to the 2% fee on the proceeds from issuance of
48 For further explanations of how emission control systems, including cap-and-trade, may work, see CRS Report
RL33799, Climate Change: Design Approaches for a Greenhouse Gas Reduction Program, by Larry Parker; CRS
Report RL34436, The Role of Offsets in a Greenhouse Gas Emissions Cap-and-Trade Program: Potential Benefits and
Concerns, by Jonathan L. Ramseur; and CRS Report R41049, Climate Change and the EU Emissions Trading Scheme
(ETS): Looking to 2020, by Larry Parker; among other relevant CRS reports available at http://www.crs.gov/.
49 This kind of provision has been included in several U.S. legislative proposals.
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Certified Emission Reductions by the Clean Development Mechanism under the
Kyoto Protocol.50
• Emissions allowances could also be allocated internationally for selected sectors,
primarily international aviation and marine transport, for which national
governmental programs could be undermined by the inherent mobility of these
emission sources. An international entity authorized to auction, sell or otherwise
allocate emissions permits would not have to have other “governance” authorities
delegated to it, though a rigorous monitoring and enforcement mechanism would
be necessary to maintain integrity of the system. Any revenues generated could
be used for international finance.
• In a national emissions control program, an emissions source could be allowed to
meet part of its requirement by purchasing emission reduction credits, or offsets,
from low-income countries. This would likely result in the private financing of
projects directly, or through markets for these offsets.51
Emissions Fees
• A fee could be levied on GHG emissions in proportion to each source’s
emissions. It may be levied on all or some GHG emissions (affecting the total
revenues and scope of affected entities, and any incentives to abate emissions).
This is sometimes called a “carbon tax”; under guidelines of the U.S. Office of
Management and Budget, a “tax” is primarily for generating revenues, while a
user (i.e., emissions) fee52 is primarily to charge for an entity’s use of a resource
(i.e., the atmosphere as a place to discharge its waste emissions).
Other Levies
• taxes on consumption (sales) of marine or aviation bunker fuels.
• taxes on air passenger tickets.
• taxes on financial transactions (a “Tobin Tax”).
• taxes on insurance premiums.
Use of Special Drawing Rights or Gold Reserves
• Special Drawing Rights (SDRs) could be placed into a “green fund” for
disbursement. SDRs are an accounting mechanism, sometimes called a “virtual
currency,” with value tied to a basket of real country currencies. In financial
organizations such as the International Monetary Fund (IMF), SDRs typically are
held as a reserve asset to provide liquidity. To capitalize the fund, SDRs would be
issued in exchange for real currency, which would generate revenues for climate-
related financing. Each SDR would represent a potential claim on the currencies
of holders of the Climate-related SDRs. IMF would not necessarily be the entity
issuing these proposed SDRs or managing the system.
50 http://cdm.unfccc.int/index.html
51 This kind of provision is included in nearly all proposals for emissions cap-and-trade programs.
52 See, for example, http://www.whitehouse.gov/omb/rewrite/circulars/a025/a025.html.
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IMF Green Fund Proposal
• Similar to the general proposals to create SDRs for climate-related finance,
several staff of the International Monetary Fund (IMF) have proposed a Green
Fund, that would be capitalized by contributions of “reserve assets” in exchange
for an equity share in the Fund.53 Governments could contribute their SDRs
issued by the IMF in 2009 (i.e., an exchange of reserve assets between the two
Funds). Private entities might also be permitted to purchase SDRs. Because this
Green Fund would be highly credit-worthy, it would issue “green bonds” to
private or public investors. This would yield a multiple of the reserve asset
capital. The proceeds from issuing green bonds would be combined with on-
going subsidy donations (e.g., ODA) from donor countries. It could also levy a
small lending rate surcharge on borrowers from the Fund. It might also generate
interest on its capital base.
Governmental Appropriations
• Typically, ODA and current contributions to Multilateral Development Banks,
and to the GEF and other existing climate-related financial mechanisms, are
generated by appropriations of general governmental revenues.
Philanthropy
• Philanthropic organizations already provide financing that may contribute to
climate change mitigation or adaptation.
