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Notes on Abu Dhabi Ascent Finance breakout sessions

Here are notes from two of the three finance sessions at the Abu Dhabi Ascent meeting on Sunday and Monday.  They are on sessions two and three (on public finance and carbon pricing, respectively).  Pat Lerner will circulate separately notes on the first session, which focused on private sector finance.  I’ve also pasted in an article on the carbon pricing issue by Sophie Yeo of RTCC, which has a link to the draft statement on carbon pricing that’s being shopped around by the World Bank for sign-on by governments and companies.
Hopefully, colleagues from EDF, NRDC, TNC, WRI, and other NGOs who were at the Ascent and tracking the other breakout sessions (Africa clean energy corridor, low carbon transport, forests, agriculture, resilient communities and nations, oil and gas partnership, energy efficiency, cities, SIDS renewables initiatives, short-lived forcers) will get notes around on those issues as well.


Abu Dhabi Ascent finance sessions

Monday May 5 morning (second session)

Christiana Figueres:

two parallel conversations: political agreement on finance support for developing countries of $100 billion a year by 2020; financial reality of the $1 trillion a year that we need to mobilize to meet our goals.

On the $100 billion goal, the GCF is at the center of the political agreement; the balance between mobilization of public and private finance has not been determined, and probably won’t be — it will just evolve.

GCF board meeting 18-21 May — there must be a commitment to finish the decisions needed to operationalize the fund.

There also needs to be preparation by developing countries — get their mitigation  and adaptation investment portfolios ready, be ready to jump through the administrative hoops to get funding.

Three months after operationalization of GCF, capitalization will initiate.  The September climate summit is the initial deadline for capitalization, with $10 billion as the initial capitalization amount.  Need to get greater clarification of the pathway to $100 billion by 2020, over the 2014-2020 period.

Ongoing technical assessments of finance flows, political oversight and guidance from the bilateral finance Ministerials, starting this year in Lima.

Other avenues for public financing will be added to the plate, both bilateral and multilateral.  Need to assess the unique niches for public finance — what are the areas where private finance won’t go?  How can public finance leverage the much greater amounts of private finance that are needed (she mentioned the 1:7 ratio).

How do we move towards the $1 trillion a year that is needed?  Can the GCF be the tail that wags the dog?  That points private capital towards green technology?  The GCF needs to do this if it is to become the truly transformational entity it can be.

Greg Barker, United Kingdom

The GCF has a disproportionate politically iconic character; it is seen as the demonstration of good faith by developed countries to meet their commitments.

It is frustrating that it is taking so long to get the GCF up and running; we need to blooming well get on with it.  Developing countries need to stop playing politics with the GCF, and help get the decisions we need to operationalize it.

When developed countries talk about the need to scale up private finance, many developing countries hear that as saying “I want to pull back on my private finance.”

The UK is the only G-7 country that has fulfilled its MDG finance pledge four years, with 50% going to adaptation, much of it to areas that won’t attract private capital.  But we must be more creative in leveraging our public finance to mobilize private finance, if we are to meet our $100 billion goal,  The $100 billion cannot be public only, certainly not over the long term.  

The UK is hosting two meetings on finance in London next month.  On June 3rd, there will be a meeting of the Global Innovation Lab; this emerged out of discussions in the MEF, and Germany, the US, the UK, Norway and others are involved in it.  The City of London is the world’s leader on innovative finance, and we are engaging them in this process.  One goal is to make sure that finance is being spread equitably to markets where private finance doesn’t go.  Project developers, multilateral institutions, and governments will be at the Global Innovation Lab meeting.

On June 4th, we will host a broader summit for private financial institutions, development banks, and ministers from both developed and developing countries, to showcase innovative finance initiatives.

Some institutions are suffering climate finance fatigue as initiatives proliferate; we want to pull all of the various climate finance initiatives together and show how they fit together in a coherent way.

Barbara Hendricks, Germany

We need both public and private finance.  Germany is providing €1.8 billion a year of public climate finance support.  Our International climate Initiative  has provided €1.5 billion in support for some 400 adaptation, mitigation, and biodiversity projects.  

