The following is our second dispatch from COP16 in Cancun by Sean Kidney. Kidney works for the Climate Bonds Initiative, a group seeking to finance major climate projects thorough bonds. Kidney has been kind enough to share his notes with us. He offers the following from the last few days of activity….
As the Cancun sun sets …. Russia helps sink Kyoto / UK Climate Change Committee a hit / Climate Finance Fund gets up / China’s low carbon Five Year Plan … see below.
1. The UK Climate Change Committee (a statutory body under their Climate Action Bill) was popular amongst Cancun NGOs this week with its call for 60% emission cuts in the UK by 2030 and 50% by 2025. One NGO newsheet called it a “ray of sunshine”.
2. Russia, at the last minute, helped Japan foil a Kyoto Protocol extension. It means a new agreement will be needed in Durban. The Carbon market is going to have to hang on until 2012 before it finds out if there’s going to be a global agreement. Does this mean we will see a lot of bilateral and regional country agreements in the coming year?
3. One thing that has come from Cancun is an agreement to set up a Climate Finance Fund. But the agreement published yesterday (see page 17) is light on detail. There had been a push to claim the revenue from a mooted international tax on bunker fuel and aviation gas, but this didn’t make the late text. Western nations insist the bulk of the Fund will have to “come from the private sector”, but many developing countries are sticking to a demand for direct rich government payments. Whatever the size of the public pot, the whole art of efficiently using public money, as Deutsche Bank Climate Centre’s Mark Fulton said at Cancun, is to use it to “reduce risk” and get much more private investment into places it wouldn’t normally go. In one IFC case in India they apparently achieved a leverage of 1:100 – that’s really making the rupee go far, and would mean a $30 billion fund leading to $3 trillion of private investments. The Fund designers should get investors, at least institutional funds, involved early to design the Fund for maximum utility.
4. Indian Environment Minister Jareet Sheerham has to be one of the recent heroes of the climate change world; using the political capital he built as one of the architects of the Congress Party’s last election victory he has managed to introduce a healthy renewable energy feed-in tariff, a $1 a tonne coal tax and mandated energy efficiency improvements for big companies, with a carbon trading scheme in the works. His former cabinet colleague Andimuthu Raja, took rather a different tack. He managed to hand out, for a song, a pile of 2G mobile phone spectrum licences to “friendly” companies; the estimated loss to the Indian coffers is $40 billion, more than the entire Indian defence budget, let alone its climate change and environment budget.
5. The Climate Bonds Initiative held a modest “side event” (informal seminar or workshop) at Cancun this week. Focus of the discussion was our new Climate Bonds Standards project. The aim of the project is to provide assurance for investors and NGOs about whether funds are being invested in credible manner. This this will support liquidity, so that investors can buy and sell climate bonds knowing that if they stick to certified bonds they can be assured different bonds will have the same level of environmentally credibility. The project is part of larger efforts to encourage investment of $1 trillion each year until 2030 in clean energy and climate mitigation. The Standard will be an environmental, not a financial standard; it will provide information about whether an investment meets strict low carbon criteria. The project will bring together a coalition of pension funds, NGOS and industry bodies in Northern and Southern countries, to supervise the scheme and to guide its development.
6. Shilpa Patel, the IFC’s Head, Strategy and Metrics, Climate Business Group, was this week quoted saying that “Investors are struggling to appreciate the potential for green bonds”. A few people have emailed me asking whether that’s bad news; but the tenor of the article misrepresents Shilpa’s views. What she’s actually saying is that we need clear and independently verifiable standards for what is “green” – absolutely right – and we need to expose the greater returns from green assets by moving to asset-backed bonds. We both agree that will happen, but it may take a couple of years for the market to get used to the idea.
7. Met the impressive people at Mexican environmental NGO Pro-Natura. One of their programs is forest preservation; they sign contracts with communities to maintain forests and then sell carbon credits on the voluntary markets for $10 a tonne per annum (they fix the price). $8 goes to the village, $1 to a local who’s appointed as verifier, and 1 to Pro Natura to cover costs of running it. They now have 250,000 hectares being looked after in this way.
8. This is cruel – I’m trapped in a Ministerial briefing about the negotiations. Out of the window directly in front of me, 50 metres away, is a beautiful coral reef; my mind wanders … then a grey Navy gunboat drifts ominously into view right over the reef. Back to whatever the Minister‘s saying.<
9. IETA has all year been pressing an interesting proposal for green bonds at a sectoral level (e.g. transport) in developing countries, backed by rich country guarantees, that would generate tradable carbon credits. At Climate Bonds we’ve been supportive of the core green bond proposal, while being sceptical – but wishing them the best of luck – about getting the carbon credits side of things working.
Rumour has it that JP Morgan has been pitching it’s own “proprietal” green bonds proposal to various governments, with many of the attributes of the IETA proposal. They’ve previously done a green index for bonds, but this time proposals seem to be staying secret (a proprietal green bond?). If you know anything about it, please let me know.
10. COP is not just a complex, perhaps sclerotic negotiating forum involving a few thousand people; it has involved into an annual meeting of everyone working on addressing climate change, from scientists to activist groups to financiers. It’s amazing being among 20,000 people knowledgeable and interested in the issue. No need to cover the basics; you can go straight to the core and get a few month’s worth of meetings sorted in a few days, and then spend 20 minutes on a bus ride hearing about the tough challenge of adaptation in Mauritius. Whatever happens in the formal agenda, the backstory connections provide an antidote to the isolation many people feel pushing uphill for urgent change.
11. There are hundreds of useful resources on display at COP. A taster:
> World Bank’s Climate Change Knowledge Portal. Huge amount of data, plus maps.
> Online maps of the areas of greatest potential for carbon sequestration. Produced by Resources for the Future. They believe tropical forest can provide up to 25% of needed climate solutions between now and 2020.
> Japanese research centre has been working with cities and countries around Asia to model low-carbon futures.
12. In its latest Five Year Plan (preview provided in Cancun by Nick Stern) China lists “7 Magic Growth sectors”. In that group it has picked three low-carbon industries (clean energy, energy efficiency, clean energy vehicles; the others are high-end manufacturing, including high-speed rail, bio-tech, ‘next generation’ IT and high-performance composite materials). It plans to grow these industries from 3% to 15% of GDP in that time frame – that’s a growth rate of over 60% a year! As well, check out the Five pillars for China’s low carbon development (page 19). Wish we had a plan like that in my country.
13. Rachel Kyte, IFC Vice President for Business Advisory Services, said: “There’s a lot happening; so how do we move all these points of light into something that is scalable, replicable.” That’s the challenge folks!