Annex: Summary of
Proposals for New Mechanisms
A number of proposals have been made regarding new financial mechanisms under the Convention. The underlying convergence of these proposals is twofold: the proposals aim to ensure the enhanced implementation of the Convention through the provision of new, adequate and predictable financial resources; and the proposals aim to develop an inclusive and transparent governance regime under the authority and guidance of, and fully accountable to, the Conference of the Parties.
The Alliance of Small Island States’ (AOSIS) proposal for a Convention Adaptation Fund, which is to linked to greenhouse gas emissions, would operate under the framework of the polluter pays principle, with criteria established for contributions and the prioritization of resources.
The G77 and China have proposed a financial mechanism for meeting financial commitments under the Convention, to bring about coherence in the global financial architecture for financing, including enabling a shift from a project-based approach when dealing with proposals for funding, to a programmatic approach, where appropriate, in order to make optimal use of the full range of means of implementation available and to allow for implementation at scale.
Mexico’s World Climate Change Fund would aim to build, through common understanding, a non-substitutive but complementary scheme to the Kyoto Protocol, which ensures the full, sustained and effective implementation of the Convention. The Fund would aim to: expand the scale of global mitigation efforts and enable the participation of all countries; support adaptation activities; promote technology transfer and diffusion; and underpin, financially, the new climate change regime.
Switzerland’s Multilateral Adaptation Fund (MAF) would assist low and medium income countries in financing their adaptation policies. The MAF is based on two pillars, namely the: prevention pillar, which will focus on climate change impact (risk) reduction through appropriate policies and measures; and an insurance pillar, which will focus on climate impact response: relief, rehabilitation and recovery. The MAF releases its funds of some US$18.4 billion per year within a clearly defined legal governance framework.
South Africa, for the African Group, has proposed a dedicated African climate change facility as part of a broader coherent financial architecture under the Convention, which would include a package on technology, finance and capacity-building that responds to the climate change priorities of the region, and its particular institutional, financial and technical challenges and needs.
India has proposed a new financing architecture consisting of different financing streams to address technology acquisition and a technology transfer fund, a venture capital fund for emerging technologies, and a collaborative climate research fund.
Both Ghana and China have called for the establishment of a multilateral technology fund. China has put forward the option of establishing an international mechanism for cooperation on research and development (R&D) and transfer of technologies, with a particular focus on the removal of obstacles to technology transfer and to ‘appropriately’ address the issue of intellectual property rights.
Bangladesh for the Least Developed Countries (LDC) Group has identified the need for compensation for climate victims and refugees, and has proposed a mechanism for assessing loss and damages, including a financial mechanism to provide immediate help to climate victims. It also called for the establishment of a mechanism for crop insurance and the development of a new and innovative support mechanism such as micro insurance.
AOSIS has called for an International Insurance Mechanism that would be an internationally-sourced pool of funds to help small island States manage financial risk arising from increasingly frequent and severe extreme weather events. AOSIS has also supported the idea of solidarity funds to address catastrophic risk and collective loss sharing mechanisms to address the unavoidable impacts of climate change.
Proposals for New Sources of Finance
A number of parties have made proposals regarding either new sources or measures to assess the levels of contributions required to meet the needs of developing countries. The UNFCCC Secretariat document, Investment and Financial Flows to Address Climate Change, indicates that, including public and private sources, global additional investment and financial flows required in 2030 to return global greenhouse gas emissions to current levels would amount US$200-210 billion. The UNFCCC review found that the additional investment and financial flows in 2030 to address climate change amounts to 0.3-0.5% of global domestic product in 2030 and 1.1-1.7% of global investment in 2030. It also noted that this is a small amount in overall global figures, but large compared to the currently available public and private financial resources for climate change.
China has proposed that in addition to existing ODA, developed countries should provide financial support of no less than 0.5% of their total Gross Domestic Product (GDP) per annum to support actions by developing countries to address climate change.
In a similar vein, the G77/China has proposed that the level of new funding can be set at 0.5-1% of the GNP of Annex I Parties. The G77/China has argued that the main source of funding will be through the implementation of commitments under Article 4.3, with funding being “new and additional” financial resources, which is over and above ODA. The major source of funds would be the public sector. It has further argued that any funding pledged outside of the UNFCCC should not be regarded as the fulfilment of commitments by developed countries for measurable, reportable and verifiable (MRV) means of implementation in relation to finance, technology and capacity-building under the Bali Action Plan. The resources shall be essentially grant-based (particularly for adaptation), without prejudice to certain concessional loan arrangements in appropriate form, to meet the needs of a specific programme.
Mexico’s proposal states that contributions shall be agreed multilaterally and could be determined by criteria, such as: greenhouse gas emissions; population; and GDP levels. Mexico has suggested that, in its initial phase, the Fund should mobilize no less than US$10 billion per year. Several mechanisms could mobilize new financial resources that could be directed to the fund, such as auctioning permits in domestic cap and trade systems in some developed countries, or the possibility of taxing air travel, without putting excessive pressure on public financing.