We also support the Luxembourg-based Global Climate Partnership Fund, which also includes the UK, Austria, IUCN, KfW, and Deutsche Bank as shareholders.

We need to capitalize the GCF as soon as possible.  Germany is a big supporter of the GCF; we co-chair the board and will do our share.  But the GCF should receive funds from all capable countries, including from those beyond the “classical” donor countries.  

Echoed earlier statements on the need to leverage private finance, and for developing countries to get their investment portfolios ready.

Ambassador ______ of Ethiopia (didn’t catch his name)

I’m filling in for the Minister of Finance who was supposed to be on this panel, but was unable to make it to Abu Dhabi.

Most of his brief remarks focused on the need for greater support for efforts to reduce deforestation in Ethiopia.

Nick Robins, UNEP inquiry on regulating finance

In addition to providing public finance, governments have a critical role of play on this issue through their governance of the financial system.  There is a critical mass of innovation building up in four areas:

1) — disclosure by corporations on their climate change performance, footprints, and exposure to climate risks;

2) — banking sector — need strategies to manage the risks of climate change, innovative green credit guidelines being developed and implemented in Bangladesh, Brazil, China, and Lebanon, among others;

3) — investment sector — needs to shift criteria for fiduciary responsibility to reflect climate risks and opportunities, update pensions laws to make sustainability an acceptable criterion;

4) — insurance sector — lot of activity in US at federal level and in states requiring insurance companies to disclose how they are managing climate risks in their underwriting of policies and their investment portfolios.

UNEP is undertaking an inquiry looking at ways to design a more sustainable financial system — how can Policymakers encourage a long-term perspective that takes climate change into account?  How can we reform the Basel rules to be more supportive of climate investments?  How can we get climate risk management fully incorporated in financial institutions?  The inquiry has an advisory council of governments including Bangladesh and Uganda, multilateral institutions (Rachel Kyte of the World Bank, David Pitt-Watson of UNEP-FI), and others such as CALPERS (California state workers retirement fund).

The September Climate Summit should showcase good practice, provide a platform for announcing new initiatives, and generate supportive statements from private finance sector leaders.  We need to recognize that innovation in this area is distributed; it’s not just developed countries, but developing countries as well that are showing leadership.


Christiana: this is an evolving area.  Developing countries have been working on developing their NAMAs and NAPs for several years now.  They now need to pull this all together in their Nationally-Determined Contributions by early next year.  They need to indicate which activities can be supported with domestic financial resources, and which need international support.  This is a learning process, and everything is not going to happen overnight.  We need to learn from what has been successful, and build on it.

Paul Bodner of the US asked for more clarity on concrete deliverables on finance for the Climate Summit; how are these sessions addressing the proposals outlined in the preparatory book for this meeting?

Rachel Kyte of the World Bank responded.  We can’t win back these 48 hours; we are where we are now, and September 23rd is right around the corner.  

— What do Heads of State say at the Summit about climate finance?  

— For developing countries, how do you manage your economies so as to channel your own public finance to flow into climate-resilient investments?  What help do you need to do that?  You need to express your ambition in terms of how you are going to grow your economy in a sustainable way.

— For developed countries, how are you reforming your regulatory regimes for pension funds, insurance companies, banks, etc.?  You should bring your GCF pledges to New York in September if possible, as well as greater clarity on other avenues for public finance.  There is a need for more public money to flow to the most vulnerable countries.

— as to the specific initiatives in the preparatory book, we need to find ways to bring all of you in on them after this meeting.

— Banks, insurance companies, and other financial institutes should come in September prepared to indicate how they are moving forward already on climate risk, sustainability, and other fronts.  We need to front load announcements at the Summit to create a sense of momentum towards Lima and eventually Paris.

Christiana: there is good news and bad news. The GEF just had the largest replenishment in its history, but the climate portion was reduced because the existing climate funds have been underutilized.  For the Adaptation Fund, the funds have been fully utilized, but there is a long list of projects waiting to be funded because the resources aren’t adequate.  

Al Gore: I have spoken with President Obama, and just recently with John Podesta, who is working in the White House full-time to mobilize the administration.  There is a sincere desire by the President and his team to make climate change a legacy issue.  There is a big difference in the intensity of focus on climate change in this second term, compared to his first term.  

