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Commission assesses feasibility of plans to scale up financing of climate actions in developing countries

08.04.2011 - The European Commission today published a Staff Working Document, which confirms that although raising USD 100 billion per year by 2020 will be challenging, it can be done.

The report stresses that the right balance needs to be struck between public funding, funding raised from international carbon markets, and private funds, partly leveraged by development banks. Climate funding will need to be closely linked with development aid and it will require strong international coordination to ensure that money is provided and spent efficiently.

Potential sources of finance

This assessment is based on the report by the UN Secretary-General’s High-level Advisory Group on Climate Change Financing (AGF), which was presented in November 2010. It broadly confirms the report's overall conclusion that it will be "challenging but feasible" to meet the goal of mobilising USD 100 billion per year by 2020. Several of the public sources related to carbon pricing assessed in the AGF report are already in place in the EU or will be used increasingly in the coming years. Other public sources, such as taxes on international maritime and aviation transport, or on financial transactions, would require enhanced global cooperation.

The carbon market can deliver a substantial contribution if, in addition to improvements in the existing Clean Development Mechanism, sectoral carbon market mechanisms are introduced. Private finance will play a key role in scaling up international climate finance. Multilateral and other development banks can further leverage these sources of climate finance.

How to make the most efficient use of climate funds

The assessment also examines how to ensure that funds raised and channelled to developing countries can be spent wisely within a sound governance framework, which ensures an efficient implementation of scaled up climate finance. Since the implementation of climate finance in developing countries will be closely linked to development aid, a maximum of coherence between these flows must be provided to avoid inefficiencies.

Strong international and European coordination will be required on various issues of governance and delivery. It must ensure that the burden is shared fairly between developed countries, set out how quickly funding will be scaled up between 2013 and 2020, and define the measurement, reporting and verification ("MRV") of financial flows. The role of the EU budget after 2013 in channelling EU climate finance to developing countries will have to be considered.

Next steps

In the international climate negotiations in Cancún in December 2010, developed countries committed themselves to a goal of jointly mobilising USD 100 billion per year by 2020 to address the needs of developing countries if they take transparent and meaningful action for reducing emissions. The Economic and Financial Affairs (ECOFIN) Council invited the Commission to prepare a detailed analysis setting out the key elements needed to deliver on this commitment. The Joint EFC/EPC Working Group on International Financial Aspects of Climate Change will further discuss this issue and report to ECOFIN ministers.

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