The Green Fund

OECD side event on the economics of climate change

The Green Fund

Thank you, Secretary General.

There has been a lof of talk on the goals for mitigation and adaptation, but little has been said about the means of reaching those goals, especially on how to promote climate change actions in developing countries. It is vital that we find  mechanisms to provide the resources needed, starting fast and rising over time.

I will briefly present the joint Mexican-Norwegian proposal. [Chart]
The two proposals have been on the table for some time. The Norwegian proposal was launched at the Bali Meeting by the Norwegian minister of Finance, Kristin Halvorsen. I accompanied her at the separate meeting of Finance Ministers, and I remember you, Secretary General Angel Gurria, saying: “It’s better to tax the bad than to subsidize the good”. I think it’s important that we always bear in mind this cost-effective approach.

Combining the two proposals will provide significant, transparent, long term, stable additional financing. It will reduce transaction costs and increase efficiency compared to operating two separate funds, and compared to a lot of bilateral financial flows. Through a new Green Fund we can channel funding to enable developing countries to move towards a more climate resilient and low carbon development path.
 
As an indication, we believe the scale of the Green Fund could start around 10 billion US Dollars per year in 2013 and increase to 30-40 billion US Dollars in 2020. Contributions to the Green Fund should come from different complementary sources of financing: budget funding, international and domestic auctioning of allowances and other comparable sources, and should go to result based mitigation actions and adaptation efforts.
 
Let me explain the figure. Green colour is the decision level. Red is revenues and blue is expenditure.

Box B is budget contributions that are decided according to a scale based on responsibility (that is emissions) and capability (that is income) and will go strictly to result based mitigation actions in developing countries. All countries would contribute except the least developed, and developing countries would be net beneficiaries.

Box C is International Auctioning
When countries - as part of a UN climate agreement - set a limit on their emissions of greenhouse gases, emission allowances become valuable. These allowances - or assigned amount units (AAUs) - may be seen as the collective property of the parties to the agreement. To increase the scale of the Green Fund, we propose to set aside a certain proportion of the total UN-allowances for auctioning at the international level to support both mitigation and adaptation efforts.

Box D is Auctioning for countries with non-Kyoto like commitments
Countries without Kyoto-type commitments (UN allowances), which have national cap and trade systems and have facilitated auctioning for international purposes through national legislation, may also contribute to the Green Fund through auctioning of national allowances. In the Waxman-Markey bill, discussed in the US Congress right now, there is a proposal on earmarking 5% of the quotas for financing climate actions in developing countries. So here, we open a door for the Americans and other countries with national trading systems.

We are not very specific on the climate actions, but funding for mitigation actions should primarily be delivered through result based mechanisms. This means fully additional verified emission reductions. In the area of adaptation the most vulnerable countries will be given priority, as well as the least developed countries and small island developing states.
We sincerely hope that with this joint proposal we can bridge the gap between negotiating parties and help provide a platform for further deliberations at this conference and beyond..

We are pleased to see that the main elements of this proposal are referred to in paragraph 38 of the Draft Conclusions in the LCA draft.