Voluntary “Offsets”
• This option would be similar to the “carbon neutral” certificates that are sold by
some private entities in exchange for assurance that the funds will be used to
reduce GHG emissions (e.g., by planting trees).54 This may differ from general
philanthropy in the sense that funds are, in principle, directly in exchange for
quantified emissions reduction performance and could be issued through
aggregators of small, diversified projects or through brokers. They would be like
emissions offsets, except that they would not offset any legal obligation.
Each of the options identified above, potentially able to generate funds to address climate change,
has advantages and disadvantages. There is no single set of criteria for comparing these options,
however. Some of the criteria implied by many commentators include the potential magnitude of
funds that could be generated by each mechanism; predictability of generating funds; plausibility
of assessing “additionality”55 of funds; accessibility to financing; the transparency of how much is
provided and its uses; likely fiduciary standards of the mechanism; and the overall efficiency of
53 Hugh Bredenkamp and Catherine Pattillo, Financing the Response to Climate Change, IMF Staff Position Note,
March 2010.
54 See, for example, Terrapass, http://store.terrapass.com/store/c/18-carbon-offsets.html.
55 “Additionality” means additional to what currently exists or to would otherwise have occurred. Additionality of
financing expresses the concern of current aid recipients that donors could merely shift existing development aid into
climate-related funds, with no incremental assistance comparable to the extra costs they perceive to be incurring by
addressing climate change.
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the mechanism. A simple comparison of the various options for sources of funds is offered in
Appendix A.
Methods for Disbursing Financial Assistance
A variety of mechanisms for disbursing financing already exists, with varying degrees of
widespread acceptability and efficiency. Principal mechanisms using public monies are through
bilateral assistance (ODA), export credits and guarantees, contributions to multilateral
development banks (MDBs), such as the World Bank Group, contributions to the Global
Environment Facility (which is the agreed financial mechanism of the UNFCCC) and, for some
countries, direct purchases of emission reduction credits (offsets) or emission allowances for
Parties of the Kyoto Protocol (which excludes the United States).
The Organisation for Economic Cooperation and Development (OECD) considers financial flows
as being either mitigation-specific, or mitigation-relevant56—these distinguish between flows
primarily intended to address climate change, or that are relevant to mitigation or adaptation to
climate change but are not primarily for that purpose. The OECD notes that the “relevant” flows
establish infrastructure and other economic context, and may add to, or reduce, GHG emissions
directly, or potentially reduce GHG, or modify vulnerability (positively or negatively) to climate
change impacts.
As Figure 3 shows, mitigation-relevant funds exceed by many times the mitigation-specific funds
in 2007. Foreign Direct Investment (FDI) is by far the largest component of mitigation-relevant
and all climate-related financial flows. Export credits are much smaller but currently the second
most important component of climate-related financial support.
56 “Mitigation-specific” as defined by OECD is defined “to achieve greenhouse gas mitigation in developing countries
as its main objective; it may also finance fulfillment of related reporting requirements”; “mitigation-relevant” support is
defined “to include funding for development in key sectors that will share emissions in developing countries and thus
mitigation potential.”
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International Financing of Responses to Climate Change
Figure 3. How Mitigation-Specific and Mitigation-Relevant Investments
Flowed in 2007
(total estimated at $314 billion)
$214
$200
$
S
U $150
007
2 $100
of
ns
io
ill
b
$50
$30
$28
$24
$12
$4
$1
$3
$0
el
el
el
el
pfc
fc
fc
it-R
it-R
t-R
it-R
t-Spfc
t-S
M
Mi
it-Sp
it-Sp
A M
Mi
Mi
FDI
its M
F M
s" M
ed
MDB
OD
CDM
MDB
GE
er
ark
ort Cr
M
xp
io
E
A "R
OD
Source: Jan Corfee-Morlot et al., Financing Climate Change Mitigation: Towards a Framework for Measurement,
Reporting, and Verification, Organisation for Economic Cooperation and Development, October 2009. Figure 9.
Notes: The four left columns are Mitigation-Relevant; the four right columns are Mitigation-Specific. See
footnote 56 for definitions of mitigation-specific and mitigation-relevant investments. Numbers add to more than
the total of $314 billion due to rounding.