Gore asked about fossil fuel subsidies, which he termed as “anti-climate finance” that blocks investments in renewable energy and other clean technologies.  We need to engage countries receiving climate finance in a dialogue on how they phase down their carbon subsidies.  We shod give “climate finance surges” to countries that agree to do so.  

The South Sudan finance minister said the price of reducing GHG emissions is a big one, and asked how much it will take to fix the problem of climate change and what is the financing mechanism?  Al Gore replied by citing the 0.6% of GNP figure from the latest IPCC report.

A representative of the GEF noted that of the recent $4.4 billion replenishment, $1.26 billion will be for climate mitigation, all of it grant financing.

Rachel Kyte then ended the session with a summary:

— we should understand that the reason the GEF replenishment increased was entirely due to middle-income countries; pledges from developed countries were flat.

— On fossil fuel subsidies, she referred to the report by the Overseas Development Institute, with its bubble charts of climate finance and aid flows versus level of FFS by country.  She asked where does this debate that Gore called for take place?  It has been discussed for five years in the G-20 and that process is “achingly slow.”  Also, some of the countries with the largest FFS are not in the G-20, such as those who are talking here about the need for more focus on humanity and social issues (a clear reference to Claudia from Venezuela).  We need to learn from success stories like Morocco and Nigeria, which have phased down their FFS, while addressing the social safety net and protecting the poor.  If the $500 billion a year in FFS went to clean investments instead, we would see a very rapid shift towards these technologies.  In Nigeria, $5 billion has been shifted from FFS to social services.

— The UNEP inquiry will bring greater awareness over the next two years on the need for reforms in the overall finance system to address climate and other sustainability challenges.

— there are several challenges for the Climate Summit: How do we allow leaders to show that they are prepared to lead?  How do we restore confidence that the global community can address climate change?  How do we communicate the actions to the public in an understandable and convincing way?

— the ultimate goal is that investors show a greater understanding of the intensity of the carbon risks they are exposed to, and make clear that they want to see that risk dramatically reduced.

Carbon Pricing Session, Monday afternoon

Rachel Kyte intro: the goal for New York is that all those governments and private sector actors who are active on carbon pricing join together to show this is the direction that the world is going.  There should be a powerful message to the global public that a growing number of countries representing a sizable chuck of global GDP are pricing carbon, and that more and more companies are using shadow carbon pricing in their investment and operational decisions.

Su Wei, China:

The climate challenge is very urgent, and market mechanisms must play an important role in achieving our policy targets.  That is why China is undertaking a number of pilot program on emissions trading.  As part of our current 5-year plan, we launched 7 pilot projects in 2011 and 2012; we want to use the projects to formulate caps on GHG emissions in the pilot cities/regions, and allocate permits to various units to start the emissions trading market.  The first step is assessment of current emissions for participating enterprises (5000 tons and up of annual CO2 emissions). Overall, enterprises representing 1.1 billion tons of annual CO2 emissions are being assessed.  (!)

We want to send a clear signal that carbon emissions aren’t going to be free.  We want to gradually develop the pilot projects into a national emissions trading system.  In this exploratory phase, we are trying to understand what are the rules and the operating mechanisms?  The current pilot programs run to the end of 2015; we are seriously considering extending them to a larger set of cities/zee goons after that.  This depends of what our future obligations for GHG emissions are.  We are considering a limitation on overall GHG emissions — transform our energy cap into a GHG cap.

The pilot markets are not very active yet — we needs to continue to improve the rules and create market activity. The European Union took 5 to 10 years to get its ETS up and running; China will try to shorten that timeline and get a national ETS up and running by 2020.

Hakima el Hiti, Morocco Minister of Environment:

Renewable energy is not a choice for Morocco, it is essential; we import 96% of our energy.  We have other problems, such as water shortages and solid waste management issues.  We are investing in renewables in order to save money; sustainable development strategy is embedded in our national law.  We will present our strategy in September at the first sustainable development summit in Morocco.  We will have 500 MW of renewables in place this year, with a goal of 2000 MW by 2020.  

