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 {SEC(2009) 1172}
Date: 2009-09-10
Institutions: European Commission
Subjects: climate change, developing countries, energy policy, energy saving, environmental policy, investment, reduction of gas emissions, renewable energy

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 10.9.2009 
COM(2009) 475 final 

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 

{SEC(2009) 1172} 

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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 

1. 

EXECUTIVE SUMMARY 

The  EU  has  set  the  most  ambitious  climate  reduction  targets  in  the  world,  with  binding 
mechanisms  already  in  place  that  guarantee  a  unilateral  20%  greenhouse  gas  emission 
reduction by 2020 compared to 1990 levels. The EU is committed to increase this to a 30% 
reduction  in  the  context  of  a  fair  and  ambitious  global  agreement  in  Copenhagen,  if  other 
developed countries commit themselves to comparable reductions, and if economically more 
advanced  developing  countries  contribute  adequately  according  to  their  responsibilities  and 
respective  capabilities.  But  action  by  the  EU  alone  is  not  enough.  An  effective  deal  in 
Copenhagen requires  

–  ambitious cuts by all developed countries - and many need to step up their current pledges,  

–  appropriate  mitigation  actions  by  developing  countries,  especially  those  that  are 

economically more advanced, and  

–  an effective global architecture to give the right incentives to galvanise investment into a 

low carbon economy. 

At  the  L'Aquila  summit  in  July  the  Major  Economies  Forum  (MEF),  which  includes  key 
developing  countries,  recognised  the  scientific  view  that  the  increase  in  global  average 
temperature ought not to exceed 2°C. The challenge in Copenhagen will be to translate this 
objective into concrete emission reduction targets. Science shows that this means a reduction 
of global emissions of at least 50 % compared to 1990 by 2050 and that global emissions need 
to  peak  by  2020.  Science  also  shows  that  this  means  that  developed  countries  need  to  have 
made cuts of 25-40% by 2020 and at least 80% by 2050.  

A  deal  on  financing  will  be  central  to  achieving  an  agreement  at  Copenhagen.  UN 
negotiations  are  dangerously  close  to  deadlock.  Developed  countries  expect  developing 
countries, especially the economically more advanced, to contribute to the overall effort. At 
the same time, developing countries want to see a clear position from developed countries on 
finance for mitigation and adaptation. With less than 90 days left before Copenhagen, the EU 
needs to re-take the initiative to enable the negotiations to move forward. 

This paper seeks to unlock the current impasse in the negotiations by presenting a blueprint on 
climate  finance.  In  March  2009,  the  European  Council  made  clear  the  EU's  willingness  to 
contribute a fair share to the global financial effort. The EU should now go one step further, 
and  set  out  the  likely  sources  of  finance,  how  to  define  a  fair  contribution,  and  how  to 
organise the financing. However, it should be understood that none of the figures in this paper 
represent  formal  EU  proposals  for  commitments.  They  should  be  seen  as  indications  of  the 
order  of  magnitude  of  the  finance  that  is  likely  to  be  needed  in  the  event  that  Copenhagen 
achieves  an  ambitious  outcome,  with  universal  contributions  from  developed  and 
economically  more  advanced  developing  countries,  and  a  global  carbon  market  that  fully 
plays its role. 

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The European Parliament and the Council are invited to consider the following key elements: 

–  Based  on  the  Commission's  best  estimate,  finance  requirements  for  adaptation  and 
mitigation  actions  in  developing  countries  could  reach  roughly  €  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. The more ambitious the overall agreement is in terms of 
mitigation,  the  more  it  will  require  financial  support  from  developed  countries  to  the 
developing world. At the same time, more ambitious and widespread cap and trade systems 
will also generate more resources for mitigation activities in developing countries;  

–  The  international  carbon  market,  if  designed  properly,  will  create  an  increasing  financial 
flow to developing countries and could potentially deliver as much as € 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. The EU should create an incentive for this transition under the 
EU Emissions Trading System;  

–  Based on the Commission's best estimate, international public funding in the range of € 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  €  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; 

–  Support  to  adaptation  should  give  priority  to  the  most  vulnerable  and  poor  developing 

countries; 

–  International  aviation  and  maritime  transport  can  provide  an  important  source  of 

innovative financing, and should be further explored; 

–  Governance  of  the  future  international  financial  architecture  should  be  decentralised  and 
bottom-up. It must also be transparent, allow for effective monitoring, and should respect 
agreed standards for aid effectiveness. A new High-level Forum on International Climate 
Finance should monitor and regularly review gaps and imbalances in financing mitigation 
and adaptation actions; 

–  All  countries,  except  LDCs,  should  prepare  low-carbon  growth  plans  by  2011,  including 
credible mid-term and long-term objectives and prepare annual greenhouse gas inventories. 
The EU should present its own low-carbon growth plan for the period until 2050 by 2011. 

