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The U.S. Role in International Climate Finance

A Blueprint for Near-Term Leadership

SOURCE: AP Photo/Gautam Singh

The vital national interests of the United States require our nation to forge a global partnership with developing nations to accelerate their climate actions through new international investments in clean energy technologies, energy efficiency, tropical forest conservation and climate adaptation.

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Listen to a press call on the report with Maggie L. Fox, John Podesta, and Nigel Purvis (mp3)

Read the full report (pdf)

Read the full report in your web browser with Scribd

Download the summary for policymakers (pdf)

Download the foreword by Maggie L. Fox, John D. Podesta, and Nigel Purvis (pdf)

Download a message from Vice President Al Gore (pdf)

Foreword

We sponsored this joint report by the Alliance for Climate Protection and the Center for American Progress, based on analysis by Climate Advisers and Project Catalyst, to help convey an important truth: the United States must find the political will to lead on international climate finance, and doing so is possible despite current economic and political conditions.

While the past two years have brought many ups and downs in international and domestic climate policy, one of the most promising developments was the acceptance by all major economies of the scientific consensus that the world must limit global warming to no more than 2 degrees Celsius (3.6 degrees Fahrenheit) above pre-industrial levels. For the first time the world has an enduring measuring stick against which to gauge progress. Another positive development has been that all major economies for the first time have outlined the emissions reductions they plan to achieve through 2020. A review of these commitments shows that some nations are already taking impressive action, others have promised new measures, and still others are doing and planning very little. Despite this diversity, these pledges provide a starting point for a truly global effort.

We must acknowledge, though, that recent events in the United States have been deeply disappointing to all those at home and abroad who seek American leadership on climate change. Climate legislation collapsed in the U.S. Senate, and the results of the recent midterm elections appear to have taken the most promising solutions off the table for the time being. Nonetheless, it is clear that the Obama administration is pursuing policies and programs that can help mitigate U.S. emissions—including efforts to improve vehicle efficiency, clamp down on old, highly polluting coal power plants, invest in renewable energy technologies and regulate greenhouse gases under the Clean Air Act. In addition, the United States is currently on track to deliver over $4 billion in “fast start” climate financing for developing countries. However, these efforts will not be sufficient to meet the United States’ share of a global effort, even if the measures are enough to fulfill the U.S. pledge under the Copenhagen Accord. And even while many U.S. states are moving forward with their own policies to curb climate pollution, overall, the sum of all U.S. policies will not protect vital U.S. and global economic, security, public health and environmental interests in the face of ravaging climate change. We are therefore deeply concerned about the inability of our nation to come to terms with the enormity of the climate crisis and mount an ambitious, comprehensive response. This failure has many causes, from the influence of polluters and corporate special interests in U.S. politics to the aftermath of the recent recession. Even in the face of these unavoidable political realities, we believe the United States can reduce emissions well below current levels by 2020 if it aggressively pursues a mix of climate and energy policies.

From the data presented in this report, however, we know that even if all countries meet their existing emissions mitigation pledges for 2020, a substantial gap will remain between these emissions reductions and the reductions needed to limit climate change to 2 degrees Celsius. In fact, if countries only achieve the low end of their proposed policies, the world still will need to avoid an additional 6.5 billion tons of carbon dioxide per year by 2020, more than current total U.S. energy sector emissions. The questions at the forefront of our minds, then, are where should the world go from here and how can the United States do its part?

After taking a hard look at the data, the authors of this report conclude—and we agree—that the United States and other developed nations must partner with developing nations, particularly major emerging economies, to help them implement additional strategies for low-emissions development. These would be new initiatives to grow their economies, increase efficiency and security, reduce greenhouse gas emissions, and improve resilience to climate impacts—all through collaboration that will require leadership from a broad range of public and private actors.

This report explains why such a partnership is in the vital national interests of the United States—including to help close the competitiveness gap with China and other countries over clean energy technologies—and provides a blueprint for U.S. action in the near-term through 2015. Engaging other nations, particularly developing countries, will require new U.S. investments in international climate finance. Mobilizing new public and private resources in the near term will not be easy, but this report shows that it will not be impossible either.

Make no mistake: our purpose is not to shift the burden of emissions reductions to developing nations that have done less to cause the climate crisis, have the least capacity to respond, and are the most vulnerable to climate impacts. The United States and other developed nations must do their part at home. But we also must internalize the political reality that U.S. domestic emissions reductions will not be sufficient in the near term and that our nation has to find other ways to contribute to an effective global effort. To that end we must expand our work to support other nations that are making good-faith efforts to reduce their emissions.