We should have coherence in our policies; we shouldn’t be subsidizing fossil fuels while trying to promote renewables.  Most FFS subsidies in Morocco (90%) were going to industry and transportation, and very little to the poor.  We are eliminating FFS and using the savings to make payments to our population directly based on their level of income.  

The World Bank is helping us develop a carbon market, but there are challenges for developing countries.  It’s so complicated, and we don’t have the capacity to do it on our own.  We need to have a worldwide price on carbon reflected in the global agreement in Paris, and agree on how to establish the cost.

Peter Vis, European Commission DG Climate:

All climate policies have an implicit price of carbon in them; an ETS or carbon tax simply makes the price explicit and visible.  The EU couldn’t get agreement among all its member states on a carbon tax in the 1990s, but an ETS was politically possible.  

The EU ETS is working well, and succeeding in helping us reduce our emissions; in fact, we are on track to overachieve our 2020 targets.  We have succeeded in decoupling emissions from economic growth: the EU’s collective GDP has increased 45% since 1990, but emissions are down 18%, and predictions are they will be down by the mid-20s percent range by 2020.  Emissions trading is a useful source of revenue for governments; portions can be used for climate finance and stimulating technology innovation.  A price of 6 Euros a ton generates €6 billion a year EU-wide.  

We have exempted some carbon-intensive industries from the ETS because of their exposure to trade risks from countries that don’t have carbon pricing.  If the world moves more broadly towards carbon pricing, we could eliminate those exemptions and have universal coverage.

He was asked a question about whether there was any possibility of the EU adopting a floor price for permits, as California has done.  He replied that the regime is aimed at determining the environmental outcome, not the price itself, and that it wouldn’t be possible to get agreement among the 28 member states on a specific floor price for carbon.

Chris Knowles, European Investment Bank

The EIB is a long-term MDB, with a balance sheet of $650 billion, and annual lending of $80 billion, 85-90% of it within Europe.  We use a shadow price of carbon  as an internal decision-making tool; we started at $25/ton, escalating to $40/ton over 20 years.  We want to minimize the risk of exposure to carbon-stranded assets.  
We have developed carbon-tracking methodologies with other MDBs.  

There is an investment risk if you don’t experience the carbon price in the markets that you expected; it can threaten the viability of investments.  Some EU countries have pulled back on subsidies for low-carbon technologies, and that is damaging to investments in those technologies.  

Steve Howard, IKEA:

Our business is providing sustainability strategies for homes, including energy consumption.  We are vertically integrated, generating much of our own electricity.  We have 700,000 solar panels installed in our stores, and have 19 wind farms around the world, the latest being a 98 MW wind farm in Illinois.  We will soon be 65% renewable.  

Policy uncertainty is a concern; we could have moved 30% faster on our clean energy investments if it wasn’t for the unpredictability of policy.  A relatively modest carbon price has a huge impact on project evaluation, driving us towards investing in clean technologies.  We need a “long, loud, and legal” policy framework; we need to put a price on carbon.

Dirk Forrister, International Emissions Trading Association:

This is the most important conversation in the Abu Dhabi Ascent.  Companies don’t believe governments are serious about climate change if they’re not putting a price on carbon.  As we saw recently (referring to ExxonMobil but not naming them), some companies don’t take government commitments to the 2 degrees goal seriously.  

As head of IETA, I spend a lot of my time in Brussels, and increasingly, in China.  On the EU, there’s not enough clarity on how the ETS will interact with other regimes.  On China, the Chinese pilot projects have clearly gotten the attention of businesses in the us, the EU, and in China itself.  One of the pilot regions, Guangdong, has a population as big as Germany’s — that’s what you call a pilot project, China-style!

World Bank:

The Bank is helping organize support for a joint statement (draft text is attached) on carbon pricing to be released at the Climate Summit by governments and companies, to demonstrate how much is already happening and to generate interest among others.  We are open to comments on the statement, as well as to additional participation in the process.  

Brice LaLonde, the Global Compact: the Compact is organizing the lunch at the Summit for leaders from government, business, and civil society; that could be the venue for launching the statement.

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