EN Official Journal of the European Union C 128/127

Opinion of the European Economic and Social Committee on the ‘Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions — Stepping up international climate finance: A European blueprint for the Copenhagen deal’

COM(2009) 475 final

(2010/C 128/24)

Rapporteur-general: Ms ANDREI

On 10 September 2009, the European Commission decided to consult the European Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on the

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - Stepping up international climate finance: A European blueprint for the Copenhagen deal

COM(2009) 475 final.

On 29 September 2009, the Bureau of the European Economic and Social Committee instructed the Section for Agriculture, Rural Development and the Environment to undertake the preparatory work.

Given the urgent nature of the work, the European Economic and Social Committee appointed Ms Andrei as rapporteur-general at its 457th plenary session, held on 4 and 5 November 2009 (meeting of 5 November 2009), and adopted the following opinion by 179 votes to 4 with 11 abstentions.

1. Conclusions and recommendations

1.1. The Committee welcomes these timely proposals and urges the institutions to give urgent consideration to them so that they can indeed help to achieve a successful outcome in Copenhagen. The communication is a good start, as up to now the industrialized countries did not want to put any number for finance on the table.

1.2. Climate finance is not to be seen as voluntary aid but as an obligation, enshrined within the UNFCCC Convention Articles, to provide new, additional, adequate and predictable financial resources to developing countries. It is a necessary obligation of industrialised countries to respect the Convention’s principle of ‘common but differentiated responsibility’.

1.3. Developing countries need substantial help to fight climate change, as the EU has agreed under the UN Climate Convention. They will likely face hundreds of billions of Euros in costs per year in the coming decades for mitigation and adaptation.

1.4. The EESC is supporting the EU proposal for ‘fast start’ public funding from industrialised countries of EUR 5 to 7 billion a year for the period before 2013. This is a good start, given the current atmosphere and the lack of trust between South and North.

1.5. The Committee also appreciates the Commission's positive approach towards action to source finance from international aviation and shipping.

1.6. On the other hand, there are already strong signals from developing countries, especially in Africa, that the EU’s offer is far too low and would effectively ask developing countries to pay for the damages caused by others over many years. Many NGOs and UN economists have argued that a conservative estimate for the required financing from developed countries for developing countries amounts to a sum in the region of USD 150 bn per annum (or around EUR 110 bn), during the 2013-2017 commitment period.

1.7. Regarding the revenues from the carbon market, the Commission assumes that the huge profits made by the players there will be fully captured by developing countries and then spent on low-carbon activities. In practice, such profits are much more likely to end up in the pockets of private companies, many of them from developed countries.

1.8. The EESC is also concerned about the EU vision on domestic private investment in developing countries given that the European Union has not found a way to ensure Member States will use revenues from its own emissions trading system for clean energy investment.

1.9. The Commission should come with a reviewed, viable plan to maintain its leadership in the international climate policy. The EU should also continue to press the United States and others to reveal their positions on climate finance.

1.10. The promises of increased financial resources, be they international or domestic, should be subject to ‘measurable, reportable and verifiable’ provisions.

2. Introduction

2.1. On 10 September 2009 the European Commission put forward the communication ‘Stepping up international climate finance: A European blueprint for the Copenhagen deal’.

2.2. This paper seeks to unlock the current impasse in the negotiations when developed countries expect the more advanced developing countries to contribute to the overall effort when, at the same time, developing countries want to see a clear position from developed countries on finance for mitigation and adaptation.

2.3. However, this proposal is not sufficient for assuring an effective deal in Copenhagen. We will need ambitious cuts by all developed countries, appropriate mitigation measures by developing countries and an effective global architecture to give the right incentives to galvanise investment into a low-carbon economy.

2.4. By 2020 developing countries are likely to face annual costs of around EUR 100 billion to mitigate their greenhouse gas emissions and adapt to the impacts of climate change. Most of the finance needed should come from domestic sources and an expanded international carbon market, but international public financing of some EUR 22-50 billion a year will be necessary.

2.5. The European Commission proposes that industrialised nations and economically more advanced developing countries should provide this public financing in line with their responsibility for emissions and their ability to provide funding. This could mean an EU contribution of some EUR 2-15 billion a year by 2020.

3. Commission document

3.1. The Commission estimates that finance requirements for adaptation and mitigation actions in developing countries could reach roughly EUR 100 billion per year by 2020. Domestic finance (public and private) in developing countries, the global carbon market and complementary international public financial flows should all play a role in meeting these requirements. Domestic private and public finance could deliver between 20-40 %, the carbon market up to around 40 %, and international public finance could contribute to cover the remainder.