Overseas Development Assistance (ODA, (bilateral financing) from public agencies (e.g., the
U.S. Agency for International Development, USAID) is also an important component of climate-
related assistance (in Figure 3, ODA Mit-Rel plus ODA “Rio Markers” Mit-Spfc), though it
represented about 8.6% of all climate mitigation-related bilateral ODA. The OECD report
estimated bilateral, climate-specific support to low-income countries at an annual average of
about $3.4 billion from 2003-2007, as reported in their Creditor Reporting System.57 This
climate-specific financing represented about 0.01% of those countries’ Gross Net Income (GNI)
for that period, and about 3.4% of those countries’ total bilateral overseas development assistance
(ODA). By comparison. By the OECD’s estimates, the United States’ contributions represented
about 0.002% of GNI and about 0.1% of all bilateral ODA.
Given the vagaries of definitions and reporting, the OECD estimates that all bilateral financing
support for climate mitigation represented about US$8 to $53 billion in 2007—no more than 1/6
of the total estimated flows of about US$314 billion going to the sectors relevant to climate
mitigation (i.e., energy, transportation, agriculture, water supply, industry, minerals, and mining.)
57 Jan Corfee-Morlot et al., Financing Climate Change Mitigation: Towards a Framework for Measurement, Reporting,
and Verification, Organisation for Economic Cooperation and Development, October 2009. Table 1.
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Besides the magnitude and terms of financing available, substantial disagreement continues over
appropriate mechanisms that would manage publicly provided financing under the Copenhagen
Accord or a new agreement. Much assistance passes through bilateral arrangements, although
some countries complain that these are difficult to verify and may represent a shift in funding, not
additional funding. For better or worse, bilateral funding may be offered as part of a country’s
broader political strategy.
Multilaterally, existing mechanisms include the Global Environment Facility (GEF) as the
financial mechanism of the UNFCCC; the Special Climate Change Fund; and funds for
specialized activities (e.g., the Adaptation Fund of the Kyoto Protocol) or groups of countries
(e.g., the Least Developed Countries Fund of the Kyoto Protocol). In 2008, multilateral
development banks with several governments and stakeholders established the Climate
Investment Funds (CIF) under management of the World Bank. Many additional sources of
funding, such as through other MDBs, are active. Their processes, terms, and responsiveness
vary. The amounts of funding pledged, and actually delivered, to the most prominent funds and
programs are given in Table 2.
Some countries are concerned about the plethora of funds, administrative and management costs,
and a lack of coherent strategy to maximize the effectiveness of the monies. Some of the existing
mechanisms are identified here. The Global Environment Facility (GEF) has been agreed to be
the official “financial mechanism” of the UNFCCC.58 (Simultaneously, it serves as a funding
mechanism on forests (in general), biodiversity, international waters, land degradation, protection
of the stratospheric ozone layer, and persistent organic pollutions.) There also are two special
funds established under the GEF, as the UNFCCC financial mechanism, particularly aimed at
supporting the lowest income countries: the Least Developed Countries Fund (LDCF) and the
Special Climate Change Fund (SCCF).
There exist many additional funds in other MDBs and other organizations. The Adaptation Fund
was established by Parties to the Kyoto Protocol to finance adaptation projects and programs in
developing countries. The Kyoto Protocol provided that the Adaptation Fund should be financed
by 2% of the proceeds from issuance of “Certified Emission Reductions” (CERs, similar to
emission offsets) by the Kyoto Protocol’s Clean Development Mechanism (CDM). The CDM
stimulates investments by both the private and public sectors by allowing creation of CERs as
emission offsets within the Kyoto Protocol system, which can be sold to entities that would use
them in order to comply with their GHG reduction requirements. Though the CDM has been used
far less than many envisioned thus far (in part because of slow processes), its Board says that it
has issued more than 1.7 billion tons of CO2-equivalent GHG reductions (2.9 billion expected by
end of 2012), and has leveraged US$33 billion from investors in 2007 alone.59 The World Bank
also set up a Carbon Finance unit, which uses donations from private and public entities to
purchase GHG emission reductions in client countries.
These existing funds, and new ones proposed, may be candidates to channel revenues generated
to address mitigation and adaptation needs in countries. Many low income countries complain
that much financing is managed bilaterally or through the Multilateral Development Banks,
58 See CRS Report R41165, Global Environment Facility (GEF): An Overview, by Richard K. Lattanzio.
59 Danieli Violetti, “Clean Development Mechanism: Achievements and Developments,” (presented at the 6th Session
of the High-Level Task Force on the Implementation of the Right to Development, Geneva, 2010).