–  Between  2010–2012,  in  the  event  of  a  successful  agreement  in  Copenhagen,  fast-start 
financing is likely to be needed for adaptation, mitigation, research and capacity building 
in developing countries in the range of  € 5 to 7 billion  per  year. To this end, and on the 
basis  of  the  above-mentioned  assumptions,  the  EU  should  consider  an  immediate 
contribution  of  €  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; 

–  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 

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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. In the event of using the EU budget, a temporary 
solution for the year 2013, covered by the current financial framework, would also need to 
be  proposed.  Direct  contributions  from  individual  Member  States  could  also  form  an 
important source of EU funding as part of the overall EU effort. The Commission's clear 
preference  would  be  to  use  the  EU  budget,  which  would  also  allow  the  European 
Parliament to play its full role;  

–  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. 

The scale of international public finance contributions would be significant but should not be 
exaggerated.  For  example,  the  scale  of  possible  EU  public  finance  contributions  needed 
would  be  substantially  smaller  than  the  likely  receipts  to  national  budgets  from  auctioning 
revenues.  Furthermore,  fighting  climate  change  is  in  general  terms  much  less  costly  than 
dealing with its consequences. 

2. 

GENERATING ADEQUATE FINANCIAL FLOWS 

The scale of financial flows needed for adaptation and mitigation is estimated at around € 100 
billion  per  year  by  20201.  This  sum  is  very  often  wrongly  assumed  to  be  the  necessary 
contribution  from  public  budgets  of  developed  countries.  There  are  a  variety  of  different 
sources which can be expected to contribute: 

•  domestic finance (public and private); 

•  flows leveraged by the carbon market; 

•  international public finance flows. 

Clearly the further development and expansion of the carbon market will be critical to secure 
the resources needed. The current carbon market triggered financial flows towards developing 
countries  estimated  at  €  4.5  billion  in  2008,  with   75%  of  the  demand  coming  from  the  EU 
private sector because of the EU's emission trading system2. It should be the main channel for 
private-sector  carbon  finance  to  support  mitigation  activities  in  developing  countries.  This 
would leave public finance to focus in the short and medium term and beyond on adaptation, 
capacity building and technology research, development and demonstration – and on helping 
to leverage private sector investment, e.g. by covering the financing needs during early uptake 
of new technologies.  

The  more  the  carbon  market  can  provide,  the  less  demand  there  will  be  on  public  finance. 
That is why a properly functioning carbon market with ambitious targets is so important, and 
why more advanced developing countries should follow the OECD trend and introduce cap-
and-trade systems. 

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See Chapter 2 of the Staff Working Document. 
Adapted 
http://siteresources.worldbank.org/EXTCARBONFINANCE/Resources/State_and_Trends_of_the_Car
bon_Market_2009-FINALb.pdf. 

from:  The  World  Bank,  State 

carbon  market  2009 

trends  of 

and 

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2.1.  Mobilising domestic finance 

Domestic private finance will constitute a large part of the necessary investments, not only in 
developed countries but also in developing countries. As a group, developing countries should 
limit the growth of their emissions to roughly 15 – 30% below business as usual by 2020. A 
major part of  the necessary investment  is  already commercially viable – with the additional 
investment  recouped  via  reduced  energy  bills.  For  instance,  low  cost  energy  efficiency 
measures  can  deliver  two  thirds  of  the  potential  emission  reductions  in  the  energy  sector3. 
Private  investment  in  the  energy  sector  can  be  stimulated  through  the  establishment  of  the 
right policy framework, including setting up emission trading systems covering key emitting 
sectors, national regulations and financial incentives. Many developing countries are already 
introducing  energy  efficiency  standards  which  leapfrog  old  carbon  intensive  technologies. 
Other  innovative  instruments  can  spur  private  investments  in  developing  countries.  For 
instance  the  EU  directive  on  renewable  energy4  promotes  investments  in  new  renewable 
energy infrastructure in North Africa. 

