Tackling climate change: How to ensure the necessary finance flows


United Nation Climate Change Conference (COP 16)

Remarks by Angel Gurría,OECD Secretary-General

08 December 2010, Cancun, Mexico

Ministers, Ladies and Gentlemen

We are running out of time. We cannot afford to delay action on climate change. The costs and consequences are simply too high for our economies, our people and our environment.

We must press ahead with our measures to tackle this peril. Countries need to be ambitious in taking unilateral actions, while at the same time pushing forward with the multilateral negotiations. At the OECD, we are convinced that bold country initiatives and a drive for international cooperation, will foster the inclusive action we need to address this tremendous challenge.


We can afford the necessary action!


One of the biggest issues in addressing climate change is ensuring the necessary finance. This is still a difficult issue in Climate Change discussions. However, today we know that we can afford the necessary action. A cost-effective approach to reducing emissions could cost just a fraction of a percentage point of GDP per year. Let me share a few thoughts on this with you.

The Copenhagen Accord set out ambitious goals to provide developing countries with climate change financing in the short and medium terms. Developed countries agreed to provide new and additional resources approaching $30 billion over 2010-2012, balanced between climate adaptation and mitigation. They also established a longer term goal of $100 billion per year by 2020 drawing from both public and private sources.

Public finance for climate change will still need to be scaled-up to achieve these goals. This will not be easy, particularly given the tightening of government budgets coming out of the crisis, but it is possible. 
For example, OECD estimates that if the industrialised countries use carbon taxes or emission trading schemes with auctioned allowances to achieve their Copenhagen targets, they could potentially raise about 1% of GDP ($ 400 billion) in revenues per year by 2020. There will be competing uses for such proceeds - including fiscal consolidation objectives in many countries – but even a fraction of this amount could help achieve the long-term climate finance goals.

While scaled-up finance from developed countries is needed, there are also opportunities to raise domestic finance in developing and emerging economies. Many emerging and developing countries listed specific actions they will take to tackle climate change in the Copenhagen Accord Appendix, and many of these are very ambitious. Domestic climate policies will be needed to achieve these, and market-based instruments are a “first best” choice, such as cap-and-trade schemes and carbon taxes. 

OECD analysis shows that such policies are low cost, spur innovation, and can help raise revenues for the government to tackle other pressing challenges (poverty reduction, health, education).

Another, often overlooked option is cutting fossil fuel subsidies that work against climate objectives. Subsidies to fossil fuel consumption in developing and emerging economies amounted to about $ 300-550 billion per year. These subsidies are often more beneficial to wealthier people, who are more likely to drive and use electrical appliances.

OECD analysis finds that removing these subsidies can increase economic efficiency in these countries, reduce the heavy burden these subsidies place on government budgets and cut GHG emissions by 10% in 2050 compared with business-as-usual. This win-win outcome is one of the reasons that G20 Leaders are considering this policy reform as a priority today.


Private investment will be key!


We know that a large part of the financing will need to come from the private sector shifting private investment patterns. The private sector has the greatest potential to finance action on climate change. Private investment flows stimulated by the carbon offset market are already large – estimated to be 1.5 to 4 times greater than public finance in recent years.

There is also a need to scale-up private investment in low-carbon technologies, including through better incentives. A new OECD book “Transition to a Low Carbon Economy: Public Goals and Corporate Practices” identifies significant front-runner action in the private sector and explores what motivates companies to act. 

At a minimum, public policy frameworks are needed to help bring laggards up-to-speed, while enabling front-runners to capitalise on their efforts. Without clearer policies, there is a real danger of “rollback” by front-runner businesses.  


The OECD is ready to monitor climate financing


The second part of our discussions today will focus on monitoring climate finance. It is absolutely essential that we carefully track the various finance flows in a transparent and consistent manner, to ensure they are in fact delivered and that they are used effectively.

The OECD has been tracking international climate change aid flows since 1998, with the bilateral aid amount reaching $8.7 billion in 2008. This system is now also tracking finance for adaptation. We are working closely with multilateral donors, including the World Bank, to fully integrate their climate aid flows into the system.

Building on this experience, we are also looking at how to track low-carbon foreign direct investment (FDI) and low-carbon export credits. Good data on the full range of flows will help us see which policies are really effective. We hope that this system, and the experience we have gained developing it, will be important inputs to the UNFCCC work to measure, report and verify climate financing.

The OECD will continue working with governments and other stakeholders to improve the long-term effectiveness of climate change finance, and to track this finance to ensure transparency.