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International Financing of Responses to Climate Change
particularly the World Bank. They may feel that they are not as responsive to the priorities of the
recipient countries as to those of the donors. These critics prefer financing to be managed by
institutions created under the UNFCCC, in which they have “one-country, one-vote,” or at least
equal regional representation to the industrialized nations.
A sampling of additional options for further financial flows include:
• The Copenhagen Accord calls for establishment of the Copenhagen Green
Climate Fund (CGCF), to be an operating entity of the financial mechanism of
the UNFCCC. It would be aimed at supporting mitigation including REDD-plus,
adaptation, capacity-building, and technology development and transfer. Its
governance would have equal representation of developed and “developing
countries” (the distinction between which remains undefined). A “significant
portion” of “new multilateral funding” for adaptation is to flow through the
CGCF. No further decisions have been made on this to date.
• The Climate Investment Funds (CIF)
Figure 4. Structure of the Climate
have been established under the
Investment Funds
World Bank Group in collaboration
with a number of additional MDBs
(hosted under the World Bank Group)
and organizations.60 The structure of
the group of “Climate Investment
Funds” are illustrated in Figure 4.
Thus far, the United States has
favored the CIF, and particularly the
Clean Technology Fund (CTF) as a
funding mechanism. The various
funds receive public financing, both
as donations and loans, and use it for
technology deployment or for
investments that could “transform”
the emissions paths of recipient
Source: Climate Investment Funds at
countries.
http://www.climateinvestmentfunds.org/cif/
designprocess.
• Several staff of the International Monetary Fund (IMF) have proposed a Green
Fund, described in the section on Mechanisms for Generating Funding.61 To
disburse funds it has mobilized, it would offer loans and grants to developing
countries, perhaps through other existing climate funds or a newly created entity.
(The proposal is not fully developed.)
• “A New Proposal” has been made by a private international finance expert62: An
independent Global Fund for Mitigation of Climate Change (MITIGA) would
finance large mitigation projects in the developing world. It would give
representation proportionate to each donor’s contribution to the fund, with a limit
60 See CRS Report R41302, Climate Investment Funds (CIFs): An Overview, by Richard K. Lattanzio.
61 Hugh Bredenkamp and Catherine Pattillo, Financing the Response to Climate Change, IMF Staff Position Note,
March 2010.
62 http://www.climatefund.info/a_new_proposal.
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International Financing of Responses to Climate Change
of 33%. The Global Fund for Financing Adaptation to Climate Change
(OBLIGA) would finance large or small projects to assist adaptation to climate
change in developing countries. OBLIGA would give equal voice to donors and
recipients (50% each). Both funds could receive contributions from public and
private sources. Both would provide only grant financing.
U.S. Legislative Provisions for Potential
International Finance
The United States at this time relies on appropriations for most financing of climate change
activities internationally, although some private and philanthropic funds flow voluntarily. No
legislated means exists to require or assure future, predictable private and public financing for
international assistance (e.g., by GHG cap-and-trade mechanisms, which could generate private
funds or allocation of GHG allowances for public funds). Moreover, the United States is currently
in arrears in delivering on some international financing, for example to the GEF, to which the
U.S. Government has agreed.
In June 2009, the House passed H.R. 2454, the American Clean Energy and Security Act
(ACESA or Waxman-Markey bill), with provisions to allow domestic sources to meet their
compliance requirements by acquiring up to 1 billion emissions offsets internationally each year.
This could provide a many-billion-dollars stream of private finance for emission abatement
projects in developing countries. The bill also would auction a share of domestic allowances to
generate funds to help prevent tropical deforestation, build governance and private sector
capacities, support cooperation to advance and deploy clean technologies, and to support
adaptation to climate change in vulnerable and low-income countries.
A parallel bill in the Senate, S. 1733, the Clean Energy Jobs and American Power Act (CEJAPA)
or Kerry-Boxer bill, contains similar provisions. Some Members of Congress and advocates have
sought to increase allocation of allowances and/or appropriations for international finance, from
$2 billion to $38 billion for international adaptation.63 A U.S. coalition of religious organizations
has called for at least $3.5 billion per year to help poor populations respond to potential floods,
natural disasters and droughts associated with warming temperatures.64
The United States’ credibility on international climate change financing has been impaired by
under-funding. The United States is almost $170 million in arrears for its assessed contribution to
the Global Environment Facility. Also, though the Bush Administration helped establish a new
Clean Technology Fund under the World Bank and pledged funds to it, the U.S. Congress
declined to appropriate the first U.S. payment of $400 million requested by the Administration for
FY2009.
