The meeting of the Green Climate Fund’s Transitional Committee wrapped up on Friday in Mexico City. Last week, we discussed the outstanding issues with the Fund since Cancun. While progress was made on good governance and accountability, questions still remain over how the Fund will be financed and how it will deliver money to help developing countries tackle mitigation and adaptation.
At a press conference Friday, United Nations climate chief Christiana Figueres said, “I am convinced that as governments, industry and investors increasingly realize that a low-carbon future in a world resilient to climate change is not only necessary but sustainable and profitable, then the necessary finance will flow faster than many now expect. A well-designed Green Climate Fund will help ensure that this happens sooner rather than later.”
Co-chair of the Transitional Committee South African Planning Minister Trevor Manuel said that a price on carbon is necessary to generate money into the Fund.
"The fact that you can pollute the atmosphere and not have to pay for that pollution, it has to be one of the most manifest market failures,” he told reporters on Friday.
However, the European Union is the only successful region in pricing carbon. Australia Prime Minister Julia Gillard has plans for a carbon tax, but she is facing growing opposition.
Other major developed regions - such as North America - are just not there politically at the moment to incorporate a price on carbon.
Canadian Prime Minister Stephen Harper’s government, which has been conservative in terms of climate policy, has been re-elected this week. Also, the United States is not destined for climate policy legislation to pass in Congress for the next year or so, depending on the results of the 2012 election.
But if Manuel claims that the price on carbon will be crucial to obtaining money for the Fund, even though some considered progress to be marginal at the recent Fund meeting, it may take longer than expected to get it up and running to its full potential.
Some are even questioning if the Fund will provide enough money when it is financed – an amount that could reach up to $100 billion.
Dominic Waughray, senior director and head of environmental initiatives at the World Economic Forum wrote in The Huffington Post recently…
The challenge is that, although it sounds like a lot, $100 billion a year simply won't be enough to pay for the transition to a resilient, low carbon economy, even if all the money were just for Africa. Leaving aside the cost required to pay for the damage climate change will cause, $100 billion will not cover the cost of investing in cleaner, more widespread energy systems across the continent. Just within South Africa alone, for example, the South Africa Renewables Initiative (SARI) estimates that building 20 Gigawatts of renewables by 2020, which is still less than 20 percent of the country's energy mix, would cost in the order of $50 billion. The incremental cost of this program, using the current level of South Africa's feed in tariffs would be as much as $21 billion, more than currently affordable.
So how should it be used? I agree with Waughray that it can be used to attract investment in renewables in Africa and elsewhere.
Instead of looking at the Fund as a solution to climate finance, it can be used as an investment injection into these countries to help spur growth in the renewables sector and encourage the transition to low-carbon economies and adaptation projects and policies. But even then, the question remains on how the Fund will be divided to help those developing countries.
However before tackling the question of how the money should be used, the larger question of how it should be and indeed can be funded should first be addressed, acknowledging that incorporating a wide-ranging carbon tax may be difficult.
