How to finance low-carbon growth in poor countries
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At the climate-change summit in Copenhagen last December, political leaders expressed a strong will to urgently combat global warming.
As we approach the next climate-change summit in Mexico, this December, the international community must deliver concrete results.
Finance is a key ingredient of the global response to climate change. At the Copenhagen summit developed countries committed themselves to the goal of jointly mobilizing US$100 billion by 2020 to address the needs of developing countries.
United Nations Secretary-General Ban Ki-moon's High-level Advisory Group on Climate Finance (AGF), which we chaired, was established to identify practical proposals for how developed countries can mobilize this level of climate financing by 2020.
The current global economic environment has placed public finances in many developed countries under extreme pressure. Nevertheless, the AGF's report concludes that reaching the goal of raising US$100 billion a year by 2020, while challenging, is feasible. Among the AGF's conclusions, which we have presented to the UN Secretary-General, there are some important messages:
First, a carbon price in the range of US$20-25 per ton of CO2 by 2020 is key to mobilizing climate finance at this level. Carbon prices expand the potential for both public and private financing by raising public revenue and creating private-sector demand for emission reductions.
Second, new public mechanisms can mobilize tens of billions of dollars annually, an important step towards the US$100 billion goal. Examples include the auctioning of emissions allowances, carbon taxes, and the pricing of emissions from international transport.
Third, international private investment flows are essential. It is the private sector that will finance most low-carbon, sustainable growth. Public funding should help leverage climate-friendly private investments. The multilateral development banks, in close collaboration with the UN system, can play a significant multiplier role in this regard.
Several sources of financing for adaptation and mitigation efforts in developing countries could be made operational relatively quickly. We need to make progress on establishing the Copenhagen Green Climate Fund, including, possibly, regional and thematic vehicles, such as an Africa Green Fund.
Ensuring economic growth and addressing climate change do not have to be opposing goals.
They can and should go hand in hand; what we need is climate-resilient, low-carbon growth. It is now up to governments, international institutions, and the private sector to draw on our analysis in support of climate action.
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