63 See, for example, http://www.eenews.net/climatewire/print/2009/10/09/10; and http://docs.google.com/gview?a=v&
q=cache:I3tTCuJatQMJ:www.actionaid.org/assets/pdf/
Climate%2520finance%2520briefing%2520in%2520template%2520May%25202009%2520FINAL.pdf+Oxfam+adapt
ation+funding+%2412&hl=en&gl=us&sig=AFQjCNEbYHV2hIASCbn0s3v5II56_ZBB0Q.
64 Christa Marshall, “New religious coalition joins push for adaptation funding” ClimateWire, October 9, 2009,
http://www.eenews.net/climatewire/2009/10/09/10.
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International Financing of Responses to Climate Change
Approximately $1,007 million was appropriated for FY2010 for all “core” international climate
assistance, up from $315 million for FY2009.65 The Administration proposed that this increase to
$1,391 million in FY2011 (Table 3). Another $104 million was identified in the Administration’s
budget proposals for other “complementary” agencies, such as the Department of Energy, to
supplement that core international climate assistance. These amounts, cumulatively, fall far short
what many countries envisage for the United States’ share of the $30 billion pledged for “fast
start” financing in 2012 to 2012.66 A strategy for funding the U.S. share has not been articulated.
Improving fiduciary standards has been a theme in U.S. appropriations for foreign assistance,
including that aimed at climate-related activities. One example in federal legislation is the
Omnibus Appropriations Act, 2009 (P.L. 111-8), which permitted up to $10 million for the Least
Developed Countries Fund, under the UNFCCC, to support grants for climate change adaptation
programs. To receive the funds, the Global Environment Facility (GEF) must annually report on
the criteria it uses to select programs and activities that receive funds, how funded activities meet
such criteria, the extent of local involvement in these activities, the amount of funds provided,
and the results achieved.
Table 3. Summary of Core U.S. International Climate Assistance
(budget authority, US$ million)
FY2009 Estimate
FY2010 Estimate
FY2011 Request
Adaptation 32
237
334
Clean Energy
153
544
710
Forests & Land Use
150
167
347
Total
335 948 1391
Source: U.S. Department of State et al., FY 2011 Budget for International Climate Change Financing.
65 U.S. Department of State et al., “FY 2011 Budget for International Climate Change Financing,” February 2010.
66 Although the United States declines to consider a defined percentage as an appropriate means to share the pledged
financing, other countries often consider that the United States should provide 20-30% of the amount, or $6-10 billion
over three years.
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International Financing of Responses to Climate Change
Appendix A. Comparison of Sources of Climate Change Financing
Table A-1. Considerations Concerning Sources of Climate Change Financing
“Share of the
Public Funds,
Public Funds,
GHG Reduction
Proceeds” of
Other Private
Philanthropic and
Criteria/Options
Bilaterally
Multilaterally
Credit Markets
GHG Markets
Investment
Other Private
Magnitude likely Currently largest
Smaller share than
In long run, potential y
Likely a small
Potentially the largest
Possibly comparable
availablea
portion of pledged fast-
bilateral funding,
the largest trackable
percentage (e.g.,
quantity, but
to recent bilateral
start funds
perhaps comparable
quantity, dependent on a
2-5%) of the size
distinguishing from non-
funding b
to current GHG
policy framework that
of GHG markets
climate-change
credit markets
establishes a premium for
investment may be
GHG reductions (i.e.,
problematic
prices on emission
reductions)
Predictability
Fair to moderate.
Fair to moderate,
Fair to moderate.
To the degree
Moderate. Dependent
Likely least
Dependent on national
depending on pledges
Dependent on the
established by
on the existence and
predictable of options
appropriations
and prompt payment
existence and stability of
rules, the
stability of policy
processes and macro-
into multilateral funds. policy frameworks,
percentage may
frameworks, energy and
economic conditions.