Furthermore,  many  developing  countries,  especially  the  economically  more  advanced  ones, 
have sufficient own financial resources at their disposal to stimulate the necessary domestic 
investment. Brazil, for instance, has already announced that it will carry a significant part of 
the costs of reducing emissions from deforestation. 

A large part of the funding for adaptation can also come from private households and private 
firms as it is in their own economic interest. By minimising their risk exposure they ensure 
that their private assets such as buildings are increasingly climate proof. However, 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. 

2.2.  Making full use of the carbon market 

The international carbon market has proven to be an effective tool to leverage private sector 
investment  in  developing  countries,  while  allowing  developed  countries  to  achieve  their 
emission  reduction  targets  cost-effectively.  Naturally,  most  of  the  financial  flows  have 
benefitted those developing countries with significant emission reduction potential. To ensure 
a  dynamic  development  of  the  international  carbon  market  (as  illustrated  in  figure  1),  the 
existing Clean Development Mechanism (CDM) needs to be substantially reformed and focus 
on  LDCs.  In  addition,  for  economically  more  advanced  developing  countries  and  highly 
competitive  economic  sectors,  the  sectoral  carbon  market  crediting  mechanism  should  be 
phased in after 20125. 

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See SEC(2009) 101. 
Directive 2009/28/EC. 
See Chapter 4 of the Staff Working Document. 

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Figure 1: Gradual development of the global carbon market 

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Bilaterally linked cap 
and trade 

Emissions covered by other 
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Sectoral crediting 

Reformed CDM 

TIME

In  moving  beyond  the  project-based  approach  this  new  sectoral  mechanism  can  and  should 
deliver  a  significant  scaling  up  of  investment  in  low-carbon  technologies  in  developing 
countries and take into account the capacity by developing countries to take their own actions 
in those sectors. The driving force for these investments is a robust medium-term carbon price 
in OECD countries. 

Such  investments  take  place  as  a  substitute  for  reductions  in  developed  countries  (so  called 
'off-setting').  Thus  procurement  of  offset  credits  cannot  be  counted  towards  the  public 
financial support that developed countries pledge in addition to their reduction targets, as this 
would in effect count such offsets twice.  

It is useful, however, to identify and report offset credits as distinct financial flows towards 
developing countries. This recognition of financial flows from offset credits will need to be 
based on an assessment of the total net flows (measured in tonnes) in or out of a country and 
on average market prices. It would be desirable to base this assessment on existing reporting 
mechanisms on financial transfer to developing countries, e.g. OECD DAC reporting, instead 
of creating new independent reporting requirements. 

The international carbon market delivers multiple benefits. Establishing a carbon market with 
a 30% reduction target for the group of developed countries would cut global mitigation costs 
by about a quarter by 2020. At the same time, it would generate financial flows to developing 
countries  equalling  around  €  38  billion  p.a. 6.  Furthermore,  the  demand  for  offset  credits  is 
creating  multiplier  effects  as  it  leverages  substantially  more  carbon  finance  into  low  carbon 
development investments. 

The  potential  scale  of  the  financial  flows  mobilised  by  the  carbon  market  depends  on  a 
number  of  key  architectural  elements  of  the  Copenhagen  agreement.  In  order  to  promote  a 
robust carbon market that delivers finance at scale in the coming years, the negotiating Parties 
need  to  strive  for  a  high  level  of  ambition  of  emission  reduction  targets  from  developed 
countries,  take  into  account  or  retire  the  surplus  of  Assigned  Amount  Units  from  the  first 

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See Chapter 3 of the Staff Working Document. 

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commitment period, and set ambitious starting levels for the emission reduction paths for the 
period 2013-20207. Otherwise, the supply-demand balance across all Annex I countries would 
not give rise to a carbon price. In the period 2008 to 2012, the carbon price and the financial 
flows to developing countries are largely a result of EU action – i.e. establishment of a robust 
cap for the period 2008-2020 and non-recognition of AAUs in the EU ETS. It is therefore of 
vital importance for the emerging OECD-wide carbon market to isolate linked cap-and-trade 
systems from surplus AAUs. 

