The Africa Group represented by South Africa said that it would not be able to accept any financial commitment which is not at least 1% of the global GDP, amounting to about $400 billion a year for climate finance. Comparing this with the amounts provided by developed countries for their economic stimulus packages, it said that its proposal was reasonable for a global humanitarian crisis such as climate change.

Other proposals for innovative financing included the use of special drawing rights for sustainable development, proposed by Indonesia.

Developing countries also rejected proposals by developed country Parties for developing countries to contribute to climate financing, stressing that this was a commitment of developed countries under the Convention to provide the financing needed to developing countries.

They stressed the need for a new financial mechanism that was more effective under the Convention to address the problems they faced under the existing operating entities.

These views were expressed at a session of the informal group on finance on 11 August under the Ad-hoc Working Group on Long-term Cooperative Action (AWG-LCA). The informal group was facilitated by Ambassador Luiz Machado of Brazil.

Philippines speaking for G77 and China said that as in the case of technology transfer, agreement and and forward movement on the issue of financing for developing countries is crucial for any agreed outcome in Copenhagen.

In reference to the Group's proposal for a new financial mechanism under the Convention, Philippines explained the reason for its proposal. For so long, Parties have provided initial guidance for the functioning of the financial mechanism. After the first review, there was an operating entity which was the Global Environment Facility (GEF) and Parties have been providing guidance to that through the years.The Group's proposals for a new financial mechanism is from pratical experience, to address the problems that were found. This relates not only to the issue of governance, but also the multiplicity of governance outside the UNFCCC. This should be assessed in terms of coherence but that is an impossible task, for how can Parties assess the World Bank financing,? Parties have not been able to do that under that GEF, what more institutions like the World Bank who are outside the UNFCCC.

If Parties are serious about addressing the grave threat of climate change, governance of the financial mechanism must be under the authority of the Conference of Parties. The Group has proposed a quantum for the financing as a percentage (of the GNP of Annex 1 Parties of between 0.5%-1%). The financial resources should be scaled up and must come mainly from public funds. It does not preclude the possibility of other sources of funds in terms of venture funds for technology transfer. There is also need for a compliance mechanism to ensure that the commitment for financing by developed countries is complied with. On the guiding principles for the financial mechanism, the Group reiterated the principle of equity and common but differentiated responsibility, direct access, country-driveness and for the mechanism to be under the authority of the COP.

On the negotiating text, the Group expressed difficulties in locating its inputs in the negotiating text. The Group once again requested for attributions to be placed in the text so Parties can determine whose proposals the various paragraphs reflected.

South Africa, speaking for the Africa Group, said that the question of institutional arrangements is only one part of the financing issue. The scale of financing, sources of funding, a facility for access and delivery would inform how Parties design an institutional framework.

The Convention provides the framework for negotiation. Referring to Article 4.7 of the Convention (which states that the extent to which developing countries are able to undertake adaptation and mitigation measures would depend upon the extent to which developed countries provide technology and financing) South Africa said that the Group would not be in a position to support proposals that call for all Parties to contribute to finance. It would also not be in a position to support an approach that differentiates access to funding among developing countries.

It also said that financing should be new, additional and predictable. On the sources of finance, it proposed the following criteria viz. recognition that climate change is an additional burden for developing countries; climate funding is new and additional; support for proposals that place emphasis on public finance and not those that emphasise the role of markets over and above public funding. Access to financing should be simple and improved and ensure direct access. Africa would not support text that set conditions such as specific enabling environments; fiduciary standards or planning requirements.

There is convergence of views that finance is important. There is divergence on the scale of finance, balance between public and private approaches, institutional arrangements as to whether to have new mechanisms or use existing ones and the type of finance to be provided i.e. whether full costs or incremental costs. These are quite fundamental issues of divergence.

Barbados speaking for AOSIS, said that on guiding principles, financing needs to be additional and predictable, for enhancing implementation. It must significantly deliver resources in terms of magnitude. It said that it was ironic that there are many proposals for enhanced action by developing countries for more National Adaptation Plans (NAPAs) and plans for mitigation actions.

The question is what do countries do after developing these plans? Do developing countries have to shop around for funding to implement them? As was the experience with the NAPA process, the immediate needs of developing countries were identified, the plans were costed but they were under-funded. Parties should not call for development of plans of action by developing countries without accompanying that with the support needed. Access to funds must be direct and simplified. In relation to the support to be provided, there should be prioritisation for the needs of the nLDCs and the small-island states and this is consistent with the BAP and the Convention.