3.2. The international carbon market could potentially deliver as much as EUR 38 billion per year in 2020. The Copenhagen agreement needs to establish a new sectoral carbon market crediting mechanism, while focussing the Clean Development Mechanism (CDM) on Least Developed Countries.

3.3. International public funding in the range of EUR 22 to 50 billion per year should be made available in 2020. From 2013 public funding contributions should be shared out on the basis of ability to pay and responsibility for emissions and include economically more advanced developing countries. On the basis of these assumptions, the EU share would be from around 10 % to around 30 % depending on the weight given to these two criteria. In case of an ambitious outcome in Copenhagen, the EU's fair contribution could therefore be between EUR 2 to 15 billion per year in 2020 depending on the overall size of the global financing agreed and the weight given to each distribution criterion.

3.4. Support to adaptation should give priority to the most vulnerable and poor developing countries.

3.5. International aviation and maritime transport can provide an important source of innovative financing.

3.6. Governance of the future international financial architecture should be decentralised and bottom-up. A new High-level Forum on International Climate Finance should monitor and regularly review gaps and imbalances in financing mitigation and adaptation actions.

3.7. All countries, except Least Developed Countries, should prepare low-carbon growth plans by 2011, including credible mid-term and long-term objectives and prepare annual greenhouse gas inventories.

3.8. Between 2010-2012, fast-start financing is likely to be needed for adaptation, mitigation, research and capacity building in developing countries in the range of EUR 5 to 7 billion per year. To this end, the EU should consider an immediate contribution of EUR 0.5 to 2.1 billion per year, starting in 2010. Both the EU budget and national budgets should be ready to contribute to this funding.

3.9. For the period after 2012, and as part of the package of proposals for the next financial framework the Commission would make a proposal for a single, global EU offer, including whether to fund such an offer from 2013 within the budget, or whether to establish a separate Climate Fund, as part of the package of proposals for the financial framework post-2013, or a combination of the two. Direct contributions from individual Member States could also form an important source of EU funding as part of the overall EU effort.

3.10. If the EU budget is not used, the sharing of contributions inside the EU should follow the same principles of contribution as the international level, taking into account the special circumstances of Member States.

4. General observations

4.1. The EESC welcomes the Commission's communication seeking to unlock the current impasse in international negotiations on a new climate agreement in Copenhagen by presenting a blueprint on climate finance and highlighting the ongoing need for a highly ambitious emission reduction targets.

4.2. The G77 (the group of developing countries) has made clear that the provision of sufficient levels of climate financing is the central issue for its members in the context of a UN climate deal. There is widespread acceptance that developing countries (and the poorest members of such societies) will be hit first and hardest by changing climatic conditions.

4.3. Developing countries also need our help to fight climate change, as the EU has agreed under the UN Climate Convention. They will likely face hundreds of billions of Euros in costs per year in the coming decades.

4.4. The EESC appreciates that the Commission made the first step analysing the different possible financing sources and the wish to encourage the exploration of each source, both in terms of resource identification and in terms of spending options and channelling. However, many NGOs and UN economists that a conservative estimate for the required financing from developed countries for developing countries amounts to a sum in the region of USD 150 bn per annum (around EUR 110 bn).

4.5. More attention should be paid to the exploration of the new flexible mechanism (SCM) in order to ensure practical ways for its implementation and for the minimization of the failure risks. Attention needs to be paid to the additionality criteria in the CDM and in the SCM, in order not to create confusion.

4.6. All climate financing should be new and additional to developed countries Official Development Assistance (ODA) commitments, i.e. 0,7 % of GNP, as climate change will impose substantial extra costs on top of what these commitments initially accounted for when the targets were set. We have to consider that only a few countries have met their promise to increase ODA to 0.7 % of GDP. The trend over the past decade suggests that the prospects of it being met are slim.

4.7. More than ever, the EU should maintain its measures and its leadership in international climate policy during the negotiations for a comprehensive climate change agreement in Copenhagen. The unprecedented financial crisis will be short-lived and eventually pass. Climate change is here to stay.

4.8. Economic recovery is dependent on tackling climate change. If leaders fail to take the actions urgently needed this year, the impacts of climate change will likely cost over 20 % of global GDP. This, according to Lord Stern, former World Bank chief economist, is more than the Great Depression and both World Wars combined, in addition to the human deaths and species extinctions.

4.9. The EU should continue to press the United States and others to reveal their positions on climate finance. The promises of increased financial resources – international or domestic, should be subject to ‘measurable, reportable and verifiable’ provisions.

