Carbon offset markets key to $100bn climate finance target – World Bank

Removing fossil fuel subsidies, pricing carbon dioxide (CO2) emissions at $25 a tonne and a thriving carbon offset market are key to providing the developing world with $100 billion a year in climate finance, according to a leaked World Bank report.

The target for industrialised countries to provide developing countries with climate finance of $100 billion a year by 2020 was set out at the Copenhagen climate conference in 2009.

Since then, the International Monetary Fund and the UN’s AGF group have been developing ideas of where this money could come from, and this latest paper, leaked by the Guardian newspaper, builds further on those ideas.

Defining climate finance as “resources to catalyse low-carbon and climate-resilient development”, the report notes that both public and private flows are indispensable to meeting the $100 billion/year target.

Among the sources highlighted in the World Bank report are:

• Removing fossil fuel subsidies, which amounted to $40 billion-60 billion/year in 2005-10, citing OECD research. Not all these subsidies are inefficient, the report notes, but even if 20% of them could be redirected to public climate finance, it could yield $10 billion/year. The AGF suggested that $10 billion/year could be raised from removing fossil fuel subsidies and taxing financial transactions;
• A $25 per tonne price on CO2 emissions in industrialised economies (principally the EU, US, Canada, Australia and Japan) could raise $250 billion in 2020, while cutting CO2 emissions by 10% compared to a baseline scenario. Allocating 10% of that for climate finance could meet a quarter of the requirement. The AGF advised that up to $42 billion could be raised via carbon taxes and auctioning emissions allowances;
• A $25/tonne CO2 price on aviation and shipping fuel could raise around $40 billion by 2020. With some of that set aside to compensate developing countries, that would still leave $24 billion or more for climate finance. The AGF put that figure at $6 billion-12 billion; and,
• Financing from the carbon offset market could range from $5 billion-40 billion/year in 2020, “depending on the level of ambition with which countries implement national mitigation targets”. An agreement to limit the global temperature rise to 2°C could stimulate $100 billion/year of finance. The AGF’s range was narrower, at $8 billion-14 billion.

The study, which is being prepared for an upcoming G20 meeting, says that fossil fuel subsidy reform is a “promising near-term option” given current economic troubles.

Christopher Cundy www.environmental-finance.com