[South Bulletin 65 Article]

Developing countries need at least $1000 billion a year to carry out climate actions, according to a speaker at the UNFCCC workshop on climate finance in July. This article is on the workshop’s theme of the financing needs of developing countries.

By Meena Raman

Studies on climate change financing estimate that trillions of dollars are required in new or additional investments worldwide if the climate change crisis is to be addressed adequately.

A summary of recent studies was presented by speakers on 9 July, the first day of a workshop on long-term climate finance organised by the United Nations Framework Convention on Climate Change (UNFCCC) and held in Bonn.

Of the global financing requirements, the needs of developing countries for mitigation and adaptation are in the range of $600 to $1,500 billion a year, according to economist Dr. Manuel Montes of the South Centre, who based his estimate on studies published by various sources.

Montes said that the amount needed by developing countries was at least 5-10 times the prospective financing flows, referring to the $100 billion per year goal by 2020 agreed to under the Cancun decision in 2009 of the Conference of the Parties (COP) to the UNFCCC.

Another speaker, Eric Usher from the United Nations Environment Programme (UNEP), cited figures of the International Energy Agency (IEA), that there would be $15.2 trillion of additional global mitigation costs (for both developed and developing countries) related to a new policies scenario, growing from $160 billion presently to $1.1 trillion in 2035.

The UNFCCC's three-day workshop (9-11 July) was being held under a mandate given by the Durban conference last December, and is co-chaired by Zaheer Fakir (South Africa) and George Boersting (Norway), who are also co-chairs of the work programme on LTF (long-term finance).

In her introductory remarks, the UNFCCC Executive Secretary, Christiana Figueres, said that the LTF Co-chairs had sought to address four main topics at the workshop -- climate finance needs of developing countries based on robust and analytical work; sources of climate finance, be it public, private, bilateral or multilateral; options for mobilising climate finance; and lessons learnt from fast-start finance that can be used post-2012.

In the session on "Understanding the LTF needs of developing countries", South Centre's Montes said that analytically-based climate change estimates of the needs of developing countries exceed by at least 5-10 times current and prospective financing flows.

These studies point to a scale of mitigation and adaptation financing needs of $600 to $1,500 billion a year, versus the $100 billion by 2020 goal agreed to in Cancun. While there are a variety of estimates and approaches to estimating needs, there is a degree of convergence in the magnitudes among different studies, added Montes.

Montes referred to various studies in relation to mitigation. He said that the UNFCCC (2009) expert group on technology transfer indicated that $300 to $1,000 billion a year until 2030 is required globally for technology development and diffusion, mainly to transform energy systems, and that the developing country share of this would range from $182 to $505 billion per year.

Referring to the World Bank's World Development Report 2010, Montes said that the report suggests that mitigation could cost developing countries additionally $140-$175 billion a year over the next 20 years in order to participate in meeting a global emissions target of 450 ppm.

The same report suggests that developing countries require associated financing needs, for the required level of investments, in the range of $265-$565 billion.

Montes also referred to a 2011 study of the UN Department of Economic and Social Affairs (UN-DESA), which estimates that developing countries will require $1,100 billion a year in new investments to undertake the needed energy transformation, $20 billion of this for new agriculture investment.

Montes also referred to bottom-up mitigation financing estimates from case studies on India and China.

A study by the Centre for Science and the Environment of India found that the additional cost of generating power from renewable technologies in the low-carbon strategy over business-as-usual until 2030-31 is estimated at $203 billion at 2010 constant prices, or about $10 billion a year.

A study on climate change in China (the 2009/10 China Human Development Report published by the UN Development Programme) estimated that in the most ambitious emissions abatement scenario, $14.2 trillion will have to be invested between 2010 and 2050 or $355 billion per year. In a less ambitious scenario, the annual investment required would still be at the level of $240 billion.

In relation to adaptation, Montes said that the UNFCCC's 2007 study suggested that global costs are in the order of $49 to $171 billion a year. Adaptation costs to developing countries were estimated to be in the order of $27 to $66 billion a year.

The World Bank's adaptation cost estimates indicate a range of $75 to $100 billion per year. Within $102 billion annual adaptation cost based on a wetter weather scenario, the World Bank estimates that $29 billion are needed for East Asia and the Pacific, $23 billion for Latin America and the Caribbean, $19 billion for Sub-Saharan Africa, $17 billion for Europe and Central Asia, and $4 billion for the Middle East and North Africa.

