The EU is prepared to put up to 30% of the money required at global level to finance an ambitious post-Kyoto climate treaty and overcome the current standoff in the negotiations, a draft European Commission document shows.

The paper outlines the financing needs of developing countries for climate change mitigation and adaptation and sketches out a scheme of how the burden might be shared among developed countries. The Commission plans to present the paper in the coming days, possibly as early as 10 September.

International negotiations currently appear to have reached an impasse, the draft said, adding that a step-by-step approach to scaling up finance could help make progress.

The draft evaluates the needs of developing countries for additional climate change financing, excluding any contributions from the carbon market, to €66-€80 billion annually by 2020. Out of this, adaptation costs would be in the range of €10-€24 billion while mitigation would require around €56 billion.

The calculations are based on the presumption that the international community reaches an agreement on an ambitious new climate treaty, requiring developed countries to cut their emissions 30% below 1990 levels by 2020. Developing countries on the other hand would be expected to lower their emissions to 20% below this baseline by 2020, four points of which would be reductions paid for via the international carbon market.

The Commission estimates that industry and power plants would account for €33 billion of additional mitigation costs, agriculture €5 billion and slow tropical deforestation €18 billion.

Over and above this public funding, the international carbon market would provide an annual €38 billion by 2020, according to the paper.

EU to become largest contributor
The draft also sets up scenarios of how much each developed country should contribute to the public funds, based on their GDP and greenhouse gas emissions. It puts Europe's likely contribution somewhere in the range of 20% and 30%. "The EU's 'fair share' of international financial flows under a global contribution key that included both GDP and greenhouse gas emissions would be unlikely to exceed 30%," the paper states.

This is the first time that the EU has offered a concrete definition of "fair share", which has been used loosely in previous ministerial meetings' conclusions. For example, under the least favourable scenario for the EU, where greenhouse gases are weighed by 10% and GDP by 90%, the EU would deliver 30.4% of the financing while the US would pitch in with 24.2%.

The draft stresses, however, that the scenarios represent an "upper bound" for international public finance, which would be mainly used to enable the development of the international carbon market to leverage "much larger flows of private capital".

"A sizeable part of these costs actually constitutes own appropriate action that can be undertaken by leveraging private finance in developing countries," it states.

Moreover, the Commission proposes to take countries' emissions reduction targets into account when determining its share of overall public financial flows. Nations with more ambitious emissions reduction targets are likely to make better use of the international carbon market, leading to higher flows from the private sector, it reasons.

Where should the EU contribution come?
The draft suggests that the EU's contribution to climate funding would come from a mixture of revenues from the EU emissions trading scheme (EU ETS; see EurActiv LinksDossier) and "innovative sources".

The Commission estimates that the EU ETS would bring in €15-€40 billion a year from 2013, depending on how the allowance prices develop. The revised directive urges member states to spend at least 50% of their revenues on efforts to combat climate change, but there is no legal obligation for them to do so.

In addition to funds from national budgets, international shipping and aviation could be tapped into by obliging them to buy emissions permits or by using levies on bunker fuels, the draft says.

The paper also presents a contribution key, detailing how individual EU member states would chip in to pay for Europe's share.

One of the reasons talks on financing have been blocked within the EU is over concerns about how the burden of any EU pledge would fall on different member states. Poland, in particular, is insisting that a burden-sharing key within the bloc should be produced before any money is put on the table (EurActiv 10/03/09).

Applying a global distribution key with a weighting of 90% GDP and 10% emissions, the EU would contribute €287.8 million per every billion agreed globally, the draft says. The biggest burden would fall on the largest Western member states, Germany (€57.96 million), the UK (€46.60 million) and France (€43.52 million).

Although simply using GDP as a basis for the calculation would increase the EU's overall contribution, Eastern European member states would actually be better off under such a scenario.

"As these are among the poorer member states, it could be seen as fair to establish some form of internal redistribution, to at least ensure that no member state would be left worse off if the EU were to accept such a key," the draft states. It adds that such redistribution would amount to less than 1% of the total EU contribution, while the net reduction of the EU's contribution compared to a GDP-only scenario would be 16%, making the trade-off worthwhile.

(Euractiv, 08/09/2009)