FINANCE:

U.S. proposes climate fund for poor nations

The United States has proposed a new global fund that would direct billions of dollars to help poor countries prepare for climate disasters and adjust to low-carbon economies.

The fund would likely operate under the World Bank, U.S. Treasury officials said, and would be the main vehicle to deliver emissions reduction and adaptation measures throughout the world.

William Pizer, deputy assistant secretary for environment and energy at the U.S. Treasury Department, explained that the fund would contribute to a spectrum of projects from "building a solar park or creating a financial vehicle to support investments in energy efficiency to creating an insurance mechanism for disasters or crops."

The world's poorest countries also are among the most vulnerable to climate change and will be disproportionately affected by harsher droughts, rising sea levels and fiercer storms, scientists say. The World Bank estimates it will cost $75 billion to $100 billion annually for developing nations to accommodate a world that is warmer by 2 degrees Celsius.

Part of the global climate deal that nations are negotiating in U.N.-sponsored talks in Copenhagen next week involves the promise of substantial funding to help defray those costs.

Just how much money nations will put into the pot remains unknown. That is one of the prickliest questions that negotiators face. Yet while dollar figures -- or absence of them -- grab headlines, analysts say the architecture of the fund is one of the nuts-and-bolts issues fundamental to the climate talks.

"It's certainly a critical part of what needs to be addressed and concluded in the negotiations," said David Waskow, climate change program director at Oxfam America. "At the end of the day ... it's never a just a question about money, but also how the money is governed and spent."

An expected target of $7B to $10B

Countries are expected in Copenhagen to offer between $7 billion and $10 billion for immediate needs in poor countries, with about $1.3 billion expected to come from the United States. The United States has not declared how much it will allocate in the long term. Pizer didn't offer any clues, but said agreeing on a structure for delivering and accounting for the money would be a major step forward.

"I don't think we would be going down this avenue if we didn't see the need for scaling up funding in the future," he said.

Under the proposal the U.S. submitted in October -- which mirrors ideas put forward by Mexico and Australia -- the fund would be governed by a board made up equally of net donors and recipients. All countries except the least-developed nations would be expected to contribute "in accordance with their national circumstances and respective capabilities."

Elliot Diringer, vice president for international strategies at the Pew Center on Global Climate Change, noted that the proposal reflects "a growing view that some of the faster-growing developing countries are in a position to help," as well as industrialized ones. A number of environmental groups oppose the notion and say only rich countries should be expected to foot the bill for climate change.

In a recent analysis, ActionAid USA, Friends of the Earth US and the Sustainable Energy and Economy Network faulted the proposal for failing to force countries to contribute to the fund. The groups also argue that any money for poor countries to address climate change must be in addition to regular foreign assistance, and call for a board governed by a majority of developing countries.

"This is important so as to mirror the composition of parties in the UNFCCC [U.N. Framework Convention on Climate Change] and to ensure that those most affected by climate change are in the majority on the governing bodies," the groups wrote.

Narrowly focused on easing burdens of climate change

Treasury officials said they envision a fund that can leverage private-sector investments as well as public funds. They described it as one of several financial arrangements available to help developing countries access funds for different needs.

Currently, the Global Environment Facility acts as the financing arm for the UNFCCC. Established within the World Bank, the coalition of 178 international government institutions manages several pots of money for climate change-related activities. Treasury officials said the new proposal still envisions a role for the GEF. But, they said, it would be more narrowly focused on helping developing nations set efficiency standards, regulate power sectors and take other steps to improve their institutions so clean energy projects can thrive.

"We think that if we're going to significantly scale up financing to deal with climate change, we need a different kind of vehicle," Pizer said. "In particular, we need a vehicle that is more focused on financing investments like the ones that are necessary [to address] climate change." A senior GEF official said the institution is not worried that it will be sidelined, but declined to say whether the agency supports the U.S. plan.

"We welcome all the proposals for this discussion," the official said.

The biggest fight, if there is one, will likely center around the involvement of the World Bank. Treasury officials said they believe the World Bank has the expertise, standards and "internal safeguards" to oversee the financing, though the fund would likely have a governing structure separate from the multilateral bank's normal channels.

Environmental activists have long fought the institution, arguing that it favors wealthy nations and funds too much fossil fuel development. But the U.S. proposal is also getting points from some nonprofit groups for taking a major step toward trying to solve one of the more complicated issues in the climate change negotiations.

"Hopefully, we can at least make some headway in developing the architecture," even if the dollar figure is unsettled, Diringer said.

Added Waskow, "It's really important that they've clearly said they support a new global fund for climate. It's the beginnings of building a bridge to developing countries."