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December 7, 2007

Bali Morning Brief – Financial Component ‘Key To Success’

As formal talks continued at the climate negotiations in Bali, UNFCCC Executive Secretary, Yvo de Boer, said that the process on shaping a roadmap for a post-2012 climate agreement was continuing to go well.

The contact group on the future had “substantive discussions on objectives and principles that should guide the negotiating process beyond Bali,” he said, while useful discussions had also taken place on mitigation – one of the main building blocks of a future agreement. He added that the need to give developing countries emission reduction incentives had come up very strongly, as well as recognition of what they are doing now.The focus of today’s press briefing was on financing the response to climate change. De Boer stated that economic and financial instruments form an important part of the solution to climate change, and described the financial component of the debate as “the key to success as we move into the future.”The International Energy Agency is predicting an increase in energy demand worldwide of 50 percent by 2030, with much of that coming from countries with emerging economies such as China and India. De Boer explained that should this happen without a climate policy, the IEA predicts a 50 percent increase in greenhouse gas emissions, therefore “investment decisions taken today will determine the concentration of greenhouse gases in our atmosphere for many decades to come.”With total investments in new physical assets between 2000 and 2030 projected to triple, he described this process as “altering the course of an investment supertanker.”

Costs for both mitigation and adaptation to climate change are set to rise. A recent publication by the UN Climate Change secretariat on Investment and Financial Flows (PDF) puts financing the response to climate change at 0.3 percent to 0.5 percent of GDP in 2030, and 1.1 percent to 1.7 percent of total global investment in the same year.

De Boer said that current funds under the Convention and the Protocol are insufficient to meet these goals, but that the gap can be bridged by scaling up currently available international capital dedicated to climate-friendly investments. The challenge is “huge, but not insurmountable,” he said, adding that what is needed is “intelligent financial engineering.” He described it as “embarking on a Star Trek expedition, making public and especially private money go where it has never gone before.”

A key tool could be the carbon market, with the potential to spur huge financial flows to developing countries to help them cut back emissons and assist with adaptation measures. The more ambitious the targets in a future agreement, he said, the bigger the financial flows and the greater the possibility of reaching a climate deal which is self-financing.

There was nevertheless a clear need, he said, to generate additional public money and to create investment certainty for the private sector – which is expected to account for 86 percent of investments – by building confidence that governments are serious about the direction they intend to take.

Mr. de Boer also made reference to meetings of Trade and Finance Ministers organized by the Indonesian government which will take place over the coming days; the first time such meetings are being organized on the margins of a UNFCCC conference. He said the meetings could have an “important impact” on the process here.

Source: UNFCC

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