Importantly, all “climate hawks”—the ever growing circle of civic, health, educational, business, foreign policy and national security leaders, international development advocates, faith communities and environmentalists who understand why strong climate policies are essential—must take responsibility for building the political will needed to turn this blueprint for U.S. action on international climate finance into a reality. A sustained and coordinated public education and advocacy effort will be essential to eventual success.

The authors of this report are Andrew Stevenson and Nigel Purvis from Climate Advisers, Claire O’Connor from the Alliance for Climate Protection, and Andrew Light from the Center for American Progress. We are grateful for the persuasive case they have made for U.S. leadership on international climate finance and their insightful policy recommendations.

Maggie L. Fox is the President and CEO of the Alliance for Climate Action, John D. Podesta is the President and CEO of the Center for American Progress, and Nigel Purvis is the President and CEO of Climate Advisers.

Summary for policymakers

The vital national interests of the United States require our nation to forge a global partnership with developing nations to accelerate their climate actions through new international investments in clean energy technologies, energy efficiency, tropical forest conservation and climate adaptation. This report by the Center for American Progress and the Alliance for Climate protection, based on analysis by Project Catalyst and Climate Advisers, identifies a plan for U.S. leadership on a global climate investment strategy in the near term, 2013-2015, and breaks down how much money will be needed from developed countries to achieve emission reductions in particular sectors in developing countries. We assess the difficult political climate in the United States and make the case for the feasibility of this effort.

New U.S. investments in financing international climate action will yield many benefits including:

  • Increased competitiveness with China and other trading partners by U.S. firms, helping them capture a substantially larger share of global clean energy markets—worth $2 trillion annually and rapidly growing
  • Reduced risks of climate-related national security threats, including from severe floods or droughts in Pakistan and the Middle East
  • Stronger relationships with key strategic allies and major emerging economies, such as Indonesia, India, and Brazil, that will enhance America’s ability to build global coalitions on security and economic policy and advance democratic ideals
  • Billions of dollars in reduced climate impacts in the United States, including on U.S. coastal infrastructure and farmers
  • Improved energy security and lower energy prices for traditional fuels

The need for action

All major nations—including China, India, and other emerging economies—have agreed to limit global temperature increases to 2 degrees Celsius (3.6 degrees Fahrenheit) above pre-industrial levels. Scientists concur that this is the maximum level of warming allowable to stand a good chance of avoiding dangerous and potentially catastrophic climate change.

Spurred in part by the creation of the Copenhagen Accord, all these major carbon emitters have outlined and begun to implement emissions reduction policies through 2020 toward the global temperature objective. But more ambitious climate actions are needed worldwide—a gap of 6.5 billion tons of carbon dioxide per year exists between the low end of possible emissions reduction outcomes through 2020 from countries’ unconditional pledges and existing policies, and the necessary emissions reductions by that date to place the world on a pathway to reaching the 2 degree objective. With the collapse of comprehensive climate legislation in the United States and significant gains by climate skeptics in U.S. midterm elections, domestic climate champions and the international climate community wonder whether the United States can still lead.

The United States can restore its international credibility and help to close more than half the gap in global climate ambition by leading a new international partnership to scale up emissions mitigation measures of developing nations. The partnership must supplement, not become a substitute for, far stronger domestic policies to reduce U.S. emissions. This international partnership will require combining technical expertise, innovative thinking, political determination, and, importantly, new financial resources to help reduce the costs of green growth and low-emissions development in developing nations.

The need for climate finance

The Copenhagen Accord established a “fast start” financing goal of $30 billion to flow from developed to developing countries by 2012. In turn it identified the need for the establishment of a climate fund with aim of mobilizing $100 billion annually by 2020. We argue that an additional capital investment of incremental financing is needed of about $60 billion per year by 2020. Billions more in additional financing also will be needed for climate adaptation. Compared to annual spending by major economies on fossil fuel subsidies ($312 billion), energy ($5 trillion), and infrastructure ($7 trillion), these sums are small.

The world will need to draw on a variety of existing and new sources of finance to meet these investments, including public budget resources, carbon markets, development bank lending, and private financing. A recent high-level report commissioned by the United Nations secretary general described the task of mobilizing new international resources for climate finance as challenging but feasible in view of global economic and political conditions.

