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- 2. Two main issues •Where to get the money? • How to spend the money?
- 3. Where to getthe money? • Reallocate fossil fuel subsidies – They greatly exceed climate finance goals • Money from: – Carbon taxes – Emissions permits – International carbon pricing – Private, bilateral and multilateral sources
- 4. How to spendthe money? • To finance mitigation & adaptation • Mitigation example: – subsidize clean energy technology – large-scale, multilateral financing – structure per WTO TRIMS, GATT, SCM & IIAs • Adaptation example: – subsidize subsistence farmers to adopt GMO crops – small scale, national financing – another way to address IPR problem – structure per WTO SCM and Agriculture
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- 6. Multilateral Financing Mechanisms WorldBank • UNFCCC process and World Bank energy projects have been working at cross purposes • Fossil fuel subsidies: – are expensive – inflate GHG emissions – mainly benefit middle and upper classes • Their reduction: – encourages energy efficiency – increases relative attractiveness of renewable energy – frees up resources for poverty alleviation, including clean energy for those without electricity
- 7. GHG Emission UnderDifferent Scenarios 28 29 30 31 32 33 34 35 36 2010 2012 2014 2016 2018 2020 Year Gigatons of CO2e BAU Subsidy Removed 450 ppm
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- 9. Developing Country FossilFuel Consumption Subsidies • 2007: USD 342.15 billion • 2008: USD 554.44 billion • 2009: USD 300.14 billion • 2010: USD 408.8 billion • 8% of 2010 total reached poorest income group (the bottom 20%) • Goal of Green Climate Fund: USD 100 billion per year for developing countries
- 10. Percentage of subsidyreceived by the bottom 20% population 0% 2% 4% 6% 8% 10% Pakistan China Vietnam Bangladesh India Philippines Sri Lanka South Africa
- 11. Multilateral Financing Mechanisms UNFCCCGreen Climate Fund • Goal: USD 100 billion per year by 2020 • Proposed sources: – 30% emission allowance auctions, domestic carbon taxes – 10% carbon pricing international transportation – 10% redeployment of fossil fuel subsidies in developed countries or a financial transaction tax – 10% private investment flows – 11% multilateral development banks • Suggested carbon price USD 20-25 per ton of CO2e • Prioritize funding adaptation for most vulnerable developing countries & preserving rainforests • World Bank interim trustee, Secretariat South Korea
- 12. Multilateral Financing Mechanisms KyotoProtocol (Australia, Europe) • Clean Development Mechanism (certified emission reduction (CER) credits) • Adaptation Fund (2% of CERs) • Official Development Assistance • Mexico City examples: – metrobus, new metro line – European money, European buses & trains – Reduced my carbon footprint
- 18. Climate Finance andWTO Subsidies Law
- 19. Climate Finance andWTO Subsidies Law • Bilateral foreign aid conditional on the use of suppliers from the donor country • CDM projects that include bilateral official development assistence similar • % of CDM projects for which CER recipient was technology supplier – Denmark 91% – Spain 50% – Germany 40% – Japan 37%
- 20. SCM Agreement Article1.1(a)(1) ‘subsidy’ definition • ‘a financial contribution by a government or any public body within the territory of a Member’ (emphasis added). • Does ‘within the territory of a Member’ apply to ‘a government’, ‘public body’ or ‘financial contribution’? • If the financial contribution must take place within the territory of a Member, – ‘a Member’ could mean the Member that makes the financial contribution – or could mean any Member. • Former interpretation might exclude foreign aid from application of SCM Agreement.
- 21. Article 1.1(a)(1) financial contribution •Bilateral climate financing: could be a direct transfer of funds or some other form of income or price support, depending on the terms of the aid package. • Multilateral climate financing: might take form of payments to a funding mechanism.
- 22. Article 1.1(b) ‘benefit’ •Foreign aid & CDM logic is investment would not occur without funding. • The funding creates financing necessary for participation of the donor country’s suppliers. • Creates opportunity that would not have existed otherwise in the market. • That could qualify as a benefit. • BUT, if no market benchmark without aid program, can’t prove benefit is conferred.
- 23. Export subsidies • Deemedto be specific • Prohibited • Test of contingency in fact is met when the granting of a subsidy, without having been made legally contingent upon export performance, is in fact tied to actual or anticipated exportation. • Climate financing subsidy is tied to the exportation to the recipient country. • Could be a prohibited export subsidy.
- 24. Backward WTO subsidieslaw • Fossil fuel subsidies are not generally specific to a domestic industry. • Clean energy subsidies usually are specific, but might be saved by benefit analysis. • Specific subsidies can be subject to unilateral or multilateral action. • Prohibited subsidies are deemed specific.
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- 26. Financing Adaptation by SubsistenceFarmers • Climate change will have greater impact on viability of traditional plant varieties in tropical developing countries than in temperate developed countries. • In developing countries: – greater need for GM seeds to raise yields & adapt to climate change – larger percentage of population depends on agriculture (e.g. 50% in India) – poorest depend on subsistence agriculture – rely on collecting seeds to sow future crops
- 29. Subsistence farmers need •Microfinancing for GMO seeds, fertilizer and herbicides: – to afford adaptation – to raise incomes with increased output • Microinsurance for crop failure from drought, floods or other natural calamities • WTO Agreement on Agriculture exemptions should allow.
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- 31. Financing Clean EnergyProjects • Debate regarding access to clean energy technologies should not be on IPRs • Real issues: creating incentives for and removing obstacles to clean energy development and dissemination • Need to reallocate fossil fuel subsidies • May need to reform WTO subsidies law • Need to remove barriers to trade in clean energy technologies & services, investment
- 34. Cost Comparison ofElectricity at Distance from Grid 0 5 10 15 20 25 30 0 5 10 15 20 25 30 Distance in Kilometers Rupees per kW h Coal Wind Wind/Solar Biomass
- 35. Conclusion • Where toget the money? – Fossil fuel subsidies – Permit auctions, carbon taxes – Both raise money and reduce emissions • How to spend the money? – Clean energy subsidies – Adaptation for the poor