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Time for climate solutions! Protest on the Dufourspitze. Photo: Greenpeace Switzerland via Flickr.
Time for climate solutions! Protest on the Dufourspitze. Photo: Greenpeace Switzerland via Flickr.
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We can win on climate change - but without the UN

Assaad W. Razzouk

5th September 2014

Prospects for a global climate deal under the UN are receding fast, writes Assaad Razzouk, as the Green Climate Fund is short-changed by donor nations. But there's still plenty to hope for with a private sector that's stepping up to the mark, and fast-growing decentralised climate action.

There is no longer any viable solution likely to emerge from the UN climate talks. But there is still much to hope for in a world of decentralised climate action.

The climate community has been in a beehive of activity all summer as government officials, corporate leaders and climate activists prepare to congregate in New York City on 23rd September for a UN 'Climate Summit' convened by Secretary General Ban ki-Moon.

But recent moves by the BRICS countries (Brazil, Russia, India, China and South Africa) have decisively undermined the entire edifice of UN climate talks - likely for the better given the appalling track record of climate action of the UN.

Since their inception in 1980, UN climate talks have been built on the premise that the developed world, responsible for most of the pollution since industrialization, will fund a global clean-up of the planet, partly directly and partly via institutions where they control the Board, such as the World Bank Group.

After all that's what rich developed countries, periodically feeling guilty, have promised at repeated climate talk venues.

The promised money never arrived

Over the past five years, the Green Climate Fund (or GCF) has been presented as the key vehicle via which $100 billion of funding per year will be diverted from rich to developing countries to help the latter mitigate emissions and adapt to climate change.

However, negotiations for a comprehensive climate deal have led nowhere as guilt is invariably replaced by political and financial reality, especially after the 2008 financial crisis.

For some 25 years now, dozens of poor developing countries have been sitting and waiting for the promised cash - but it hasn't come.

In the meantime, advanced developed economies like the BRICS countries have become cash rich and grown increasingly tired of the control exercised by developed countries on almost all multi-lateral and bi-lateral financial institutions - including the IMF, the World Bank, the Asian Development Bank and a multitude of Western bilateral development banks.

Some, like China, have grudgingly recognized that climate action promotes prosperity and stability: In part, because of a rapidly developing popular environmental consciousness in response to abject air and water pollution and chemical contamination; and also because China feels that clean green technology is an area where it can exercise strategic leadership in Asia and beyond.

BRICS mobilise a potential $300bn for climate action

As a result of the above factors, on 15 July, the BRICS countries launched, with an acute emphasis on sustainable development, the 'New Development Bank' or NDB with capital of US$100 billion.

They did not stop there and also announced the signing of a Treaty for the establishment of the BRICS Contingent Reserve Arrangement (CRA) with an initial size of $100 billion.  So that's $200 billion committed by five countries, in part, to mobilise resources for sustainable development in emerging economies. 

Furthermore, China's diplomatic corps has been doing the rounds in Asia in July and August, successfully mobilising support for another brand new $100 billion international institution, the Asian Infrastructure Investment Bank (AIIB). 

Together, the NDB, the CRA and the AIIB have mobilised $300 billion of cash completely outside the current UN climate construct. This substantial funding creates the potential of a new era for climate action.  

Now that China and India have put their hand in their pockets to fund their own - alternative - institutions, expect lots of recriminations and blame-shifting at forthcoming UN climate talks.

But don't expect decisive, or even constructive, outcomes:  A comprehensive climate change deal is not going to happen, because the industrialised countries won't come up with the money to fund it.

The 'Green Climate Fund' will never be properly capitalised

It was already clear at the UN climate talks that rich countries won't sign up to a deal unless substantial capital - and commitments - come also from China, India, oil-rich countries and other advanced developing countries. These calculations have now been overtaken by facts on the ground.

The Green Climate Fund won't be properly capitalised because the BRICS have now given up their attempts to take a leading role in the governance of the GCF and are writing $300 billion worth of cheques to alternative institutions.

By implication, they dismantled a key foundation of the UN climate talks. There is no way the US and the EU will write massive cheques for the GCF without some matching funding from the probable recipients of most of those funds, India and China. 

Where does all this leave climate action?  We must plan on the basis that UN climate talks won't get us anywhere and that we have entered a new era of decentralised climate action.

Climate failure is built into the World Bank's DNA

Clustered around the US and Europe, the World Bank Group, the IMF, regional multilaterals such as the Asian Development Bank and a mini-size Green Climate Fund will continue to be broadly ineffective in fighting climate change, a mission not embedded in their DNA.

For example, the World Bank still can't get the funding of coal-fired power plants out of its system and the IMF is blithely fighting fuel subsidies by driving countries such as Pakistan, Bangladesh and Egypt to build more coal-fired power plants which the world's health can't afford. 

Clustered around China, new BRICS institutions will focus on infrastructure and sustainable development with a core focus on energy (50% of infrastructure spending). Energy won't spread to the 700 million Indians with little or no access to electricity unless it's distributed clean energy.

A solar revolution is under way in India, China, parts of South East Asia and in Africa. Expect China-backed institutions to have no choice (in no small part because of domestic pressure from their own citizens) but to back clean energy with significant dollars.

Setting carbon prices to spur private sector action

Stuck between these two clusters is the all-important but often neglected private sector - currently responsible for 62% of climate finance flows, 70% of global GDP and 70% of employment.

Private sector action remains, by far, our best hope - but to release its potential it needs an effective carbon price to allocate scarce resources away from the fossil fuel economy, and stimulate decisive global climate action.

Companies that want to get on with the job should campaign vigorously for a carbon price, or carbon prices, to support them. But the good news is, that carbon prices are already emerging across much of the world thanks to national and regional carbon markets and carbon taxes.

Domestic carbon markets are spreading, and are likely by 2015 to cover some 4 billion people: In addition to existing markets for emissions in Europe, national and regional carbon markets are springing up in Latin America (Chile, Mexico, large economic regions in Brazil); Asia (Kazakhstan, South Korea, Vietnam, New Zealand); and North America (Quebec, Ontario, Manitoba, British Columbia, California and the Northeast US).

Carbon taxes are also spreading and are in place now in Europe (Denmark, Finland, the Netherlands, Norway, Sweden and Switzerland), Asia (India, Japan and New Zealand) and Latin America (Costa Rica and Rio de Janeiro). China will have a national carbon tax in place after 2015 as well as a carbon market from 2016.

There is hope - just not from the UN climate process

But as the European emissions trading system (EU-ETS) has spectacularly shown, a price on carbon is not always effective - and indeed can be destructive and line the pockets of polluters with billions in windfall profits, at the expense of the public.

To avoid this regulators avoid repeating the mistakes of the EU-ETS - including over-allocation of permits and large-scale 'grandfathering' to existing polluters - and muster the courage to swat down fossil fuel lobbies to deliver a strong and rising price on pollution.

There is no longer any viable solution likely to emerge from the UN climate talks. But there is still much to hope for in a world of decentralised climate action.

The new BRICS mechanisms will, with their $300 billion in hand, have an important role to play in stimulating and supporting moves to a renewable energy future.

But the main contribution will come from the private sector which alone can deliver the technologies, innovation and investment needed to sustain a stable, equable global climate.

 


 

Assaad Razzouk is the CEO and co-founder of Sindicatum Sustainable Resources, a world leading clean energy company based in Singapore.

He is a leading expert in global carbon markets and the policy structures that underpin them, such as the UN's Clean Development Mechanism and the EU Emissions Trading Scheme. Assaad is passionate about creating an efficient framework for global sustainable investment and global multilateral approaches to mitigating the effect of climate change.

Twitter: @AssaadRazzouk

 

 

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