Download G20 Climate Finance Study Group Progress report to G20 Leaders I

G20 Climate Finance Study Group
Progress report to G20 Leaders
I. Mandates of the climate finance study group
At the Los Cabos Summit (June 2012), G20 Leaders reaffirmed their commitment to fight
climate change and to structurally transform economies towards a climate-friendly path in the
medium term. They also “welcomed the creation of the G20 study group on climate finance,
in order to consider ways to effectively mobilize resources taking into account the objectives,
provisions, and principles of the UNFCCC in line with the Cancun Agreement and ask to
provide a progress report to Finance Ministers in November”1.
The G20 CFSG is open to all G20 members, co-chaired by France and South Africa. The first
face-to-face meeting of the group was on the 23rd of September 2012 in Mexico, in the
margins of the G20 finance deputies meeting, which enabled preliminary exchanges of views
and experiences and led to the production of a progress report.
In its 2012 progress report, the CFSG made some proposals for future work, asserting that
“experience sharing should be the main focus for the study group to move forward” and that
“this could cover […] both public policies and instruments to increase public finance, as well
as private finance leveraging”2.
Four months later, at their Mexico City meeting (November 2012), Finance Ministers and
Central Bank Governors “recognized that the UNFCCC is the forum for climate change
negotiations and decision-making at the international level” but “acknowledged that climate
finance is a relevant issue to be discussed amongst G20 Finance Ministers and Central Bank
Governors”. They welcomed the report of the CFSG and requested that it “continue working
towards building a better understanding of the underlying issues among G20 members taking
into account the objectives, provisions and principles of the UNFCCC, and report back to
Leaders in 2013”3.
II. Main features of 2013 workshop
In order to undertake this mandate and in continuity to the work already done by the Study
Group on Climate Finance, the study group held a workshop in Paris on June 17, which
served as a forum for dialogue and exchange amongst G20 countries who shared, on a
voluntary basis, domestic experiences and best practices on selected instruments, actions and
policies of their choice related to climate change and climate finance.
The Study Group benefited from presentations from several G20 members, which reflected on
how they implemented policy on climate change-related economic instruments as well as
mechanisms and initiatives, at the national or regional level. The Group also benefited from
1
G20 Leaders Declaration, Los Cabos, 18th-19th June 2012.
G20 Study Group on Climate Finance Progress Report Section 3, Mexico City, 2nd November 2012.
3 Finance Ministers and Central Bank Governors’ Final Communiqué §30, Mexico City, 4th-5th November 2012.
2
presentations by external participants when there were available time slots. The agenda had
been framed around 5 different sessions, which allowed for an extensive amount of time for
discussion amongst participants: economic instruments and carbon pricing, tracking of
climate finance for an effective mobilization, climate finance mechanisms, mobilizing private
climate finance and stock-taking and next steps (closed session for G20 members only).
Session 1: Economic instruments and carbon pricing
Three presentations informed the discussions among G20 members in this first session. First,
Australia reported on its experience in implementing an Emissions Trading System (ETS) and
in particular on the challenges and opportunities of linking it with the European Union ETS.
The European Commission illustrated the current challenges and debates regarding the EU
ETS, especially given the current low price of carbon. Finally, South Africa shared experience
on its current proposal to introduce a domestic carbon tax and underlined the rationale behind
the proposal.
Following these presentations, participants explored the question of whether to price carbon
through the implementation of a tax or an ETS (which also includes the sale or auctioning of
emission certificates). Some participants mentioned that the main arguments in favor of an
ETS were efficiency (emission reduction at least cost), certainty (emission reduction target is
achieved due to the cap) and flexibility (possible adjustment of ambition level). As for
implementing a carbon tax, it can allow for better intervention by the government or may be
more feasible in the absence of an emission cap.
However, it was also argued by some members that the differences between the two
instruments are not as significant as they appear. For example, although an ETS is a market
mechanism, it involves government intervention in setting the emission cap which influences
the market carbon price. Concerning the EU ETS, it was noted that the system of carbon
pricing within the EU and its member states could also be considered as a hybrid one, given
the additional carbon pricing instruments (via different forms of taxation) in place in the
member states and given the auction system that prevails within the EU ETS. In the case of
Australia, the relative sophistication of its financial sector and electricity market supported the
decision to implement an ETS, noting the scheme has been planned to commence with a fixed
price for the first three years. Due to the structure of its economy, (with two big emitters),
South Africa decided a carbon tax was more appropriate.
Session 2: Tracking of climate finance for an effective mobilization
The Secretariat of the UNFCCC provided the group with background information on tracking
climate finance, with a focus on the ongoing work under the UNFCCC climate change
negotiations, drawing from the results of the climate conference in 2012 and the implications
for the road to COP 19 as well as COP 21 in 2015. The presentation also suggested some
solutions in order to shift investment patterns. The OECD further elaborated on the rationale
for tracking climate finance and provided recommendations as to which flows should be
tracked, highlighting in particular the complex architecture of climate finance and the
different information needs and deficits at the national and international levels. The OECD
also presented its estimates of overall climate finance flows, and stressed the uncertainty
linked to private flows estimations, caused by both technical and political problems, such as
the lack of data or agreed definitions. Concluding this set of presentations, South Africa
described its national system to track, monitor and evaluate domestic climate finance. In
particular, the different types of information collected in this system were presented.