2.3. 

Determining the scale of international public funding 

The less the carbon market delivers, the higher the demand for public finance for mitigation 
will be. However, as the size of the carbon market cannot be predicted with certainty at this 
stage,  the  additional  demands  on  public  finances  cannot  yet  be  determined  either.  This  is 
indeed  one  of  the  major  reasons  why  regular review  will  be  needed,  via  the  proposed  High 
Level Forum on International Climate Finance (see Chapter 4).  

The  amount  of  public  finance  required  for  mitigation  is  likely  to  rise  gradually  and  will,  of 
course,  be  linked  to  the  degree  of  ambition  of  actions  in  developing countries.  Immediately 
after the agreement in Copenhagen, it should focus mainly on capacity building, particularly 
to strengthen institutional and regulatory capacities in developing countries, and selected pilot 
actions.  As  of  2013,  demand  for  international  public  finance  is  likely  to  rise  with  the 
implementation of an increasing number of robust mitigation action plans. Significant public 
finance  will  also  have  to  be  provided  to  stimulate  private  sector  investment  into  research, 
development  and  demonstration,  largely  through  public-private  partnerships  and  joint 
ventures between developed and developing countries. 

For a more detailed breakdown of needs see Table 1: 

•  Additional costs for developing countries in the energy and industry sectors that cannot be 
covered  by  the  carbon  market  have  been  estimated  by  the  Commission  at  around  €  33 
billion p.a. in 20208. However, this predominantly represents long term low cost efficiency 
measures, most of which should be financed domestically, mainly from private sources in 
developing countries. Only a small part of these additional costs, 10 to 20%, would need to 
be funded by international public support by 2020 with a focus on the poorer developing 
countries (€ 3 to 6 billion).  

•  Additional  costs  for  reducing  non-CO2  emissions  from  agriculture  and  reducing  CO2 
emissions  from  deforestation  and  forest  degradation  (REDD)  are  estimated  by  the 
Commission at around € 23 billion p.a. 9. Public finance will be the predominant incentive 
for reducing emissions from deforestation and forest degradation until 2020. Especially as 
most of the mitigation potential can be found in poorer developing countries, international 
public finance can be expected to cover a larger part of the additional costs compared to 
the  energy  sector,  i.e.  30  to  60%  (€  7  to  14  billion).  To  this  end,  the  Commission  has 
proposed  in  an  earlier  Communication  the  establishment  of  a  Global  Forest  Carbon 
Mechanism10. 

•  Taking  these  sectors  together,  a  first  estimate  of  global  public  transfers  for  2020  for 
mitigation could be in the range of € 10 to 20  billion p.a. in 2020, with about one third of 
that  amount  in  2013.  However,  how  much  of  these  flows  will  actually  materialise  will 

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See Chapter 7 of the Staff Working Document. 
See Chapter 3 of the Staff Working Document. 
See Chapter 3 of the Staff Working Document. 
COM(2008) 645. 

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crucially depend on the availability and quality of low-carbon growth plans of developing 
countries and, within that context, of elaborated proposals for mitigation actions. 

•  However, as outlined in the previous chapter, given the current emission reduction pledges 
of  developed  countries  there  is  a  real  risk  of  much  lower  carbon  finance  flows.  If 
developed countries fail to bridge the gap between their current pledges on mitigation and 
what  science  requires,  they  will  come  under  pressure  to  finance  additional  reductions  in 
developing  countries.  Further  analysis  indicates  that  compensating  the  reduction  loss  by 
reducing the target for developed countries from -30% to the  current low  end of pledges 
around -10% below 199011, would require an increase in the transfer of international public 
finance to developing countries of around € 120 billion p.a. in 2020 12. 

•  International  public  funding  for  capacity  building  and  cooperation  for  research  and 

technology demonstration has been estimated at an additional € 2 – 6 billion in 2020. 

•  Public funding, both domestic and international, will be an important source of finance for 
adaptation  in  the  poorer  developing  countries.  The  UNFCCC  Secretariat  estimated  that 
adaptation  costs  in  all  developing  countries  could  range  between  €  23-54  billion  p.a.  in 
203013. A first estimate of global public transfers for 2020 could be in the range of € 10 - 
24 billion p.a. in 2020.  