5. Specific comments

5.1. Generating adequate financial flows

5.1.1. Mobilising domestic finance

5.1.1.1. Domestic private finance will constitute a large part of the necessary investments, not only in developed countries but also in developing countries; a major part of these investment is already commercially viable – with the additional investment recouped via reduced energy bills.

5.1.1.2. The poorest countries, in particular least developed countries (LDCs), together with the poorest segments of the populations in developing countries, will not have sufficient means to invest in adaptation to cope with the adverse effects of climate change. They will depend largely on public assistance, both domestic and international.

5.1.2. Making full use of the carbon market

5.1.2.1. The EESC agrees that the international carbon market is one tool to leverage private sector investment in developing countries; although the market is not mature yet and multiple question marks are raised on the quality of the offsets; the carbon market effectiveness will be enhanced by providing a shortage of emission allowances through an ambitious agreement in Copenhagen.

5.1.2.2. Market-linked financing in the form of the auctioning of a percentage of national emissions allowances (Assigned Amount Units – AAUs) in the international regime (not EU ETS in this instance) or buying them at a fixed price should be the chief vehicle for raising new UNFCCC finance. This could be complemented with, for example, a levy on air and maritime travel, or by auctioning emissions allowances to these sectors in regional and national schemes (for example EU ETS), as well as levies on carbon market transactions.

5.1.2.3. We have to bear in mind that the carbon market is a derivatives market which allows speculation on the expected (future) price of emissions reductions by large investors. This market is already showing its weaknesses and could further destabilise the international financial market. Developing countries in Bangkok argued that relying on market mechanisms would increase the vulnerability of those countries in the South which are already suffering due to the food, financial and climate crisis.

5.1.2.4. There is a need for providing validation/verification procedures to allow for faster processes both in the CDM and the new sectoral carbon market (SCM) mechanisms.

5.1.2.5. More money needs to be invested into capacity building and training of experts in all carbon market areas, both in developed and in developing countries.

5.1.2.6. In order to be able to apply the SCM, a transparent definition of ‘economically more advanced developing countries’ must be offered; the EESC supports the idea of the SCM for highly competitive economic sectors, but also warns that the risk of failure is very high indeed if the mechanism's design is not as robust as possible.

5.1.3. Determining the scale of international public funding

5.1.3.1. The EESC agrees on the assertion that: ‘The less the carbon market delivers, the higher the demand for public finance for mitigation will be’.

5.1.3.2. Mechanisms to review the needs for public financing regularly must be set in place, but the Commission must be aware of the risk of introducing distortions on the carbon market through the supply of public financing if funding is not directed towards sectors where the carbon market lacks access/interest/initiative (i.e. capacity building, training).

5.1.4. Fast-start international public funding for 2010-2012

5.1.4.1. The EESC agrees that fast-start international public funding is important in the context of a comprehensive, balanced and ambitious Copenhagen agreement. It should target capacity building in particular, including for designing low carbon growth plans, readiness for mitigation, pilot projects, and immediate adaptation concerns. The purpose of such fast-start support should be to prepare for effective and efficient action in the medium- and long-term and to avoid any delay of ambitious action.

5.1.5. Innovative financing from international aviation and maritime transport

5.1.5.1. Emissions from international aviation and shipping are large and growing quite rapidly. These will need to be regulated if atmospheric concentrations of greenhouse gases are to be stabilised. Regulation in this area could generate substantial financial resources for the climate agreement. These costs would be borne mainly by air travellers and consumers in developed-countries. However, this will require cooperative action by the International Civil Aviation Organization and International Maritime Organization, which have stymied efforts to address these emissions for the past decade.

5.1.6. Determining contributions to international public finance

5.1.6.1. The EESC agrees that ‘Giving more weight to emissions as compared to GDP would provide an additional incentive to cut emissions, and acknowledge early action to reduce emissions’. However a correct weighting mechanism must be promoted so that an agreement in Copenhagen may be reached.

5.2. The EU's contribution to public climate change finance

5.2.1. The EESC supports the Commission's decision to act in the negotiation as one body bringing a single global offer.

5.2.2. Regarding the funding channelling, the EESC recommends using existing structures, but creating clear monitoring and reporting procedures in order to minimise costs and to ensure money is correctly spent.

5.3. A European blueprint for decentralised, bottom-up, climate finance governance

5.3.1. The EU governance structure may be used as model and this may bring a significant advantage to the EU in further adopted steps.

5.3.2. Regarding the deadline for the low-carbon growth plans for all nations (2011), the EESC considers it as unrealistic if the EU wants to see robust and applicable plans, considering the lack of expertise even in certain EU Member States.