The discussion among participants focused on how to deal with general challenges for
tracking and reporting climate finance. It was noted by some participants that to a certain
extent, the OECD Rio Markers can already be used to report on public climate finance.
However, with respect to climate finance provided via MDBs, further work is needed, in
particular to avoid double counting in the case of leveraging. As for private climate finance,
additional work is also needed to reduce the methodological uncertainty and thereby the range
of estimates of private flows. Concerning tracking in general, some participants warned of
inconsistencies between different existing tracking systems which make it difficult to ensure
comparability. It was also noted that even though the technical work is progressing quite well,
further clarification as to the overall picture on climate finance would be beneficial, so as to
increase transparency and credibility.
Session 3: Climate Finance Mechanisms
This session was focused on financing mechanisms that countries have adopted in their
economies to fund domestic needs of climate change. Brazil described the design of its two
major funds, the Brazilian National Climate Fund and the Amazon fund, and in this context
the differences with respect to funding and relation to the national budget. Spain reported on
the Spanish Fund for Sustainable Economy and China described the functionality of its Clean
Development Mechanism Fund. Mexico presented specific sustainable projects in different
sectors and Saudi Arabia illustrated its finance mechanisms related to its economic
diversification efforts highlighting its objective to raise resilience to climate actions and to
develop a usage of hydrocarbons which allows for less GHG emissions.
The discussion among participants stressed that the involvement of the private sector is an
important element. Moreover, the existence of a national “champion” institution being in
charge of climate change and climate finance was highlighted as a key factor of success. It
was also emphasized that the implementation of climate finance mechanisms should take into
account national circumstances and in particular the variety of sources of income.
Session 4: Mobilizing private climate finance
France reported on experiences and instruments to effectively mobilize private climate
finance, in particular by bringing together different actors at the regional EU level. The
European Bank for Reconstruction and Development (EBRD) presented its experiences,
actions and results concerning leveraging private climate finance. The Climate Policy
Initiative (CPI) presented project-based lessons from a selected number of case studies on
how to achieve effective climate finance. The Green Growth Action Alliance (G2A2) shared
its views on the current challenges experienced by the private sector: mismatch between
government objectives and private sector interests, undervaluation of efficiency, limited
absorption capacity of recipient countries and high transaction costs for the private sector
caused by a large number of public donors/actors.
The discussion among members stressed that the involvement of the private sector in climate
change could be increased further, in particular with respect to the funding of adaptation
measures. It was also noted that support of the private sector by the public sector should be
delivered with caution in order to avoid moral hazard.
Session 5: Stock-taking and next steps (closed session for G20 members only)
Many participants expressed a very positive view of the discussions that took place at the
workshop. Some members stated that sharing experiences related to the implementation and
results of domestic approaches to tackle climate change and climate finance was a fruitful
way of building a better understanding of these issues. Discussions on possible next steps for
the Study Group were initiated, and emphasized the need to contribute to the UNFCCC
process without duplicating it.
On the basis on these discussions, the co-chairs proposed to draft and circulate a co-chairs'
summary of the discussions as well as a tentative outline for the report to be drafted by the
group to be presented, once completed and agreed by all members, to the Finance Ministers in
July and finally delivered to the G20 leaders in September, in accordance with the CFSG’s
mandate.
III. Proposals for next steps and perspectives
As identified by G20 Leaders at Los Cabos, and as stated by most CFSG members at the June
17 workshop, there is considerable potential value in furthering understanding among G20
members on climate financing issues, while taking into account the objectives, principles and
provisions of the UNFCCC. From this perspective, proposals for future CFSG work could
include:
1. Pursuing the exchange of knowledge, experiences and ideas with a focus on specific
topics, relevant for domestic as well as international climate finance and which could
include inter alia:
o Financing for adaptation, with a focus on the barriers in scaling up private
sector involvement and investment and the possible ways to overcome them,
notwithstanding the fact that public finance will continue to be a key financing
source for adaptation;
o Alternative sources and approaches to enhance climate finance and its
effectiveness, with a focus on best practices in risk allocation between the
public and private sector. We will exchange views on these approaches and all
potential impacts and implications, including incidence on the economies of
countries, taking into account the objectives, provisions and principles of
UNFCCC;
o Enabling environments, in developing and developed countries, to facilitate the
mobilization and effective deployment of climate finance, including from
developed to developing countries and also domestic activities, in line with
countries’ national policies and priorities;
o Examining the role of relevant financial institutions and MDBs in mobilizing
climate finance, with the understanding that the priority of MDBs is
development.
Such exchanges could be conducted through workshops/meetings starting after the 2013
Summit.
2. Drawing from these discussions, the CFSG could work towards providing the
Ministers and Leaders with a better understanding and a range of policy options - on
the different issues identified as key by the group, including effective ways to
mobilize resources for climate finance, consistent with UNFCCC principles and
ensuring that there is no duplication with UNFCCC processes.