Adaptation  financing  will  probably  originate  primarily  from  the  public  sector  as  a 
combination  of  the  following  sources:  (i) as  direct  budgetary  outlays  from  contributing 
partners,  and  (ii) as  a  share  of  carbon  market  revenues  (as  already  in  the  case  of  the 
Adaptation Fund). For adaptation funding to flow effectively, there is  a need  for a  strategic 
integration of climate change adaptation concerns in all sectors of the national development 
strategies.  Within  the  next  few  years,  capacity  building  is  likely  to  be  required  at  sufficient 
scale to ensure this integration as well as to support already identified priorities in poorer and 
most vulnerable countries. 

2.4. 

Fast-start international public funding for 2010-2012 

In  the  event  of  an  overall  deal  in  Copenhagen  which  implies  fast-start  international  public 
funding, initial contributions should concentrate  on: 

(1) 

financing the processes and capacity building required, for instance to develop 
mitigation  actions  in  the  context  of  low-carbon  growth  plans,  emission 
inventories, and carbon markets including the sectoral crediting mechanism; 

(2) 

estimating  the  likely  impact  of  climate  change,  integrating  adaptation  into 
national development strategies and financing priority investments. 

Moreover, the Commission considers that, taking into account identified needs and capacities, 
additional funding should be mobilised in the short term to respond to urgent and identified 
needs  for  the  most  vulnerable  developing  countries  and  in  particular  LDCs,  small  island 
developing states (SIDS) and African countries (as defined in the Bali Action Plan), including 
further  strengthening  disaster  risk  reduction  capacity.  This  initial  financial  commitment 
should be progressively scaled up after 2012 as needs are quantified in the relevant national 
strategies,  the  capacity  for  implementation  is  built  up  and  an  agreement  is  reached  in 
Copenhagen on an assessed scale of contributions. 

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See Chapter 1 of the Staff Working Document. 
Based on additional analysis by POLES, JRC. 
UNFCCC secretariat. 

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Based  on  estimates  of  the  different  funding  needs  at  different  stages,  the  amount  of  public 
finance  needed  for  adaptation,  mitigation  and  capacity  building  that  should  come  from  the 
developed world between 2010 and 2012 could be between € 5-7 billion p.a. 14. 

Innovative financing from international aviation and maritime transport 
2.5. 
With  regard  to  potential  sources  of  finance,  the  Economic  and  Financial  Affairs  Council15 
highlighted  that  "global  instruments  addressing  emissions  in  international  aviation  and 
maritime  transport  would  be  welcome".  The  use  of  market-based  instruments  to  address 
emissions  from  these  sectors  worldwide  has  the  potential  to  provide  a  significant  source  of 
finance  in  support  of  developing  countries'  mitigation  and  adaptation  efforts.  One  such 
approach is cap-and-trade systems. An alternative is a levy on their emissions. 

If,  for  example,  both  sectors  were  subject  to  a  cap  on  their  emissions,  the  revenue  from 
auctioning could be collected at the international level and thus become a significant source of 
finance  for  supporting  developing  countries  mitigation  and  adaptation  efforts.  Such  a 
universal contribution would correspondingly reduce the reliance on national public budgets 
and respective annual appropriation processes. 

However,  one  should  recognise  the  challenges  likely  to  be  faced  in  establishing  such  a 
framework.  Developing  countries  argue  that  there  should  be  a  differentiated  approach  to 
addressing  emissions  from  these  sectors  while  developed  countries  are  concerned  about 
carbon  leakage due to  strong  competition should  there be a  difference in treatment  between 
operators  from  developed  and  developing  countries.  But  it  is  essential  that  a  framework  is 
developed at global level if these sectors are to make a meaningful contribution. A workable 
compromise could be found in making all subject to the same overall cap with full auctioning, 
while redistributing some auction revenue to developing countries' governments depending on 
their respective emissions and economic capabilities. 

2.6. 