May be subject to
energy and macro-
be highly
macro-economic
May be subject to
changes in priorities
economic markets,
predictable. The
markets, technological
changes in priorities of
of budgets of
technological advance,
absolute flow of
advance, competition
budgets. Predictability
countries and multi-
competition among
funds would be
among suppliers and
may be improved by
purpose multilateral
suppliers and purchasers,
dependent on the
purchasers, and other
legal provisions enacted
funds
and other factors. Once
predictability of
factors. Once legal
nationally to generate a
legal frameworks are in
the size of GHG
frameworks are in place,
flow of funds outside of
place, GHG markets may
reduction credit
GHG markets may be
annual or regular
be more predictable than
markets.
more predictable than
appropriationsc
annual governmental
annual governmental
appropriations.
appropriations.
CRS-28
International Financing of Responses to Climate Change
“Share of the
Public Funds,
Public Funds,
GHG Reduction
Proceeds” of
Other Private
Philanthropic and
Criteria/Options
Bilaterally
Multilaterally
Credit Markets
GHG Markets
Investment
Other Private
“Additionality”
Difficult to evaluate, in
Possibly the easiest to Difficult to evaluate,
As clearly
Likely difficult to
Unknown. However,
most cases, because of
track as “additional”
although detailed
additional as the
discern, especially in
there may be few
typically variable aid
to past flows
methods and rules have
GHG reductions
flows of Foreign Direct
incentives to
flows, and no
been established for
made
Investment and where
misrepresent the
projections of baseline
evaluating baselines and
modifications to
additionality of new
aid, The “strength” of
projects. Demonstrating
investments have been
climate-related
mainstreaming into
additionality makes
made to mitigate GHG
initiatives and grants
development priorities
financing more difficult
emissions or forest
makes discerning
and slow, and reports
destruction, or to avoid
additionality difficult
exist of inappropriate
damages
approvals
Access
Typical y direct access
Typically provide
Dependent on ability of
Theoretically,
Access is greatest to
Unknown. Access is
by countries and other
broader access than
seekers to participate in
open access to
private sector projects
likely best for larger
institutions where
bilateral funding
markets (i.e., sufficient
any government
that would be profitable
projects managed by
existing partnerships and
skill, stability, credit-
or entity that is
without or with further
well established
priorities exist in donor
worthiness, etc.); Likely
meets eligibility
public incentives (e.g., a
entities with a proven
countries. Possibly
access for GHG
criteria
price on carbon or a
record of positive
difficult access for
mitigation, but not
renewable energy
performance. Some
countries that are small
adaptation. Requesting
quota). Access is
philanthropic
and not high priority
entity must meet any
unlikely for adaptation
organizations,
bilateral partners of
eligibility criteria and
projects, small projects,
however, specialize in
donors
present a project that
and projects without
higher risk projects
meets standards for
reliable revenue flows,
and micro-finance.
transparency and
and proponents with
Public and private
performance.
poor access to credit
funds may diminish
philanthropic
contributions
Transparency
Poor to moderate.
High, because of
High, because of public
Highest because
Poor to fair, as there is
Poor to moderate, as
Dependent on
public reporting and
reporting and review
of clear share of
unlikely to be a
there is unlikely to be
availability of public
review requirements.
requirements
proceeds from
requirement for
a requirement for
reports on details of
emission
reporting publically such reporting publically
funding. Poor
reduction credit
flows in detail and with
such flows in detail
transparency of
markets
verification
and with verification
performance on funded
projects and programs.
CRS-29
International Financing of Responses to Climate Change
“Share of the
Public Funds,
Public Funds,
GHG Reduction
Proceeds” of
Other Private
Philanthropic and
Criteria/Options
Bilaterally
Multilaterally
Credit Markets
GHG Markets
Investment
Other Private
Fiduciary
Unclear. Dependent on
Moderate and
Theoretical y high, but
Depends on the
Presumably high, as
Varies with the
Standards
practices of donor and
improving.
expensive and time-
requirements of
private investors have
requirements of each
recipient entities, and of
consuming to ensure.
the project
incentives to set high
philanthropic
willingness to report in
Some limited reports of
review,
standards
organization
detail to public
fraud in existing markets.
