Center for American Progress

Climate Finance Is Key to U.S. Climate Credibility

Climate Finance Is Key to U.S. Climate Credibility

Continued Funding Is Necessary for American Security and Stability

Andrew Light, Rebecca Lefton, and Adam James explain why developed countries such as the United States need to keep climate aid flowing to get climate change under control and maintain their credibility at international summits.

A protester rests next to his banner in Durban, South  Africa, on November 29, 2011, on the second day of the two-week U.N.  climate conference. Consistent funding for developing countries to adapt to climate change will be critical over the next decade. (AP/Schalk van Zuydam)
A protester rests next to his banner in Durban, South Africa, on November 29, 2011, on the second day of the two-week U.N. climate conference. Consistent funding for developing countries to adapt to climate change will be critical over the next decade. (AP/Schalk van Zuydam)

See also: China Arrives in Durban Greener than Ever by Melanie Hart and What Needs to Happen at the Durban Climate Conference by Andrew Light

For the rest of this week, 194 parties will continue the 17th meeting of the Conference of the Parties of the United Nations Framework Convention on Climate Change, the United Nations’s annual climate summit, held this year in Durban, South Africa.

As the United States pushes its views on the various parts of the agenda in Durban on a vast array of topics involving international cooperation on mitigation and adaptation to climate change, its credibility is defined by two things: first, its track record so far in reducing its own emissions—as partial proof of how seriously it takes its commitment to resolving this global problem—and second, its contribution to assisting poorer countries to reduce their emissions where the biggest growth in emission will occur in the coming decade.

The United States has provided significant funding for climate mitigation in developing countries so far and should continue these commitments even amid debates over the U.S. federal budget. In addition to playing our part in curbing dangerous climate pollution, expanding our commitments on international climate finance will also enhance our national security, create jobs, and secure our relationships with some of our most important allies, as we detail below.

A key piece of this funding going forward will be our contribution to a new Green Climate Fund that will be the key component of an effort to mobilize $100 billion in public and private climate finance annually by 2020. On the road to creating this fund the United States should continue its commitments to international climate finance and cooperate with other parties on expanding this funding in the near term.

Climate finance equals climate safety

Providing climate finance, and building on it in the future, is necessary for any hope of achieving climate safety.

In a variety of international summits, including the G8, Major Economies Forum, and the United Nations Framework Convention on Climate Change, or UNFCCC, world leaders agreed on the goal of limiting average global temperature increase to 2 degrees Celsius above pre-industrial levels. Experts agree that greenhouse gas emissions must be cut in half by 2050 to have any chance of limiting temperature increase at 2 degrees, which is the level necessary to avoid the worst impacts of global warming.

A big part of achieving these reductions is lowering emissions in developing countries. Because larger developing countries are growing faster and building infrastructure to accommodate a growing middle class, those parts of the world will emit significantly more greenhouse gases as time goes on. The most recent analysis from the Energy Information Agency shows that the Asia and Oceanic region of the world is now emitting twice as much carbon dioxide as North America.

Developing countries made a pledge in 2009 at the G8 summit in Italy to reduce their emissions 80 percent by 2050. The difference between a world where the major developing carbon polluters get a jump start on reducing their emissions at a slower but nonetheless comparable pace and a future where they wait longer to reduce their emissions is vast. Climate finance helps these countries take the necessary steps to get started.

According to analysis from the Environmental Protection Agency, if developing countries were to cap their emissions at 2025 and return to 26 percent below 2005 by 2050 (the “full participation” scenario in the figure below), then, combined with such aggressive action by developed countries, we would have a 75 percent chance of stabilizing temperature increase at 2 degrees Celsius. If instead developing countries only hold emissions in 2050 at 2050 levels (the “developing country delay” scenario) we will only have an 11 percent chance of holding temperature increase at 2 degrees.

probability of temperature changes

In light of this analysis, developed countries must make substantial investments in renewable energy and efficiency technologies, forestry, and resilience in developing countries in order to achieve climate safety. In a separate report with the Alliance for Climate Protection, the Center for American Progress estimates that half of the needed reductions from developing countries needed to get us on the more sustainable development pathway identified by the EPA will only happen if climate finance continues to flow through the decade.

Our current finance commitments

The United States and other developed countries committed to $30 billion in “fast start” financing for adaptation and mitigation in developing countries from 2009 to 2012 at the 2009 U.N. climate summit in Copenhagen. The impetus for this commitment was a promise the Bush administration made in 2007, when the UNFCCC met in Bali, Indonesia, that developed countries would provide “enhanced action on the provision of financial resources and investment to support action on mitigation and adaptation and technology cooperation” to developing countries in the face of the threat of climate change” (Bali Action Plan, section 1e).

While the United States did not commit to a specific dollar figure as part of the fast-start pledge, U.S. negotiators in Durban are defending their contribution so far to this initial fund as $5.1 billion in both development finance and funding from our export credit agencies.

Our investments so far are commendable. They need to be continued, though, not only for the benefits they bring abroad but also because they help to promote our national security, create jobs, and secure American leadership abroad.