Determining contributions to international public finance 

Public  sources  will  need  to  be  substantial  and  will  come  in  different  form  and  via  different 
channels.  To  ensure  that  overall  contributions  add  up  to  what  is  required,  the  Copenhagen 
agreement should include a common scale based on agreed principles to determine different 
countries' financial contributions. This will have to take into account the overall effort of each 
country including emission reduction commitments. As part of enforcement, countries that do 
not deliver on their financial commitments could for example receive fewer emission rights or 
be limited in their access to international public climate finance.  
The  European  Council16  set  out  its  preferred  principles  for  financial  contributions,  namely 
'ability to pay' (i.e. GDP) and 'responsibility for greenhouse gas emissions' (without prejudice 
to  internal  EU  burden-sharing).  This  is  similar  to  the  approach  suggested  by  Mexico  to 
determine contributions to the “Green Fund” it has proposed. In addition, it was highlighted 
that  any  distribution  key  should  be  'universal',  i.e.  not  limited  to  developed  countries  as  the 
responsibility  for  emissions  today  is  shared17.  A  limited  number  of  developed  and 
economically  more  advanced  developing  countries  account  for  the  largest  part  of  global 
emissions  and  GDP.  Least  Developed  Countries  should  be  exempted  from  any  financial 
commitment. 

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17 

See Chapter 5 of the Staff Working Document for further details on the scope of activities that would 
merit early support. 
Luxembourg, 9 June 2009, 2948th Council meeting. 
Brussels, 18-19 June 2009. 
See Chapter 6 of the Staff Working Document. 

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With  respect  to  these  parameters,  the  EU's  share  could  range  from  around  10%  (if  the  only 
criterion  used  is  emissions)  to  around  30%  (if  the  only  criterion  used  is  GDP  at  market 
prices).  The  actual  EU  contribution  will  depend  on  the  relative  weight  given  to  each  of  the 
two criteria in the Copenhagen agreement. 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,  it  would  lead  to  relatively  higher  contributions  from  major 
emitting developing countries. 

As regards fast-start funding, assuming that it is part of the overall agreement in Copenhagen, 
a share of between 10 - 30 % for the EU would lead to a range between € 0.5 – 2.1 billion p.a. 
in 2010-2012. However, given the importance of early capacity building and adaptation, the 
EU should consider whether it should be ready to increase its contribution above this range, 
scaling-up its fast start funding over the period 2010-2012. 

Between 2013 and 2020, the EU's share could rise from € 0.9 – 3.9 billion p.a. to € 2 – 15 
billion p.a., respectively, provided that Copenhagen achieves an ambitious outcome, universal 
contributions  are  made  by  all  developed  and  economically  more  advanced  developing 
countries, and that the global carbon market fully plays its role. 

Table 1: Estimated international annual public finance requirements over the period 2010-2020 
(2 degrees scenario), in € billion (at constant 2005 prices) 

2010-2012 (fast start)

Mitigation 

1 

Energy and industry

Agriculture and REDD

Adaptation 

Capacity building 

Technology research, 
development and 
demonstration 

2-3 

1-2 

1 

2013 

3-7 

3 

2 

1 

2020 

10-20 

3-6 

7-14 

10-24 

1-3 

1-3 

Total 

5 – 7 

9 - 13 

22 – 50 

3. 

THE EU'S CONTRIBUTION TO PUBLIC CLIMATE CHANGE FINANCE 

3.1. 

How the EU could contribute  

If the EU succeeds in its goal of securing ambitious commitments on mitigation, international 
public  finance  will  be  an  essential  part  of  the  agreement.  On  top  of  the  significant  funding 
already  provided  to  climate  change  as  part  of  EU  development  aid,  the  EU  will  need  to  be 
ready to provide additional finance for the fight against climate change, in particular as from 
2013, and in accordance with the Bali Action Plan. The contribution should be ambitious and 
fair. 

The EU negotiates as one. There are strong arguments for the EU's contribution to come as a 
single,  global  offer.  It  would  ensure  the  coherence  and  visibility  of  the  EU  contribution, 

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allow  for  defining  a  fair  and  transparent  distribution  of  this  contribution  between  Member 
States,  permit  economies  of  scale  in  the  management  of  disbursements,  and  strengthen  the 
EU's voice in ensuring proper implementation of an agreement. It would allow good use to be 
made  of  the  EU's  experience  and  the  near-global  coverage  of  existing  EU  development 
assistance. There would be no difference in the total scale of EU funding between the sum of 
bilateral national contributions including any contribution from the EC budget and/or a joint 
EU contribution. 