Uganda speaking for the LDCs said that the implementation of NAPAs has been disappointing. The problem arises with inadequate resources for their implementation. Mobilisation of adequate and predictable resources is key for a Copenhagen outcome. These funds must come largely from the public sector. The private sector can only play a complementary role.

Indonesia echoed the need for scaling up the level of financial resources. As an innovative source of finance, it proposed the implementation of the principle of external debt swap or debt relief for the sustainable development of developing countries that arose from ODA and other bilateral/multilateral sources, or the usage of special drawing rights for sustainable development.

Saudi Arabia said that proposals in the text that ask developing countries to also bear the responsibility for financing are unacceptable. Such proposals should be eliminated. Financing has to be by developed country governments and not through market-mechanisms such as taxes on developing country exports. It also called for a percentage of not less than 1% of the GDP of developed countries for climate financing.

China expressed concern over proposal regarding sources of financing that called for all Parties under the Convention to be involved in the mobilisation of the resources. Such proposals contradict the Convention and the principle of common but differentiated responsibilities and must therefore be deleted. Developing countries are not begging for assistance but want their right to development to be defended and for the fulfilment by developed country Parties of their obligations under the Convention. They should not shift their responsibility and place more emphasis on the markets. Markets are not predictable as has been experienced following the financial crisis.

Colombia and Costa Rica said that a shared vision cannot be complete without a financial mechanism. They called for $30 billion for adaptation funding and $65 billion for mitigation actions to be provided on an annual basis. They also called for a share of proceeds of 8 per cent on joint implementation and emissions trading and market-based mechanisms under the Kyoto Protocol.

Bolivia said that the guiding principles for the financial mechanism should be effective and transparent, with no conditionalities. It must be additional to ODA and must be predictable and come from public funds directly to developing countries. Markets should not be relied on as they cannot regulate GHGs and they are a problem rather than the solution.

India supported the views of G77 and China as well as the views of South Africa. It said that Parties have not reached convergence. It was clear that a large majority of delegations have reached convergence on the financial mechanism approach and that is the mainstream which is loud and clear. It was only logical therefore to seek an overall consensus to focus on the mainstream view as set out by the G77 and China and the Africa Group. If there are delegations that disagree with the individual elements, they should explain why they defer from this view.

Pakistan said that the business–as-usual approach in relation to finance will not work. The fragmentation of funding resources is at the heart of the issue. There is need to improve this. There is need for additionality of resources, predictability and stability of funding. The Adaptation Fund (under the Kyoto Protocol) hinges on the carbon market which goes up and down. Such funding is not capable of being stable. It is premature to consider the sources of funding when the scale of effort needed is still unknown.

Mexico said that the revised negotiating text contains additions that it could no longer recognise. Referring to the economic crisis, it said that the experience showed that it was possible to mobilise large sums of money. The BAP should lead to an increase in mobilisation of funding. The Mexican proposal attempts to measure the capacities and responsibilities of countries to make contributions. Some developing countries have more capacities than others to make contributions and those who are in position to do so must contibute to providing financial resources.

The United States said that there were new developments in the country and that the US is back at the table and would be constructive. It will triple its financing and there would be a nine-fold increase of resources for adaptation. The share of financing for adaptation should go mostly to vulnerable countries. For the first time, the US has money for the Least Developing Country Funds and the Special Climate Funds. The US domestic legislation includes a financial component.

Through domestic trading programmes, funds will be set aside for additional funds for technology, adaptation and forests. It estimates this to be several billions of USD per year. Offset programmes would also be larger. The US said that the larger and wealthier developing countries that are capable of contributing financial resources should do so to those who are less able to cope due to climate change.

It said that both public and private sources of funding including the carbon markets must play an important role in climate financing. Existing bilateral and multilateral sources of funding should also be available. It said that there were broad areas of agreement in relation to agreement on the institutional arrangements that must be transparent, effective and have balanced representation. The financial architecture must match needs with resources.

Japan said that financial resouces for mitigation and adaptation should be scaled up urgently and substantially and this was an area of convergence. Financing to address climate change should be from multiple sources, including public and private funds. It said that expertise present in the existing institutions should be utilised to the maximum. Transparency, fairness, efficiency, and balanced representation are pre-requisites for a financial mechanism. Parties should not underestimate the value of private finance as well as bilateral, regional and multilateral channels.

Luiz Machado, the facilitator of the informal group, said that he would provide Parties with a table indicating areas of convergence and and divergence for the deliberation of Parties at the next meeting of the group.

Source: TWN Bonn News Update No.5
13 August 2009
Published by Third World Network
www.twnside.org.sg

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