New model for climate funding - The Mexican-Norwegian Proposal

Norway and Mexico launch a joint model to provide predictable funding for climate actions in developing countries, starting in 2013.

Norway and Mexico join forces and propose a model for climate funding at the negotiations in Copenhagen. The model establishes a Green Fund for financing of climate actions in developing countries.

Contributions to the Green Fund should come both from public budgets and from auctioning of emission allowances. According to the proposal, the scale of the Green Fund could start around 10 billion dollars per year by 2013 and increase to 30-40 billion dollars by 2020.

Mexico's President Felipe Calderón (photo above) and Norway's Prime Minister Jens Stoltenberg "hope that through our joint proposal we can help develop a funding model everyone can endorse," they say in a common statement.

"To achieve an ambitious outcome in Copenhagen, it is crucial that we reach an agreement on financing climate actions in developing countries," they say.

Both countries find the resources so far raised for funding climate actions in developing countries inadequate. At an earlier stage in the negotiations both Norway and Mexico tabled proposals that could give increased predictable funding for climate actions in developing countries. The new model combines these proposals.

Norway's proposal is a model where a certain percentage of the total UN-allowances should be set aside for international auctioning to finance climate actions in developing countries. Mexico has proposed to establish a Green Fund that draws funding based on each country's emissions, GDP and population. The joint model uses both sources of income.

"In order to raise an adequate amount we will combine complementary sources of financing. This money should both finance adaption and mitigation efforts in developing countries. Financing should be based on results," Calderón and Stoltenberg say, according to a press release.

THE JOINT MODEL 

To achieve an ambitious outcome in Copenhagen financing will need to be scaled up significantly and urgently, starting fast and rising over time. Mexico and Norway now launch a joint model (see chart) that has the potential for substantially increasing the amount of predictable funding available for climate change actions in developing countries, enabling developing countries to move towards a more climate resilient development path. The goal is to establish the Green Fund by deciding on the framework during the ongoing Copenhagen climate summit.

SCALE AND FINANCIAL SOURCES

Box A – Agreed scale of comparable and predictable funding

• The objective of the model is to enhance the certainty and predictability of climate finance and guarantee the availability of adequate and sufficient resources. As an indication, the scale of the Green Fund could start at around 10 bn USD per year in 2012 and increase to 30-40 bn USD in 2020. Contributions to the Green Fund may come from different complementary sources of financing: budget funding, international and domestic auctioning of allowances, and other comparable sources, and should go to both mitigation and adaptation efforts. Because the value of the allowances would depend on market prices, there is some uncertainty about the level of annual contributions from allowance auctioning. However, the uncertainty would be substantially reduced by establishing a buffer between auctioning and disbursements.

Box  B – Budget funding/ other methods

• Budget contributions that are decided according to a scale based on responsibility (emissions) and capability will go strictly to result based mitigation actions in developing countries. All countries would contribute except the least developed, and developing countries would be net beneficiaries.   
• Countries may also use other methods to raise comparable levels of budget funding.

Box C- International Auctioning

• When countries - as part of a UN climate agreement - set a limit on their emissions of greenhouse gases, emission allowances become valuable. These allowances - or assigned amount units (AAUs) - may be seen as the collective property of the parties to the agreement. To increase the scale of the Green Fund, Mexico and Norway propose to set aside a certain proportion of the total UN-allowances for auctioning at the international level to support both mitigation and adaptation efforts with fixed percentages for each.

Box D- Auctioning – countries with non-Kyoto like commitments

• Countries without Kyoto-type commitments (UN allowances), which have national cap and trade systems and have facilitated auctioning for international purposes through national legislation, may also contribute to the Green Fund through auctioning of national allowances.

CLIMATE ACTIONS

 Box E – Result based mitigation actions/ REDD+

• Funding for mitigation actions, including REDD (Reduced Emissions from Deforestation and Degradation), should primarily be delivered through result based mechanisms, for fully additional verified emission reductions relative to predetermined agreed reference levels. Such incentives would allow further actions from developing countries based on the number of tons of emissions either avoided or captured. Developing countries would be expected to mobilize domestic resources to help finance efforts in their own countries, subject to their respective capabilities.  

Box F – Adaptation actions

• In the area of adaptation the most vulnerable countries will be given priority, as well as the least developed countries and small island developing states.

Box G – Governance

• The Green Fund should have a high-level board under the policy guidance of, and accountable to, the Conference of the Parties, with equal representation of developed and developing countries, and an equitable, efficient and transparent governance structure.

• To ensure rapid start-up and efficiency, the administration of the Green Fund could be entrusted to an existing international financial institution that could deliver funding in partnership with domestic and international public and private financial institutions.