While ensuring an ambitious and fair global contribution, the EU will also need to ensure that 
this single, global offer is organized in an efficient and fair way. There are essentially three 
options, not mutually exclusive, for channelling EU funding: 

(1) 

(2) 

Direct  funding  through  the  EU  budget  would  be  reliable  and  transparent.  It  would 
show  one  of  the  EU's  key  instruments  giving  particular  priority  to  one  of  the  key 
political  challenges  we  face  today.  It  could  take  advantage  of  well-established  rules 
and  procedures,  offering  rigorous  financial  control,  as  well  as  a  standard  key  for  the 
source of the funding, and would also allow the European Parliament to play its full 
role. Given the scale of the funding over the medium term, this approach would have 
clear consequences for the overall size of the budget and it would also have a major 
impact on the next Financial Framework. In this way the EU budget would adequately 
reflect the central challenge that climate change represents for the EU for decades to 
come. 

Another approach would be to establish a new common Climate Fund outside the EU 
budget,  funded  by  bilateral  contributions  from  each  Member  State.  This  could  also 
offer a clear profile for the EU, and flexibility to design an ad hoc internal distribution 
key  to  finance  the  overall  EU  contribution.  However,  such  a  fund  would  require  an 
inter-governmental  agreement/legal  basis  of  its  own,  would  be  outside  the  Financial 
Framework and outside the Own Resources ceiling. It would share the downsides of 
funds outside the budget (low transparency, no respect of the principle of the unity of 
the budget, more difficult to ensure coherence with the other activities financed by the 
budget).  Most  importantly,  it  would  deprive  the  EP  from  exercising  parliamentary 
scrutiny. 

(3) 

A third option would be for Member States to make their own financial contributions 
directly. However, they should be clearly presented as part of the EU's single global 
offer. 

The overall financial effort for the EU and its Member States would be the same regardless of 
the choice between the above options or a combination thereof. 

Existing EU efforts should be properly taken into account, while ensuring that the principle of 
additionality is preserved as climate aspects will be mainstreamed into the next generation of 
multiannual indicative programmes, in particular under the geographical instruments in favour 
of developing countries. 

3.2.  Mobilising the EU budget up to 2012  

While the main financial implications of an agreement in Copenhagen would come into effect 
as  from  2013  at  the  earliest,  a  successful  agreement  should  be  accompanied  by  a  swift 
increase in support to developing countries to prepare the transition through capacity building 
and  technical  assistance.  This  should  be  partly  funded  from  the  EU  budget,  subject  to  the 
availability of resources. 

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The Commission has already proposed an additional € 50 million from the Community budget 
to  be  devoted  to  fast-start  activities  in  2010  in  the  event  of  a  successful  agreement  in 
Copenhagen.  Comparable  sums  would  be  needed  for  subsequent  years.  Identifying 
appropriate  sources  for  these  additional  funds  will  not  be  easy:  remaining  margins  are 
extremely limited  and  existing  programs are  already under pressure. Creative  solutions may 
well be needed, and the optimal mix of sources of financing would need to be assessed in the 
light of both the outcome of the Copenhagen agreement and the budgetary availabilities. 

3.3. 

An equitable EU contribution to a Copenhagen agreement beyond 2012  

A second phase of funding will come into play when an agreement comes into force in 2013. 
The budgetary implications of an ambitious climate agreement in Copenhagen for the EU and 
its Member States are likely to be substantial as from 2013, i.e. in the order of several billion 
Euros  per  year.  This  would  raise  a  particular  issue  for  2013,  for  which  the  financial 
framework  of  the  EU  budget  has  already  been  set.  From  2014,  this  will  be  an  issue  for  the 
new financial framework, yet to be agreed. 

The  responsibility  for  emissions  today  is  a  shared  responsibility.  Whereas  ability  to  pay 
should  be  an  important  element  in  determining  the  contributions  to  the  global  effort,  the 
responsibility for emissions should also constitute a central element of a fair and sustainable 
Copenhagen agreement.  

The two obvious measures to use to determine the relative burden – already widely used in 
the UNFCCC negotiations – are emissions and ability to pay (GDP). The higher the weight of 
the GDP criterion, the higher the overall EU contribution will be. If for example the overall 
international  public  funding  contribution  is  €10   billion  in  2013,  the  total  EU  contribution 
would  be  around  €  1  billion  if  the  only  criter ion  used  was  emissions,  and  it  would  reach 
around € 3 billion if the  only criterion used was ability to pay.  

