Public Financing or Offsets? How Best to Fund Clean Tech for Developing Nations

The International Energy Agency states in its 2008 World Energy Outlook that global energy demand will likely increase 45% by 2030. Developing countries led by China and India will account for 97% of the related rise in carbon dioxide emissions, and by 2030, they will supply 67% of the energy-related CO2 that enters the atmosphere.

Using 450 atmospheric parts per million (ppm) of CO2 as the ceiling for effective climate change mitigation, the Energy Outlook concludes: 

[Developed] countries alone cannot put the world onto a 450-ppm trajectory, even if they were to reduce their emissions to zero.

In post-Kyoto negotiations, developed and developing countries have generally split on what the world should do about this fact. While there is a consensus that the CO2 footprint of economic growth must be greatly reduced, the sides differ on how the costs of this makeover should be divided.

Both Japan and Canada, for instance, in proposals for the December UN climate treaty negotiations in Copenhagen, ask the more advanced developing countries to accept 2020 CO2 reduction targets — and so some of the economic burden.

China, calling developed nations the historic cause of climate change, instead asked them to bear nearly all of the near term costs of mitigation, by reducing their CO2 40% below 1990 levels by 2020. Todd Stern, the lead U.S. negotiator, calls this target politically impossible, domestically (as it would quickly raise energy prices steeply) and so a “prescription for stalemate.”

Yet, echoing China, India's negotiating position is that:

Developing countries may, on a voluntary basis, propose mitigation actions ... provided full costs are met by developed countries.

In the face of this conflict, it helps to remember that the practical means of mitigation have largely been worked out in the decade Kyoto has been in force. A low carbon energy platform, suited to developed countries and more advanced developing countries, is beginning to deploy:

• Demand-side efficiencies gained through weatherization and lighting improvements and then by giving consumers behind the meter controls.

• Supply-side efficiencies wrung from power grids by adding real time controls and modernized transmission and distribution systems.

• Transportation efficiencies gained by switching out petroleum for electrical power, biofuels, and digital controls.

• Power grids switching out their primary feedstocks of carbon-heavy coal for renewable portfolios as well as (perhaps, later) nuclear energy and decarbonized coal.
With this mitigation platform in view, the issue becomes how to fund what is largely technology capacity building and deployment in developing countries.

Accepting, as has been done since Kyoto, that developed nations will for a long time bear the brunt of mitigation costs (regardless of when and to what degree developing nations come to accept climate change responsibilities), two funding models have emerged.

In one model, the taxpayers of developed nations (to be blunt) provide the capital. In the other, private funds raised in emissions markets supplement this public sector funding. It seems useful to ask which of these models can, decade after decade, best succeed.

A $100-200 Billion Transfer of Wealth

A 2009 Institute for Public Policy Research (IPPR) study, “Fairness in Global Climate Change Finance,” calls the various estimates of incremental mitigation costs in developing countries that it has surveyed unsatisfactory, due to the many unknown variables. It finds, though: