The Financial Proposals At Poznan

The ongoing global climate negotiations in the Polish town of Poznan are all about financing, insiders say. So what proposals are on the table? A roundup of some headline generating plans:
The future of the Clean Development Mechanism (CDM) is at the heart of the discussions. New projects in this mechanism, which allows emission-reduction projects in developing countries to sell credits to industrialized countries wishing to meet their emission reduction targets under the Kyoto Protocol, are worth $25 billion. Last year alone, $82 billion worth of carbon credits were traded globally. The certificates are aimed at boosting technology transfer to developing countries.

After 2013 (the year in which Kyoto, which governs it, expires) more money will be poured into the rescue of tropical forests. Not only because a country like the US will start to participate in the scheme, but also because rules will be sharpened-up making the system more effective.
Insiders in CDM trading circles are lobbying for new rules to judge projects according to whether they beat a carbon standard or benchmark compared with other energy sources such as high-carbon coal in that region or country. Discussions also focus on other options including insurance and other financial mechanisms for risk management in developing countries. The buzz words are ‘scaling up’ approaches. For instance, steel or cement companies under a scaled up effort would be able to earn carbon offsets if they beat best practice efficiency standards.
The 2% levy on the Clean Development Mechanism (CDM) which has in recent years accumulated $67 million in the U.N. Adaptation Fund is a tough issue in the discussions. The fund is meant to provide financing to poor nations in return for climate mitigating strategies, but no monies have been distributed thus far because of legal and technical nightmares.
The fund’s assets aren’t nearly enough to assist the developing world in any meaningful way. If the 2% levy is maintained, only an estimated $900 million will have been raised by 2012. That’s peanuts compared to the $86 billion per year the UN says poor countries will need by 2015 to combat the effects of climate change. This amount will have risen to $130 billion a year by 2030.
Brazil backed out of the CDM. Delegates said that their country would not allow rich nations to offset their carbon emissions by funding the conservation of Brazilian rain forests. Brazil instead wants rich nations and corporations to contribute $21 billion to its Amazon Fund, an investment vehicle it launched in recent weeks. The Brazilian government aims to cut back deforestation to 5,740 square kilometers per year using the funds. The WWF criticized this plan, saying it was “short on ambition and detail”. Norway committed up to one billion dollars by 2015 provided Brazil meets its targets for reducing deforestation.
Brazil’s proposal is ambitious, aiming to become a global model. The model’s design is straightforward; payments from industrialized nations are pooled and distributed to countries in return for reductions in deforestation. Both countries that are ready to start cutting down on deforestation and countries that need funding for capacity building can apply for funding. The World Bank and voluntary donors would fund capacity building efforts. Rich nations would not be able to trade the certificates they were given in return for their donations.
The WWF, which itself recently became a proponent rather than an opponent of the Reducing Emissions from Deforestation and forest Degradation (REDD) mechanism for fighting climate change, wasn’t happy with Brazil’s proposal, saying that the plans would still result in the annual loss of an area forest the size of Rhode Island. The CO2 released from clearing this area of Amazon forest is roughly equivalent to the current annual emissions of Canada, according to Carlos Alberto de Mattos Scaramuzza, Conservation Director at WWF-Brazil. The group said that Brazil should aim for net deforestation of zero by 2015.
Who stands to gain from the carbon credits issued in return for eliminated deforestation efforts is a key issue which tends to dominate the discussions. Would it be a limited few with government influence, or would the wealth be spread to local communities?
By far the most powerful example of what’s possible if governments around the world are successful at combating climate change is of course the rise of the green tech or clean tech sector. Globally, green tech has grown mainly as a result of global governmental policy initiatives, including seizable tax breaks, subsidies and other funds. The boom in solar and wind power plants and biofuels is the visible result of green funding. This sector’s future will be as much dominated by market dynamics as the carbon trading market. And the blessings of capitalism can be mixed. The outlook for trading carbon is worrisome, for instance. Carbon prices have plummeted and projected lower industrial output exacerbates the downward price development. Obscenely, the fact that greenhouse gas emissions are expected to be lower in the next years as a result of reduced industrial expansion is also a factor in the negative outlook for carbon credits trading. The green tech sector, even though tipped as a rescue force, is subject to similar dynamics. And in many countries, green tech needs a lot more cash to develop into a job spinner of sorts.
Pointing out that things are not going to be easy ain’t the same as saying there won’t be any surprises. The Germans for instance are highly optimistic that job creation is going to be an elemental part of environmental policies. The news magazine Der Spiegel obtained a leaked report indicating the German government’s plans to create a low carbon society. The official report claimed that raising CO2 reduction targets to 40 percent relative to 1990, would lead to the creation of 500,000 jobs. That’s quite something. And the same paper revealed two examples of how the approach might work; already the German carmaker Audi is planning to recruit more engineers in a direct effort to curb the carbon emissions of its fleet. Siemens, the German ICT company, meanwhile reported that sales of environmentally friendly product lines rose from ‚Ǩ17 billion to ‚Ǩ19 billion in a year, according to the leaked report.