Efforts to mobilize new international climate financing could be delayed by differences among countries about the ideal mix of public and private investment. Thus, while working toward consensus for 2020, countries should set global funding goals for each of the following four sources: public funding, private investment, multilateral development bank lending, and carbon markets.

To develop a strategy for success, the world and the United States should focus on concrete objectives for near-term progress (2013–2015) while ensuring international climate goals are consistent with economic as well as political realities and aligned with broader economic, national security, and foreign policy priorities.

Policy recommendations

The United States should work collaboratively with other nations to ensure the following actions happen at the global level:

  • Developed nations should deliver on their fast-start financing pledges for the period 2010–2012, as announced at the 15th U.N. climate summit in Copenhagen in 2009. More specifically, nations should provide a combined $30 billion in total international climate financing from public sources over this period. Analysts estimate that current global pledges total about $28 billion.
  • To build on the fast-start period and make concrete progress toward longer- term goals, countries should create a new 2013–2015 ramp-up period for international climate finance. Countries could structure this period around helping developing nations achieve the following concrete objectives in line with the global 2 degree temperature goal:
    • Build an additional 125 gigawatts of low-carbon power above business as usual, reducing emissions by 400 million tons per year
    • Improve energy efficiency by an amount equal to 4 percent of business-as-usual energy consumption, reducing emissions 1.4 billion tons per year
    • Limit emissions from land use by reducing deforestation 20 percent below recent levels by 2015, planting new trees and improving agricultural processes, lowering net emissions by 2.0 billion tons per year
    • Address adaptation needs by ensuring every country achieves at least a minimum level of climate resilience

While creating these new mitigation and adaptation goals for a 2013–2015 ramp-up period, countries should evaluate international financing needs, develop a process for identifying and agreeing on new sources of domestic and international financing, and set a deadline for countries to outline how they plan to contribute. Based on our analysis, the following resources are needed to achieve the interim goals listed above, constituting significant yet realistic increases in public and private investment compared to existing levels:

  • Public financing: $15 billion in 2013, increasing to $25 billion in 2015
  • Carbon markets: $5 billion to $10 billion in 2013, increasing to $10–$20 billion in 2015, primarily from nations with existing cap-and-trade systems
  • Development bank lending: $10 billion to $15 billion in 2013, increasing to $15 billion to $20 billion in 2015
  • Private financing: $40 billion to $120 billion in 2013, increasing to $60 billion to $160 billion in 2015

Countries should not only pursue this global partnership through international climate negotiations, but also with equal vigor through parallel and complementary vehicles, such as bilateral and regional partnerships as well as other flexible multicountry initiatives. The United States should give special attention to creating new mechanisms for international transparency to ensure accountability and verify results.

Financially, the United States should contribute to this vital global partnership in the following ways:

  • Deliver its fair share of fast-start funding—approximately 20 percent of the global total, or a combined $6 billion over three years. Doing so will require a substantial increase in international climate programs in 2012 over 2010 levels.
  • During the interim 2013 to 2015 period, the United States also should assume responsibility for mobilizing an average of 20 percent of public and private resources needed to achieve the climate goals outlined above. For public funding this would amount to $3 billion in 2013 and $5 billion in 2015, compared to roughly $1 billion in 2010.
  • The United States should use some of this new funding to launch three to five new bilateral climate partnerships with key strategic allies, such as Indonesia and India, backed by U.S. financing of at least $500 million each.
  • The United States should also spearhead an effort to increase multilateral development bank lending for renewables and energy efficiency to $15 billion to $20 billion per year by 2015, subject to the World Bank and other institutions aligning existing lending with climate objectives.
  • To advance these goals and safeguard the competitiveness of U.S. aviation and shipping carriers, the United States should work proactively with major trading partners to avoid unilateral taxes by other nations on U.S. carriers, including through new international agreements and sensible U.S. policies that mobilize international climate financing.

Andrew Light is a Senior Fellow and Coordinator of International Climate Policy at the Center for American Progress.

Listen to a press call on the report with Maggie L. Fox, John Podesta, and Nigel Purvis (mp3)

Read the full report (pdf)

Download the summary for policymakers (pdf)

Download the foreword by Maggie L. Fox, John D. Podesta, and Nigel Purvis (pdf)

Download a message from Vice President Al Gore (pdf)

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