disbursement, and
Will depend on efficacy of accountability
project performance
mechanism
verification as well
Efficiency
Easiest to “mainstream”
Possibly least efficient
Financing is directly tied
Possibly least
Theoretically efficient. If
Varies with the
into development
the more centralized
to mitigation
efficient the more
transaction costs rise
requirements of each
priorities
the review and
performance.
centralized the
too high, the investment philanthropic
disbursement
Theoretically the most
review and
becomes unprofitable
organization. Likely
mechanism
efficient, but realistical y
disbursement
and funds flow to more
more efficient than
dependent on the
mechanism, and
efficient investment.
large, public funds
absence of failures or
the greater the
Efficiency would be
with public review
inefficiencies, such as
requirements for
compromised if actual
and decision-making
existing externalities, lack
project proposal,
project climate-related
processes
of information, unequal
review, and
performance is poor
access
verification
Source: CRS assessment.
a. The judgments in this table about the likely magnitudes of funding are based, in part, on analyses of past flows, pledges, and theoretical analyses of the potentials
(based also on historical evidence). See, for example, Jan Corfee-Morlot, Bruno Guay, and Kate M. Larsen, Financing Climate Change Mitigation: Towards a Framework
for Measurement, Reporting and Verification (Paris: Organisation for Economic Cooperation and Development, October 2009), http://www.oecd.org/dataoecd/0/60/
44019962.pdf.
b. Although compilations are not available of philanthropic support to address climate change, the magnitude is likely in the billions of dollars, based on press reports.
See, for example: http://philanthropy.com/article/Grant-Makers-Pour-More-Than/56848/; http://philanthropy.com/article/Rockefel er-Commits/62676/;
http://philanthropy.com/article/Doris-Duke-Foundation-Gives/54670/; http://philanthropy.com/article/Soros-Pledges-100-Million-/57718/; etc.
c. Consideration of mechanisms to assure funding through public institutions has occurred in a number of fora, and has been enacted by the European Commission. In
the United States, several legislative proposals (e.g., H.R. 2454, the American Clean Energy and Security Act passed by the House in June 2010) would al ocate a
portion of revenues generated by the bill to international financing. Whether such revenues would be subject to further appropriation is often controversial.
International y, a high-level panel convened by United Nations Secretary General Ban Ki-Moon is studying proposals for levies on international bunker fuels, redirection
of fossil fuel subsidies, etc. that willing countries might enact to generate a relatively reliable flow of funds.
CRS-30
International Financing of Responses to Climate Change
Appendix B. Glossary of Options for Generating
and Disbursing Financing to Address Climate
Change
Table B-1. Glossary of Finance Options
(explanations are neither comprehensive nor definitive of the many proposals that exist)
Fund Generation Mechanisms
Private Compliance Market
Private sales and purchases of emission allowances, or credits for emission reductions, as
under many Cap-and-Trade schemes, the Clean Development Mechanism of the UNFCCC,
and other proposals.
Government Compliance
Purchases of emission reduction credits by governments from private entities or
Market
governments, such as through Joint Implementation under the Kyoto Protocol. Some
European governments appropriate funds to acquire such credits, to be applied to meet the
national Greenhouse Gas (GHG) target.
National Auctioning of
Designating for international finance a percentage of the proceeds of governmental
Allowances
auctioning emission al owances under national (or sub-national) emission control systems,
including Cap-and-Trade.
Levy on Certified Emissions
A share of any certified emission reductions might be collected, to be sold or auctioned to
Reductions
generate revenues. Alternatively, a fee could be levied on issuance of certified emission
reductions, proportionate to the quantity or at a fixed transaction cost.
Share of Proceeds on
Collection of a percentage of the funding associated with sales of traded emission allowances
Emissions or Offset Trading
or certified emission reductions (offsets), as part of registering the trade. This could happen
in a domestic or international program.
Emissions Fees (Carbon Tax) A fee levied on each unit of GHG emissions from sources.
Public Appropriations
Appropriations of funds for international finance (i.e., drawing on general purpose
government revenues from income taxes, etc.)
International Auctioning of
Emission al owances or offsets from national programs could be transferred to an
Allowances
international or inter-governmental entity, which could then auction them internationally to
generate funds.
Levy on Surplus or Banked
A fee on the transfer of unused allowances from one compliance period into a later one.