According to Montes, another study by a team of scientists (Martin Parry et al. 2009) found that the UNFCCC seriously underestimated the adaptation financing required. This was due to three reasons.

First, it left out several sectors (mining, manufacturing, tourism, among others) and underestimated the costs in the sectors it covered by two to three times.

Second, the adaptation costs to protect/revive ecosystems worldwide, not included in the UNFCCC estimate, would cost $65 to $300 billion. Third, the "remainder costs', or the costs of damage from climate change, were not included.

Montes said that based on these, the developing countries' needs for adaptation actions could be estimated at around $450 billion a year.

Eric Usher of UNEP said that adaptation costing is still new and there were few agreed approaches. On the costs of adaptation in Africa, Usher said that integrated assessment models indicate that the central economic costs of climate change for Africa could be equivalent to 1.5% to 3% of GDP each year by 2030.

In relation to mitigation, referring to the IEA, Usher said that there would be $15.2 trillion of additional mitigation costs based on a new policies scenario, growing from $160 billion today to $1.1 trillion in 2035. Of the total costs, 40% would be in transport, 27% in buildings, and 20% in power generation.

Referring to another IEA study, on energy technology perspectives (2012), Usher said that new annual investments in power generation alone, in a 2 degree Celsius scenario, would involve $370 billion in 2010-2020; $630 billion between 2020 to 2030; and $760 billion between 2030 to 2050.

Another speaker, Ulric Trotz from the Caribbean Community Climate Centre, referred to studies done on the impact of a sea level rise of 1 metre in the Caribbean Community. He said that at least 16 multi-million-dollar tourism resorts would be lost, with a replacement cost of over US$ 1.6 billion and the livelihoods of thousands of employees and communities affected. The total economic impact of a 1 m sea level rise would involve a GDP loss of more than US$1.2 billion per year, permanently lost land value of US$70 billion and reconstruction and relocation costs of $4.64 billion.

Anthony Nyong from the African Development Bank said that the projected adaptation costs for sub-Saharan Africa was around 2% of GDP. He said that Africa required about $22 to $31 billion per year by 2015 and $52 to $68 billion per year by 2030. Climate proofing will add 40% to the costs of meeting the Millennium Development Goals (MDGs) in Africa, which is about $30 billion. Current climate change investment flows in the region are massively short of what will be required. Cumulative mitigation investment in the period 2003-2010 was less than $2 billion while cumulative adaption investment to date has been less than $500 million, added Nyong.

In a speech via video-conferencing, Jeffrey Sachs from the Earth Institute said there were fundamental economic issues in climate change that required rapid and deep decarbonisation; deep technological change and climate adaptation and resilience and these needs will impose significant incremental costs.

Sachs added that $100 billion was easy to state but hard to mobilise as rich countries make promises that they do not fulfil. He criticised the political class in the United States for not wanting to contribute anything when the larger public was willing to do more.

Sachs also said that at the national level, there was need to create incentives for technological change with a long-term predictable price for CO2 emissions at $30 to $50 per tonne. He said that having a carbon tax was the simplest and most transparent method of applying the carbon price.

He added that carbon trading was a deficient method, and it did not give a long-term price signal for CO2 as it was based on the spot price of tradable permits and does not promote the deep transformation needed. He proposed the use of carbon taxes and feed-in tariffs.

Delegates from several countries spoke during the discussion session. Mohammed Nasr of Egypt said that the UNFCCC provided the guiding principles. Adaptation costing had no clear methodology and this was a big gap. Policymakers needed assurances as to where to access climate finance.

The Philippines said that it was important to see what has not been working thus far in climate finance. It is important to have predictable sources of finance as developing countries could not be relying on ad hoc sources.

Dr. Surya Seti of India, a university professor based in Singapore, said that it is important to understand what "climate financing" is. Under the Convention, this is grants or concessional finance.

India also said that when one talks of carbon tax at the international level, it also must be rooted in the principles of the Convention. It added that revenues from carbon markets are not climate finance, as they come from carbon credits that are "offsets" relating to the mitigation of developed countries.

Brazil said that the discussions must be in the context of the Convention, where the principles of equity and common but differentiated responsibility (CBDR) are important. Developing countries cannot be expected to contribute to climate financing.

China also stressed the need to bear in mind the Convention and the CBDR principle. China needed international climate finance as it had a large population and had to address development and poverty needs. It also had to face many natural disasters.

Nicaragua said that Special Drawing Rights (at the International Monetary Fund) could be viewed as a possible option for climate finance.

Meena Raman is Senior Legal Advisor with the Third World Network.