Up Front

Forging Ahead to Cancun with Five Climate Action Items: Observations from the Annual Meetings of the IMF and World Bank

Katherine Sierra

Last week, while climate policy watchers had their eyes on Tianjin—where the UNFCCC negotiators were making halting progress in their final meetings before the upcoming negotiations in Cancun—another debate on climate was being held in Washington. Ministers of finance and development, as well as representatives from the private sector, civil society and other development agencies, gathered for the annual meetings of the IMF and World Bank.

World Bank President Robert Zoellick’s opening speech set the tone by highlighting the increased impact on developing countries from climate-related natural disasters and other environmental and social stress factors. Zoellick also re-affirmed the World Bank’s global priority on tackling climate change.

The backdrop to the meetings was not encouraging. There is a wide disparity between what science tells us, that global warming should not exceed 2 degree C (3.6 degree F), and the ambition of commitments under the Copenhagen Accord. Further, the gridlock in U.S. legislation makes it difficult to reach our own commitments, weakening our ability to serve as a leader. There are challenges to international cooperation given the increase in global imbalances and tensions over currency, with tension between the U.S. and China on these issues mirroring the tone in Tianjin. And there are fiscal constraints in the OECD countries that challenge the ability to finance the transition to a low-carbon and climate-resilient economy in the developing world.

But there was room for some optimism. The delegates were purposeful in their discussions, and pressed for continued action within, and in parallel to, the UNFCCC talks to keep up momentum to reach a positive outcome in Cancun.

Five key messages for addressing the climate change challenge emerged from the annual meetings:

Go for building blocks. With UNFCCC officials clear that there are no prospects for a comprehensive global agreement in Cancun, the goal has shifted to Plan B: to reach agreement on a number of building blocks that were framed in the Copenhagen Accord that could ultimately shape an eventual global agreement. Likely candidates for agreement include: mechanisms for supporting reductions in emissions from forestry (REDD+), building on the recent partnership forged by 58 countries at the Oslo Climate and Forest Conference; technology, including the setting up of regional innovation centers; a framework for adaptation, focusing on capacity building; and the principles of, and processes for designing, the Copenhagen Green Fund. But while convergence on these issues seems possible, the “building block” strategy may not advance due to the trickiest parts of the Copenhagen Accord—provisions for transparency about monitoring, reporting and verification of emission reduction targets and actions, and their linkages to the commitments on longer-term climate finance. At the annual meetings, some participants were quietly discussing a “Plan C”—that no formal agreements on these building blocks will be created in Cancun, but there will be continued movement through bottom-up activities supported by coalitions of interested countries.

Make climate finance a reality. The Copenhagen Accord included climate finance commitments of $30 billion in Fast Start financing to 2012, with long-term financing reaching $100 billion a year by 2020. Delegates acknowledged that meeting the Fast Start financing objective was critical to building trust, and countries are racing to demonstrate by Cancun that they are meeting these commitments. But the scope for the public sector to finance significant parts of the longer term $100 billion commitment has finance officials worried. They will also be looking for the kind of leverage achieved by the Clean Technology Fund, with some $4 billion leveraging $40 billion in investment in clean technologies. And, while we wait for the report on possible sources of innovative finance from the U.N.’s high-level group on climate finance due by the end October, the message is that we should not expect a recommendation on how to raise this level of finance but rather a menu of possibilities to inform the debate on economic and political tradeoffs.

Focus on strategies for leveraging the private sector. Climate negotiators are divided on the role that public versus private finance should play in meeting the Copenhagen Accord ambitions. But OECD delegates to the annual meetings were clear that achieving the $100 billion per year in longer-term finance would require significant private sector flows. There was a strong push for the continuation of carbon markets beyond 2012. So, extension of the Kyoto Protocol in Cancun will be critical. Even then, the Clean Development Mechanism needs substantial reform to reduce transaction costs, support investment at scale through programmatic schemes, and become more accessible to a broader range of countries, including the least-developed countries. Other ideas included public-private partnerships with private capital; leveraging multilateral development bank risk mitigation capabilities; and using innovative public policy tools, like cross border feed-in tariffs, to support regional renewable investments.

Get ready for many channels of public sector climate finance. In Tianjin, the focus was on the often-contentious intricacies in the design of the governance arrangements for the Copenhagen Green Fund and its links to other issues, like transparency. In Washington this past weekend, the message from contributing countries was that while the Copenhagen Green Fund will be important, there will be many channels for climate finance, including: existing funds like the Global Environment Facility and the Adaptation Fund, leveraging of the MDBs, and bilateral support. The link to MDB and bilateral funds to the UNFCCC continues to be a debatable point, with developing countries asserting the primacy of the Copenhagen Green Fund as a key part of any financial mechanism, guided by and accountable to the UNFCCC. Also underscored during the annual meetings was the key element of transparency—to reassure developing countries that money is flowing and balanced across different constituencies, and to assure taxpayers that funds are achieving results.

Don’t forget the most vulnerable. There was a call for structuring new funding to also reach least-developed countries. Capacity building to help these countries access the many funding channels will be critical. A focus on special constituencies with significant climate challenges (small island states, sub-Saharan Africa and mountain nations) was also on the agenda. Further, some emphasized the need to ensure that funds, whatever their source or delivery channel, adhere to strong social and environmental standards so that benefits reach the poorest, including indigenous peoples. The productive dialogue on opportunities for the most vulnerable, which has surfaced as part of the REDD+ partnership, may set the path for the broader climate finance architecture.

While global agreement on tackling climate change is not in the cards for Cancun, the Conference of Parties will have the opportunity to move forward on the building blocks to set action in motion. Climate financing will be at the top of the agenda—including leveraging strategies for the private sector and debating the role and impact of public financing options. Ultimately, the least-developed countries, which have been, and will continue to be, hit hardest by climate-related natural disasters as President Zoellick emphasized at the annual meetings, need to see action, particularly financing, sooner rather than later.

Editor’s Note: Katherine Sierra is the former vice president for sustainable development at the World Bank. She participated in this year’s Annual Meetings of the IMF and World Bank as a member of civil society.