Allowances
International Emissions
An international entity would be authorized to allocate or sell emissions permits to emission
Allowances, with or without
sources that are easily mobile across national boundaries, such as aviation and marine
Trading, on Aviation and/or
transport. This could be through an intergovernmental agreement among sovereign nations,
Maritime Transport
not necessarily delegating any “governance” authority.
International Levy on
A tax could be levied on fuel use of emission-related entities, such as aviation bunker fuels
Aviation or Marine Bunker
or marine bunker fuels. This is very close to an emissions fee but may not be strictly
Fuels
proportionate to GHG emissions.
Levy on International
A tax could be levied on activities or per-use of emission-related entities, such as tickets for
Aviation and Maritime
air travel. This is very close to an emissions fee but may not be strictly proportionate to
Transport
GHG emissions.
Sovereign Wealth Funds
A publicly owned investment fund, using equity shares, bonds, or other assets (e.g., gold
reserves).
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Special Drawing Rights
Financial reserves held in the International Monetary Fund or a new entity could be issued
to public or private participants, possibly in exchange for equity shares in the financial
institution, that could be used to raise further capital (e.g., through bond sales) or to
disburse as climate financing.
Debt Swap Programs
A country or financial institution holding debt from another country (or conceivably a
private entity holding debt) could agree to “swap” that debt (in lieu of repayment) for
performing specified actions to mitigate or adapt to climate change, as in Debt- for-Forest
Swaps.
Climate Bonds
An entity could issue bonds in order to raise capital for climate-related investments. If not
issued by an existing, credit-worthy entity, provisions would need to be made for reserve
capital, payment of interest, and other financial requirements.
Foreign Direct Investment
Investment and ownership by entities outside of a country of productive assets, such as low
emissions equipment, etc. The foreign investor could acquire shares in an enterprise in
exchange for some action (e.g., emission reduction credits), participate in a joint venture,
purchase land for forest plantations, etc.
Fund Disbursement Mechanisms
National Official
Typically bilateral funding as part of overseas development assistance to assist mitigation or
Development and Climate
adaptation in the context of economic development in low-income countries.
Change Assistance (bilateral
or multilateral)
Project-level Emissions
Like other project financing, project developers could seek financing, including concessional
Reduction Market
financing, in return for getting emission reductions from the project certified and selling
them. Initial financing or purchase of the certified emission reductions could be by the
private sector, or governments, or some combination.
Program or Sectoral
Governments or industry associations in a country could sell offsets or certified emission
Emissions Reduction Market
reductions achieved by broad programs (e.g., tighter energy efficiency standards) or sector-
wide actions (e.g., installation of carbon capture and sequestration on all powerplants).
Reverse Auction
A government or other large entity could request bids and then purchase certified emission
reductions offered at the lowest cost per unit (or other criteria). Alternatively, an entity
could purchase and aggregate certified emission reductions from a variety of sources and
them sel them to highest-bidding private sector or governmental entities.
Grants
A transfer of cash, goods, or services for which no repayment is required. Grants can
supplement other forms of financing, including leveraging of private resources.
Performance-based Grants
A transfer of cash, goods, or services for which no repayment is required, but requiring
demonstration of performance (i.e., emissions reductions or forest preservation), typical y
before the entire transfer is made.
Concessional Debt
Transfer of funds (e.g., loans) for which repayment of the funds is required, but at lower-
than-market interest rates or other favorable treatment (e.g., extended repayment periods).
Equity
Funding provided in exchange for a share of ownership of a project or entity (i.e.,
corporation).
Loan Guarantee
A legal commitment by one entity to take on the debt of a borrower if that borrower is
unable or unwilling to repay according to the terms of the loan. Loan guarantees could be
given for specific projects or for broad program or sectoral investments.
Source: CRS, terms (not definitions) are modified from list of options in Global Canopy Programme, The Little
Climate Finance Book: A Guide to Financing Options for Forests and Climate Change, December 2009.
http://www.globalcanopy.org; OECD, 2009.
Notes: For more information about cap-and-trade systems and emission offsets, see CRS Report RL33799,
Climate Change: Design Approaches for a Greenhouse Gas Reduction Program, by Larry Parker.
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Author Contact Information
Jane A. Leggett
Specialist in Energy and Environmental Policy
jaleggett@crs.loc.gov, 7-9525
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