Dollars and Sense Needed to Fix Climate

by Janet Redman
Tuesday, December 1, 2009

Making Climate Finance Transformational

Jyoti Mhapsekar heads a women’s waste-pickers co-op in India. Recycling waste is one of the cheapest ways to reduce emissions.
Jyoti Mhapsekar heads a women’s waste-pickers co-op in India. Recycling waste is one of the cheapest ways to reduce emissions.
Anne Larracas/GAIA
Jyoti Mhapsekar has ideas on low-cost ways to reduce the world's carbon burden. As president of the Parisar Vikas women's waste-pickers cooperative in Mumbai, India, and a climate activist, she has first-hand experience in an industry that is not only one of the cheapest ways to reduce emissions, but also helps reduce poverty in developing countries. But the government officials now in attendance at the Copenhagen UN climate convention are apt to ignore the lessons from people like Jyoti, who remain on the outside looking in at this key climate meeting.

Recycling is one of the "low-hanging fruit" solutions to climate change: it creates more jobs for the poor than many other options (and already provides work for an estimated 1% of the population in developing countries), and costs significantly less than most other options. Yet climate financiers have largely overlooked the contribution of grassroots efforts like sorting waste, small scale organic agriculture, and communitycontrolled water power. And where financial institutions have taken notice of the climate benefits of local, low-carbon initiatives, funding has often been channeled to private companies to the exclusion of people on the ground. The experiences of Jyoti and her colleagues offer valuable lessons into how climate finance can either support or undermine communities as they combat global warming within their ongoing struggles for dignified work, a healthy environment and sustainable development.

Repaying a Climate Debt

"Climate finance" is a catch-all phrase for the money and financial services governments need to fund activities that lower their greenhouse gas emissions in order to keep the planet from reaching dangerous temperatures ("mitigation"), and the resources needed to cope with the warming that's already locked in ("adaptation"). In 2008, Nicholas Stern, author of the UK government's study of the economic costs and benefits of climate change, estimated that the cost of averting climate disaster will be 2% of global GDP per year by 2050. But Stern's calculations didn't get to the heart of one of the most contentious issues in the debate around a global climate agreement - who pays.

The UN climate convention, signed by 192 countries (including the US), gives clear directions on what countries are responsible for footing most of the bill. It states that developed countries (called Annex 1 countries in negotiations lingo) must "provide new and additional financial resources" to developing countries to cover the cost of shifting from business-as-usual, fossil-fueled economic expansion to low-carbon development pathways. It also commits developed countries to help developing nations meet the costs of adapting to the adverse effects of climate change - a problem they did not create.

A new way to describe developed countries' historical responsibility for the climate crisis is emerging in the halls of global negotiations and in the streets outside - climate debt. Climate debt recognizes the fact that while they are home to only 20% of the world's people, wealthy industrialized countries are responsible for releasing more than three-quarters of all greenhouse gas emissions already in the atmosphere. This means that rich nations have used more than their fair share of the global carbon budget. It also means that if we are going to limit global warming, poorer countries cannot follow the same fossil-fuel-intensive development path that industrialized countries took to getting rich. There's just not enough space left in the atmosphere for all that CO2.

So where does that leave developing countries? A growing number of Third World governments (led by Bolivia) and civil society groups are demanding that rich countries repay their climate debt in two ways. First, they must immediately and drastically lower their greenhouse gas emissions so that enough of the shrinking carbon pie remains for poorer nations to meet the basic needs of their people.

Second, developed nations must pay for damages already incurred from climate change, and compensate for the portion of the global carbon budget they consumed that rightfully belonged to the 80% of humanity living in the developing world.

The price tag is still up for debate, but the latest numbers from the World Bank's World Development Report 2010 peg the cost of mitigation in developing countries at $400 billion a year for at least the next 20 years, and adaptation at $100 billion annually in the next four decades. Environment and development NGOs have called for at least $150 billion of that to come from public finance from industrialized nations. The Group of 77 and China, a negotiating bloc representing more than 130 developing countries, is calling for the transfer of 1% of developed countries' GDP each year. Just about everyone, no matter which side of the political equation they sit on, agrees that addressing climate change is going to require the annual transfer of billions of dollars to developing countries. While some wealthy governments balk at this idea, the trillions mobilized for investor and industry bailouts over the past year have made it abundantly clear that where there's political will, there's a way. And the motivating factor is the reality that the bottom line will only increase with time. The deeper the emissions cuts developed countries make now, the less they'll have to pay for adaptation later. The less ambitious their reduction targets, the more money developed countries will have to send overseas for cleaner energy, agriculture, industry and infrastructure in developing countries as they take on a greater share of the global mitigation burden.

Quality, Not Just Quantity

Development experts, environmentalists and grassroots organizers from across the political spectrum are quick to point out that money alone isn't going to solve the climate crisis. The rules that govern how money flows, and what activities it supports, will in large part determine whether climate finance is truly transformational.

A climate debt approach is useful here, too, for thinking about how to provide climate finance. It acknowledges that the way industrialized countries grew wealthy - by exploiting and exporting natural resources out of poorer nations - actively impoverished people in the global South. Therefore, repaying the climate debt should help undo historical harm by establishing financial rules and mechanisms that uphold developing country governments' sovereign right to determine their own low-carbon development pathways. But even beyond the national level, just and effective climate finance must support the local, democratic control of natural resources, as well as promote poverty eradication and climatefriendly development.

