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Tuesday, November 30, 2010

International Financing of Responses to Climate Change

Jane A. Leggett
Specialist in Energy and Environmental Policy

Many voices, domestically and internationally, call for the United States to increase its international financing of measures to address climate change. Financing would help low-income countries pay for the extra costs of development incurred to reduce their emissions of greenhouse gases (GHG) and to adapt to climate variability and change. The United States and other industrialized countries committed to financial assistance in the United Nations Framework Convention on Climate Change (UNFCCC, 1992) and the Copenhagen Accord (2009). In the Copenhagen Accord, countries pledged (1) $30 billion in 2010 to 2012 as fast-start financing, and (2) to seek $100 billion annually by 2020, with funds to come from both public and private sources. The Obama Administration has not yet specified what shares of the two pledges it envisions the United States providing, nor a strategy to fulfill the 2020 pledge.

For FY2010, Congress appropriated approximately $1,007 million for all “core” international climate assistance, up from $315 million for FY2009. The Administration requested that this increase to $1,391 million in FY2011, with another $104 million proposed for complementary programs in other agencies, such as the Department of Energy. Alternatives to appropriations could generate new financing. (Some options are compared in Appendix A).

The United States incurs direct and indirect costs if subsidizing overseas investments to address climate change, and gains a variety of benefits. Financial assistance to low income countries could help achieve, more efficiently than domestic action alone, the global reductions of GHG emissions deemed necessary to slow and stabilize human-related climate change. Financing could facilitate more rapid advance and cost reductions of emerging low-emitting technologies, and assist U.S. companies to acquire access to and sell new technologies. Additional benefits could include suppression of world fossil fuel prices, improved international security, a reduction in longer-term demands for development and humanitarian assistance (including relief following natural disasters), and a boost to diplomatic credibility and effectiveness (by following through on past pledges).

Low income countries have stated that fulfilling their commitments under the UNFCCC will depend on financial and technical support from the industrialized countries. Low income countries seek resources that are new, additional to previous flows, adequate, predictable, and sustained. Studies have estimated the needs for incremental financing to range from US$4 billion to several hundred billion annually for adaptation by the year 2030, in addition to comparable amounts for extra investment in clean energy and agriculture (Table 1). The International Energy Agency estimates that mitigation costs could be more than offset by energy cost savings.

Part of the U.S. pledge of climate change financing is being provided by federal appropriations. Congress may consider new mechanisms for further amounts, especially amounts beyond 2012. For example, the House-passed American Clean Energy and Security Act of 2009 (H.R. 2454) provided for a portion of allowances or revenues generated by a GHG cap-and-trade program to fund international climate-related actions. Congress also may exercise oversight of the operations and performance of existing programs that provide financial and other assistance.

Internationally, climate change negotiators continue to debate priorities among assistance recipients and activities, mechanisms for generating and disbursing funds, and other questions. If negotiations were to produce a new treaty intended to be legally binding, the Congress would have to consent to its ratification before it could legally bind the United States.

Date of Report: November 23, 2010
Number of Pages: 37
Order Number: R41500
Price: $29.95

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