Mechanisms might be used to adjust the burden on specific Member States. 

It  should  be  recalled  that  because  of  the  climate  change  and  energy  package,  EU  Member 
States  will  have  at  their  disposal  significant  revenues  from  auctioning.  The  legislation18  set 
out  that  at  least  50  %  of  these  resources  should  be  re-cycled  for  domestic  and  international 
climate change purposes. Whilst it is difficult to be precise about the future carbon price and 
therefore the size of auctioning revenues, it is estimated that if the EU was required to finance 
€3 billion in 2013 – the upper end of the scale –  this would account for between 7 and 20 % of 
total  auction  revenues.  It  would  therefore  be  well  covered  by  the  revenues  flowing  into 
government treasuries from climate change policies. 

4. 

A  EUROPEAN  BLUEPRINT  FOR  DECENTRALISED,  BOTTOM-UP  CLIMATE  FINANCE 
GOVERNANCE 

In  order  to  achieve  the  ambitious  global  climate  change  policy  goals,  the  provision  and 
disbursement  of  climate  finance,  including  public  finance,  will  have  to  be  increased 
significantly  and  swiftly  between  2010  and  2020.  This  chapter  provides  for  a  European 
blueprint for a decentralised bottom-up governance structure which is the result of intensive 
discussions with many negotiating partners worldwide and builds also on the EU's extensive 
cooperation experience19.  

18 
19 

Directive 2009/29/EC. 
See Chapter 8 of the Staff Working Document. 

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For an overall governance structure to be efficient, effective, and equitable it needs to build on 
ownership,  subsidiarity,  coherence,  transparency,  accountability,  rewarding  performance, 
additionality and complementarity. 

For  mitigation,  the  European  blueprint  foresees  as  key  tools  country-driven  low-carbon 
growth  plans  integrating  all  national  appropriate  mitigation  actions,  the  ex-ante  technical 
review  of  supported  actions,  up-to-date  central  registry  of  all  actions  and  financial  support, 
annual  emission  inventories,  reporting  via  improved  National  Communications,  and  regular 
peer reviews. The process will be supported by an independent co-ordinating mechanism.  

In addition long-term low-carbon growth plans should be presented by all countries by 2011. 
While there should be no obligation for LDCs, they should however be encouraged to move 
towards this  objective in a  more  flexible  time  frame  and  with  appropriate  support.  By  2011, 
the EU will also present its long-term strategy until 2050. 

For  adaptation,  a  simplified  bottom-up  approach  is  foreseen,  which  calls  for  the  gradual 
integration  of  adaptation  into  national  development  strategies/poverty  eradication  plans,  in-
country  regular  coordination  of  support,  regular  reporting  via  the  National  Communications 
and exchange of good practice. 

The key advantage of this decentralised bottom-up approach is that it would build on existing 
institutions  –  reformed  and  strengthened  as  appropriate  -  and  developing  countries’  own 
structures (in line with the Paris Declaration on aid effectiveness) and avoid creating parallel 
structures. Already today, a significant number of bilateral or multilateral initiatives would be 
hampered by forcing them into a large centralised structure. A decentralised system based on 
country-driven proposals allows contributors a higher degree of discretion over the efficient 
use  of  their  contributions  and  is  thus  likely  to  encourage  larger  contributions  than  could  be 
expected  in  the  case  of  only  one  major  centrally  managed  multilateral  fund.  However,  this 
does not exclude a complementary new fund, such as the proposed Mexican Green Fund, if it 
would add value. 

Up-to-date  registry  information  as  well  as  regular  reporting,  i.e.  through  annual  emission 
inventories  and  National  Communications  allows  the  UNFCCC  to  identify  gaps  and 
imbalances  in  financing  mitigation  and  adaptation  actions.  Addressing  these  gaps  should  be 
facilitated  through  an  international  High-level  Forum  on  International  Climate  Finance 
representing  public  and  private  expertise  in  this  area.  This  forum,  with  a  balanced 
representation of decision makers from developed and developing countries and international 
financial  institutions,  should  oversee  and  give  political  guidance  to  the  UNFCCC  funds, 
multilateral  funding  agents  and  bilateral  cooperation  agencies  to  ensure  an  equitable 
distribution of funding across countries and spending priorities for mitigation and adaptation. 

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