The case of Jyoti's group, Parisar Vikas, offers a good example of what should be funded through a global mechanism for climate finance. Its members are reducing the demand for natural resources by collecting and reselling plastic, metals, glass, batteries and other materials to manufacturers. They mitigate methane emissions (which are more than 20 times as potent as carbon dioxide in causing global warming) by collecting and composting food, garden and other biodegradable waste before it arrives at the landfill - which the women process into bio-fertilizer and sell along with plants grown in the converted waste.

And beyond its climate benefits, Parisar Vikas has helped its members gain dignity for their work by issuing identity cards, establishing credit groups, and providing counseling, health and education programs. They hope to copy the achievements of their colleagues in a waste pickers union in Pune, India whose members have secured official recognition from the local municipality of their right to work and medical coverage for injuries incurred while sorting waste.

What's on the Table

The bad news is that the rules and institutions we have now to deliver climate finance are, for the most part, neither environmentally nor socially transformational.

The World Bank, long criticized for the negative community and environmental impacts of its lending and its undemocratic decision-making structures, has become a major player in the climate game. Since the launch of its carbon trading program in 1999, the Bank has had a firm hand in setting the rules for the carbon market, energy lending, and defining clean technology. Over the past year, the World Bank has introduced a suite of policy documents and Climate Investment Funds that have raised eyebrows because they include the expansion of large hydropower dams and coal-fired power plants, leave the door open for nuclear power as a "clean" energy technology, and in some cases, don't even reduce carbon emissions (read more about Dams & Offsets). The Bank continues to refuse to count projects' carbon footprints when deciding what proposals to finance - even in the new climate funds. Meanwhile, the World Bank has increased its dirty energy lending overall, raising fossil fuel finance in 2008 to more than $3 billion (more than double the amount from the year before). It has identified approximately $2 billion that could be used for funding hydro projects over the next several years. And the Bank's climate funds would use loans rather than grants for some adaptation activities - further indebting developing countries to cope with a crisis not of their making.

One of its most recent initiatives is the design of a forest carbon market (known as "reduced emissions from deforestation and forest degradation," or REDD, in climate speak), based on the idea that forests are best protected by pricing the carbon held within them. But the Bank is moving quickly to establish experimental pilot programs on the ground, in the process downplaying the significance of indigenous peoples' rights, equitable benefit sharing, land tenure and industrial agricultural impacts. Forest-dependent communities, it seems, will serve as guinea pigs, and the program could end up missing the forest for the trees.

The World Bank announced in October its intention to position itself as an implementing entity for a global finance mechanism under the guidance of (but not accountable to) the UN climate convention. Given its track record, and current carbon trajectory, it's difficult to imagine why anyone who cares about the climate would hand this job to the Bank.

Ultimately, what we need is a climate finance system that sits under - and is accountable to - the members of the UN Framework Convention on Climate Change (UNFCCC) because it is the only treaty whose sole function is to address the climate crisis, and it's the only arrangement that treats all parties as equals. Unfortunately the financing bodies that currently sit under the UNFCCC - the Global Environment Facility (GEF), the Adaptation Fund and the Clean Development Mechanism - have shown limited success. The GEF has helped vulnerable countries identify adaptation priorities and write up national plans, but has been chronically under-funded. Thick bureaucratic red tape has made it difficult to squeeze money out of the GEF to implement adaptation plans.

The Clean Development Mechanism (CDM) was created to allow wealthy countries reduce greenhouse gases on the cheap by counting reductions made in developing countries as their own - as long as developed countries paid the bill. But many CDM projects were going to happen even without finance from the North - so the continued pollution in the developed countries was not actually offset by equivalent new reductions in developing countries. The result is that emissions increased overall. Also, paying to outsource emissions reductions has not proven to contribute substantially to sustainable development or community empowerment.

In Bali, Indonesia, the CDM is actively undercutting the work of BaliFokus - a community-based waste management program awarded the Goldman Environmental Prize earlier this year for its worker-owned solid waste cooperative. By removing recyclable and compostable material before trash gets to the dump, Bali- Fokus has reduced landfill methane gas and has created jobs that provide dignity and economic security.

But the local environmental agency has told BaliFokus that they will no longer support the project and are cutting off access to the waste stream. A CDM-backed methane gas-capture project wants the organic waste to go to the dump where it will increase the methane generated by the landfill, a portion of which can then be captured and burned (creating CO2) in order to claim lucrative carbon credits. The rest escapes into the atmosphere.

Because of its developing country-dominated Executive Board and independent management arrangement, the Adaptation Fund looks more promising - but to date no money has flowed to activities on the ground.

Real Solutions to Climate Credit Crunch

So what would work to deliver the kind of finance needed by initiatives like BaliFokus and Parisar Vikas? How can governments now assembled in Copenhagen fold financial rules and systems into a global deal that supports local, democratic control of everything from energy to agriculture?

The good news is that lots of people from all over the planet have been thinking about these very questions, and have come up with some common principles to guide the development of fair and effective climate finance. First, any financing scheme must be democratic, transparent and accountable to all, with civil society formally represented in decision-making arrangements. Also, community-based groups (in addition to government agencies) should have direct access to funds. The Global Fund to Fight AIDS, TB and Malaria has successfully shown that when civil society cuts out the middle man (like the World Bank and other international financial institutions), they can better and more efficiently meet peoples' needs. In addition, a global climate finance regime must respect and protect the right of all people - particularly indigenous peoples and local communities - to determine their own development path, decision-making processes, and activities related to climate change.

The question still remains: How do we operationalize a global financing system big enough to make a real difference, but local enough to be community controlled? Solving this puzzle will be critical on the road to Copenhagen and beyond.

More information: 

Janet Redman is co-director of the Sustainable Energy and Economy Network at the Institute for Policy Studies, where she provides analysis of international financial institutions' energy investment and carbon finance activities.