Making Investments in Developing Countries to Solve Global Warming: Copenhagen (Part 5)

As I discussed in Part 3 we have seen significant progress on the willingness of developing countries to undertake significant emissions reductions on their own.  All the major emerging economies have now outlined specific efforts that they'll undertake to curb their global warming pollution.

Most of these are proposed as actions that the country would take on their own -- with no assistance from developed countries.  This is a very positive shift as the debate used to be developing countries saying: “we’ll only do what you pay us to do”.  Of course we know that we need to find ways to help developing countries make even deeper emissions cuts, which is why the international agreement needs to have: properly designed and performance-based incentives from developed countries to encourage even greater developing country emissions reductions (my “key element” 4 as I discussed here).

So with developing countries taking steps to curb their global warming pollution on their own, they are now essentially saying: “we’ll do this on our own and we can go this much further with assistance”.  I like to picture it like this:


These “performance-based incentives” can come from two key places – similar to the deforestation debate (as I discussed here).  They can come from “market” (from offsets purchased by the private sector) or “non-market” (from public funding and set asides of revenues from a climate bill) sources -- and we need both.  So I’ll explain a bit more as these are critical aspects of the international debate.

Market based incentives are generated by developed countries investing in emissions reductions in developing countries.  The emissions reductions in developing countries are then used by developed countries to count towards their emissions reduction commitments (often called “offsets”).  We’ve learned a lot from the failures of the current international offset system (the Clean Development Mechanism) and that is why there is an emerging debate to evolve from offsets. If this evolution is done right then these investments can both mobilize additional emissions reductions in developing countries and sizeable investments in clean energy and deforestation reductions.  The climate bill passed by the US House of Representatives undertakes this “evolved” framework (as I discussed here) and the Europeans have been seriously moving in that direction. 

But I won’t elaborate more on the key principles that I think are essential for this “evolution” as I don’t expect we’ll get into that level of detail in Copenhagen.  Rather we are more likely to get an overarching statement that investment should come from “private” financing or “market-based” approaches.  If you see those words in the final agreement then the real work will begin next year as we’ll have to ensure that the rules are properly designed.

Non-market based incentives are critical as they can help leverage larger public sector financing and can mobilize clean energy deployment in developing countries.  If we follow the normal development cycle where developing countries get clean technologies 10-15 years after they are deployed in the developed world, then we are in deep trouble.  We need to speed up this process and non-market finance can help.  And if done right it can create opportunities for companies in the US and other developed countries to tap into the growing demand for clean energy in developing countries and provide incentives for even greater emissions reduction actions in developing countries (as I discussed here).

Will Copenhagen move forward with investments in developing countries?  I sure hope so.  We have to start deploying clean energy and deforestation solutions in developing countries now.  Every year of delay makes it that much harder and often forecloses options (e.g., we build coal plants that last a long time without capturing carbon and we lose forests that can’t be replaced). 

So it looks like we’ll get agreement to generate $10 billion per year through 2012 coming out of Copenhagen – a share of which will go to clean energy deployment and deforestation reductions in developing countries.  A number of key developed countries have been working hard to be able to come forward with their contribution towards this aim.  Senator Kerry has written Secretary Clinton to suggest that the US should contribute $3 billion towards that aim (see here) and now President Obama signaled support for contributing towards this goal.  Hopefully these two announcements signal that the US will be able to live up to that commitment as President Obama will have to work with Members of Congress to ensure the investment is finalized. 

As President Obama put it:

“…there appears to be an emerging consensus that a core element of the Copenhagen accord should be to mobilize $10 billion a year by 2012 to support adaptation and mitigation in developing countries, particularly the most vulnerable and least developed countries that could be destabilized by the impacts of climate change.  The United States will pay its fair share of that amount and other countries will make substantial commitments as well.  In Copenhagen, we also need to address the need for financing in the longer term to support adaptation and mitigation in developing countries” [emphasis added].

But we know that this near-term investment is just a down payment in the effort to deploy clean energy and reduce deforestation emissions in developing countries.  We’ll need a larger and more sustainable source of investment if we’ll really be able to invest in a global agreement that solves this challenge.  This is why there will be an intense negotiation here in Copenhagen about the post-2012 investments and the institutional arrangements to ensure that the money is spent well.  I’m not sure if we’ll get agreement here in Copenhagen on the post-2012 funding, but we sure need to soon.

Both this near-term funding and the medium-term funding are in everyone’s interest as I discussed here.  Or as President Obama put it:

“Providing this assistance is not only a humanitarian imperative - it's an investment in our common security, as no climate change accord can succeed if it does not help all countries reduce their emissions” [emphasis added].

So let’s get investing!