Investments in climate aid are cost effective and promote national security

Investments in adaptation and mitigation help save money by reducing the overall impacts of climate change.

It is well understood that the physical and economic toll of climate-change-related disasters is nothing short of devastating. As the United Kingdom’s Stern Review argued, the economic impact of climate change is equivalent to losing 5 percent of GDP per year, every year.

It is also a high priority to decrease the risk of climate-related national security threats such as preventing the severe floods or droughts in Pakistan and the Middle East that could radically destabilize the region.

In turn, climate finance is also a high-impact investment. The World Bank and U.S. Geological Survey estimate that investing $1 in disaster risk reduction saves $7.

But what makes these investments even more cost effective is that emission reductions are cheaper in developing countries than they are in developed economies, and they will yield significant co-benefits including decreasing premature morbidity and mortality by decreasing co-pollutants that are emitted as a byproduct of burning fossil fuels for energy.

Finally, these investments have a powerful ability to leverage private capital if structured properly. As the U.S. Senate prepares to take up the Foreign Operations Appropriations Bill from the House of Representatives it must decide on the House’s proposed cuts of such programs as the Tropical Forest Conservation Act, which finances “debt-for-nature” swaps that allow developing countries to relieve debt owed to the United States by conserving and protecting forests. This program is projected to generate $266 million in private capital for tropical forest conservation as of December 2010.

International climate finance will create economic growth and U.S. jobs

Climate finance creates jobs and opportunities for innovation that America should not ignore in particular if assistance is in part channeled through our export credit agencies.

For instance, the United States can tap into what HSBC projects to be a $2.2 trillion yearly clean energy technology market and meet the global demand for clean technologies by building a domestic market for U.S. companies in these industries and through cooperation with developing countries. The United States has a better chance of competing for these investments if it provides loan guarantees at the outset for such programs.

Of that market, the International Energy Agency concludes that infrastructure investment in developing countries will be around $20 trillion over the next 25 years—an additional incentive for providing loans to those countries that can mobilize private capital for infrastructure investments.

International climate finance is crucial to forging a global partnership with developing nations

There are also numerous indirect benefits to these targeted investments.

For one, they will help forge stronger relationships with key strategic allies and major emerging economies such as Indonesia, India, and Brazil, and enhance America’s ability to build global coalitions on security and economic policy.

Advancing democratic ideals by limiting the exacerbation of conflict from climate change impacts and stopping the flow of oil money that sustains hostile and undemocratic regimes is also a high priority for America’s foreign policy agenda. A global climate finance initiative could help to accelerate the transition away from oil that sustains the power of these regimes.

In addition, we stand to lose what will emerge over the rest of this decade as a race for climate finance competitiveness. Even though the British dramatically cut their budget in all government departments across the board to deal with their own budget crisis, they have committed to increasing their contribution to international climate finance out to 2015.

And even countries such as China, which are not bound to contribute to the $30 billion fast-start pledge, are contributing to climate adaptation assistance in countries throughout Africa. If the United States continues to slip in providing this assistance, which leaders of developing countries around the world have little doubt they need to survive and continue to grow in a warmer world, then the United States will find its alliances increasingly fragmented and its competitors increasingly influential around the world.

Looking ahead

Climate finance is an unrecognized lynchpin of the United States’s foreign agenda whether seen through the lens of security, aid, or our own economy. Maintaining funding through existing channels and continuing to explore new options will prove indispensable in the years ahead.

The need for us to continue and build on these commitments each year will only continue. At the U.N. climate summit in Cancun, Mexico last December all parties finally approved the creation of a Green Climate Fund capable of mobilizing $100 billion in public and private climate finance annually by 2020. This fund assures a continuing transition to the emission reductions we need in developing countries to have a chance at achieving climate safety.

Such a continuing revolving source of credit and finance is also the only way to provide a stable platform that will scale up the ability of private finance to eventually provide the bulk of the support for these investments. If the commitment to funding were spotty and unreliable from year to year then private financial institutions would not have the confidence to invest in clean energy, efficiency, and land-use-based projects into the future.

The administration cannot of course go it alone on guaranteeing this source of global assistance. Congress must also protect climate investments each year. Without it we will destroy our ability to share these commitments with other parties who would not be able to predict how much we could contribute to these efforts from one year to another. It would also destroy confidence in private investors who would need some support for investments in weaker financial markets.

As we argued in our previously mentioned report with the Alliance for Climate Protection, we must minimally aim to match our investments over the last three years out to 2015, and with cooperation from other donor countries, aim to increase our global goal to $60 billion during this period.

Financial stability for a global economic investment in sustainable development is absolutely necessary to solve the problem before us. The international affairs budget makes up less than 1 percent of the federal budget. This is a small price to pay for a big return. The stakes are clear: Without continued climate finance for developing conditions we are risking both our children’s future and the welfare of people around the world.

Andrew Light is a Senior Fellow, Rebecca Lefton is a Policy Analyst, and Adam James is a Special Assistant, all specializing in international climate policy on the Energy team at the Center for American Progress.

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Andrew Light

Senior Fellow

Rebecca Lefton

Senior Policy Analyst

Adam James

Research Assistant

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