The G5 Political Declaration (Brazil, China, India, Mexico and South Africa), adopted in July 2008, welcomed further exploration of China’s proposal for GDP based climate finance targets, as well as the Mexican initiative for a World Climate Change Fund.
The African Group has called for adaption finance to be massively scaled-up (by 2 or 3 times present levels) and must redress the historical inequity in allocation of funds for adaptation
Norway has proposed using a share of the proceeds from auctioning Assigned Amount Units (AAUs). Norway’s proposal includes the option of a small portion of AAU’s being withheld from national quotas, which would be auctioned by an appropriate international institution. The resulting revenue would then be placed in a fund to be used on adaptation actions or other specified purposes such as technology development. Even a small percentage of auctioning would generate a large source of finance.
Switzerland’s proposal for global solidarity in financing adaptation is based on applying a uniform global levy of US$2 per ton of carbon dioxide on all fossil fuel emissions. According to the Swiss proposal, this would equate to a tax burden of about US 0.5 cents per litre of liquid fuel. Under this scheme, a basic tax exemption of 1.5tCO2-eq per inhabitant would be applied to take into account the principle of common but differentiated responsibilities.
Bangladesh, for the LDC group, has proposed a range of options including: a levy on international air travel; an international fuel levy on aviation and maritime transport; extending the adaptation fund levy to other mechanisms; and using the carbon markets and venture capital to generate additional resources.
The Republic of Korea has proposed the creation of Nationally Appropriate Mitigation Actions (NAMA) by developing country parties, supported and enabled by technology, financing and capacity-building, that are measurable, reportable and verifiable. Under the NAMA framework, carbon credits would be awarded with a certain share of proceeds being allocated to the adaptation and climate funds.
The European Union (EU) has suggested that discussions focus on developing a broad toolbox approach that can leverage private and public financial flows for both mitigation and adaptation activities. Regarding adaptation, the EU toolbox would focus on: existing mechanisms such as the CDM levy; national policies and private-public partnerships; and generating finance while enhancing mitigation by exploring innovative financing sources and implementing them. On mitigation, the tool box would focus on: the potential of the carbon market to become a key vehicle for financing mitigation; innovative financing mechanisms that can assist in creating and strengthening the price of carbon while enhancing mitigation efforts; and public sector and public finance in developed and developing countries. The EU has further proposed that it will be important to ensure effective provision of finance through a coherent, consistent and effective financial architecture that has strong synergies with national and international policies and efforts.
Australia has suggested that further consideration be given to criteria for prioritizing the allocation of financial support for clean development, including through maximising the effectiveness of existing funding, including domestic and private sector funding. It has further proposed that the coverage of carbon markets should be expanded, given the ability of markets to encourage behavioral change, and deliver least cost abatement. It has also suggested that the AWG-LCA recommend expanding the number of countries subscribed in Annex II, based on current capacity to provide support, who under Convention Articles 4.3 and 4.4 agreed to provide financial resources to assist others to better implement climate change policies and measures.
Sri Lanka has proposed establishing a mechanism to enable the Annex I countries to contribute to the Adaptation Fund in a formal manner. They have also suggested that such a mechanism would also facilitate channeling a significant portion of funds to the Adaptation Fund from the revenues of the Joint Implementation and Emission Trading mechanisms.
Pakistan has proposed increasing the current CDM levy to a level of 3-5% share of the proceeds.
Turkey has argued that access to the Protocol’s Adaptation Fund should not be based on being a party to Protocol. Instead, the necessary conditions should be determined by vulnerability to the adverse effects of climate change, the level of associated risks, and the financial capacity of the Convention parties to cover the costs of adaptation.
A note on sources
Official Submissions made by parties, in response to decision 1/CP.13, that instructed the
Ad Hoc Working Group on Long-term Cooperative Action under the Convention (AWG-LCA) to develop its work programme at its first session in a coherent and integrated manner, and invited parties to submit to the Secretariat, by 22 February 2008, their views regarding the work programme, taking into account the elements to be addressed by the AWG-LCA. The Secretariat also received submissions from accredited non-governmental organizations and intergovernmental organizations.
Presentations made at three workshops at the second session of the AWG-LCA on:
Advancing adaptation through finance and technology, including national adaptation programmes of actions (NAPAs);
Investment and financial flows to address climate change; and
Effective mechanisms and enhanced means for the removal of obstacles to, and provision of financial and other incentives for, the scaling up of the development and transfer of technology to developing country Parties in order to promote access to affordable environmentally sound technologies; and ways to accelerate deployment, diffusion and transfer of affordable environmentally sound technologies.
Submissions made by Parties in preparation for the third session of the AWG-LCA, held in Accra, Ghana, from 21-27 August 2008.