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SPEECH/ 09/380

Stavros DIMAS

European Commissioner for the Environment

Climate change: Commission sets out global finance blueprint for ambitious action by developing nations

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Press speaking points

Brussels, 10 September 2009

Good afternoon.

Today the Commission is putting forward a blueprint for scaling up international finance to help developing countries combat climate change.

The financing issue is central to prospects for reaching the ambitious global climate agreement that the world needs at the Copenhagen conference in December.

Let me start by underlining that it is industrialised nations which must lead the way in tackling global emissions of greenhouse gases. The European Union is pushing for a collective reduction in their emissions of 30% below 1990 levels by 2020.

Regrettably the emission targets our partners in the developed world have put on the table to date fall well short of what is needed. They add up to a reduction of only between 9 and 16.5%, even after the new Japanese government's pledge to increase their reduction to 25%, which I very much welcome.

It is therefore vital that some of our partners follow Japan's strong example and come forward with revised targets, so that the world can limit global warming to 2°C as agreed at the L’Aquila summit in July.

But controlling climate change will be impossible without efforts by developing countries as well, and particularly the big emerging economies. Developing countries' collective emissions are already bigger than those of the industrialised world if deforestation is counted, and they continue to grow rapidly.

If we are to prevent dangerous climate change - as we must - developing countries need to hold their emissions growth to between 15 and 30% below business as usual levels in 2020. This is what recent scientific analysis shows.

Clearly developing countries will need financial assistance to take the ambitious action needed and to adapt to the impacts of climate change, to which many of the least developed countries are particularly vulnerable

The EU has committed to providing its fair share of this financing. Now, with Copenhagen starting in less than 90 days, the Commission is fleshing out this commitment by putting forward a global blueprint which shows the order of magnitude of the finance that is likely to be needed to support an ambitious agreement.

In our analysis the finance for developing countries will have to come from three main sources:

1. The first is domestic public and private sources in developing countries themselves. For instance, a large part of the emission savings needed in developing countries can be achieved through improvements in energy efficiency, which are commercially attractive to domestic investors. We estimate domestic sources could provide 20-40% of the total financing needed by developing countries.

2. Second, the further development and expansion of the international carbon market will be critical to secure the resources needed for developing countries. The expanded carbon market should be the main source of private-sector finance to support their mitigation efforts.

We estimate the carbon market could generate financial flows to developing countries of up to 38 billion a year by 2020, or around 40% of the total financing needed.

However, this potential will only be realised if Copenhagen takes the necessary steps to create an ambitious carbon market for the future. This includes industrialised countries taking on a collective 30% emission reduction target and a sectoral crediting mechanism replacing the Clean Development Mechanism for competitive economic sectors in advanced developing countries.

3. Third, international public finance could contribute the remainder of the global funding needed.

Clearly there is a link between the amount of funding the carbon market will generate and the need for international public finance. The more ambitious the carbon market will be, the less need there will be for public finance.

Our view is that international public financing should be contributed not only by industrialised countries but also the more advanced developing countries.

We propose that contributions should be determined according to an agreed scale that would be based on two criteria: a country's level of emissions and its ability to pay. On this basis the EU's contribution will be between 10 and 30% of the total, depending on how the balance is struck between these criteria.

After 2012, developing countries' financing needs will rise progressively as they implement the Copenhagen deal and low-carbon growth plans. The level of funding required will obviously depend on how ambitious the Copenhagen agreement turns out to be.

If we assume the deal will be in line with the EU's position, we estimate that developing countries could need international public financing of around 9-13 billion euros in the year 2013. Based on the scale I’ve just mentioned, the EU would expect to contribute around 900 million to 3.9 billion euros of this amount.

Looking further ahead, we estimate that by the year 2020 developing countries’ funding needs for mitigation and adaptation will total just over €100 billion euros annually.

Of this, it is likely that between 22 and 50 billion euros will have to come from international public finance. An EU contribution of 10 to 30% means our share could be between 2 and 15 billion euros each year.

These represent significant contributions from the EU - but let me point out that in the coming years the auctioning of EU ETS allowances is likely to generate substantial and increasing revenues that could be used to cover at least part of this contribution. Under the terms of the revised emissions trading directive, at least half of the auctioning revenues should be earmarked for combating climate change domestically and internationally.

In addition to the three main sources of financing I have mentioned already, another potential channel is a global market-based instrument to address emissions from international aviation and shipping. A global cap and trade system or a levy on emissions could raise significant amounts of revenue.

We want to see these options explored further. However we recognise that reaching global agreement on such an instrument could be challenging.

Ladies and gentlemen, assuming an ambitious Copenhagen agreement is concluded it will be vital that extra funding for developing countries gets off to a fast start next year so they can start strengthening their ability to combat climate change as soon as possible.

We estimate that some 5-7 billion euros of additional financing from international public sources could be needed annually between 2010 and 2012.

Based on the common scale I have mentioned, the EU's contribution would be between around €500 million and 2.1 billion euros per year. However, the Commission proposes that the EU should consider increasing its share of funding beyond this range to reflect the importance of early capacity building and adaptation in developing countries.

Fast-start funding should come from a combination of the EU budget and Member State contributions.

After 2012, however, the EU’s contribution to international public finance is likely to come from either the EU budget or a special Climate Fund set up outside the budget, or a combination of the two. Whichever option is chosen will determine how the internal burden-sharing among Member States will be organised.

To conclude, with this blueprint the Commission is setting out the sources of finance and how to organise them, and indicating an ambitious and fair EU contribution to support developing countries in implementing an ambitious global agreement.

Our Communication gives a basis for the European Council to formulate a detailed EU position on financing at its meeting at the end of October. The European Parliament is also invited to give its opinion. I am confident that a clear EU position can help to push the Copenhagen negotiations towards the successful conclusion that is needed to prevent climate change from reaching dangerous levels.

Thank you, and now I will be happy to answer any questions you have.

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