European Capacity Building Initiative

The Paris Predictability Problem: What to do about climate finance for the 2020 climate agreement?

Having been established more than a decade ago to address the urgent and immediate needs of the Least Developed Countries (LDCs) especially vulnerable to the impact of climate change, the Least Developed Countries Fund for Climate Change (LDCF) still struggles to obtain adequate and predictable funding. The Global Environment Facility, the operating entity of the LDCF, has been unable to program LDCF resources at the level of around US$200 million per year, as proposed in the Programming Strategy for the LDCF.

More generally, this Think Piece by Benito Müller argues, a success at the UN Climate change summit Paris in December will require a significant finance package which is not ad hoc, but rather provides genuine longer-term predictability. In addition to using the proceeds of new international market mechanisms, we think there is also a need to look at innovative sources at the national and sub-national level.

At present, the most promising candidate in this respect is the proposed EU Financial Transaction Tax, aimed to enter into force by the end of the year, with an estimated annual revenue of ?37 billion, earmarked for development aid, fighting epidemics and climate change.
However, there are other, sub-national options that need to be explored, in particular where national options are politically unrealistic or insufficient. California could thus decide to use part of the revenue from auctioning allowances for its emission trading scheme. Over the last couple of years this revenue has been steadily increasing to a level (over $1bn in FY14-15) where it might well be politically feasible to use part of it to cover a significant share of the $200 million per annum considered to be the strategic resource requirement of the LDCF.

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