As one of the most contentious issues in the international climate negotiations, climate finance is expected to be a major focus in Copenhagen. During today's OnPoint, Jon Sohn, of counsel at McKenna Long and Aldridge, explains the climate finance issue and discusses U.S. and European pledges for international aid to developing nations.
Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. Joining me today is Jon Sohn of counsel at McKenna Long & Aldrich and a climate finance expert. Jon, thanks for coming on the show.
Jon Sohn: Monica, thanks for having me here today, it's a pleasure.
Monica Trauzzi: Jon, climate finance is one of the most contentious issues in the international climate negotiations. It's expected to be a big focus at Copenhagen. Get us up to speed on the progress that's been made in the last couple of months on climate finance.
Jon Sohn: Sure, well, there tends to be a lot of focus on targets for reducing emissions and what countries are going to commit to what on that front, but the climate finance piece is equally important in the U.N. negotiations. Basically there are three key issues; how much public finance is necessary, what role will different multilateral and bilateral governments, institutions play in that financing, and what will the source of those funds be? And on each of those issues there has been progress in the last few months leading up to Copenhagen and I think what we'll see is a fast action fund coming out of Copenhagen where it will be a 2010 to 2012 commitment of funds with a view to longer-term financing commitments.
Monica Trauzzi: President Obama has announced the U.S. will provide substantial aid to developing nations to deal with climate change and there's an issue about how much money the U.S. should actually be sending over to developing nations. What's the net benefit to the U.S. business community to go ahead with this?
Jon Sohn: OK, so I think what President Obama has put on the table heading into Copenhagen is a figure of around $1.3 billion to figure into that larger $10 billion pot of money out to 2012. And the longer-term issue is that if we want to get developing countries to commit to reductions and at the same time lay the groundwork for U.S. clean energy exports and additional cost containment measures through the international carbon markets, then climate finance from public dollars that will then leverage private-sector capital is a key piece of that puzzle. So that's what this is really about and off then, back here in the U.S. politics things get misconstrued, in my opinion, as just simply sending many overseas. But what we're really doing here, and there's a letter that just went out today from the U.S. business Council For Sustainable Energy to the State Department on this matter, what we're really doing is laying the groundwork for clean energy exports and jobs through those exports.
Monica Trauzzi: So, how much money are we talking about long term that will need to be sent to developing nations on a year-to-year basis?
Jon Sohn: Well, that's a contentious issue. There's no one figure that everyone agrees upon. The McKenzie group has put a low figure of 40 billion annually out to 2020 or 2030 and then a high figure if 165 billion. The World Bank figures go a bit higher than that. Some nongovernmental organizations such as Oxfam put the figure at 200 billion, so I think we're generally looking in the ballpark of somewhere between $150 to $200 billion annually from public climate finance that can then leverage even larger sums of private capital. And, again, what this does is it sends a signal that the private sector can then put their capital into these projects and we can really get developing countries on a road to greenhouse gas emissions reductions and also support adaptation efforts in those countries.
Monica Trauzzi: Senate Foreign Relations Committee Chairman John Kerry presented a climate finance bill late last week. Does that provide a good foundation for the Copenhagen discussions?
Jon Sohn: I really think it does. I think what Senator Kerry's bill does is it sets the U.S. position in place in Copenhagen, but also lays the groundwork for what will the U.S. government's infrastructure look like in developing these funds. So it doesn't deal with the issue directly of how much money, but it talks about the institutions within the U.S. government, whether it's the bilateral funds through traditional mechanisms like USAID or OPEC or XPAR credit agencies that could play into this or is it more multilateral funds through the World Bank or some new fund that the conference of the parties might come up with. Or it could be some trilateral approach, where perhaps the U.S., Canada, and Mexico could all work together on a continental approach to reduce emissions. But what it does is it maintains flexibility to go with whichever approach will have the most reductions at scale and where developing countries make real commitments to go along with that money.
Monica Trauzzi: There are many moving parts to the Copenhagen meeting. How much progress are you expecting to actually happen on the climate finance front?
Jon Sohn: Again, I think what's realistic is to expect this fast action fund to move forward. I think the longer-term financing issues, more realistically we can expect an agreement to have a political framework in place that will lead to a legal agreement down the line, much like what many people are expecting going in with respect to reduction targets. Developing countries, particularly G77 countries, want direct access to finance; whereas, industrialized countries prefer the use of existing multilateral institutions like the World Bank and so that's a contentious issue that needs to be worked through. There are other issues like that that need to be worked through in terms of the sources of funds. For instance, will allowances in U.S. domestic legislation be sufficient to meet our obligations in international climate finance or are we going to have to look at bigger, larger-scale issues like the G20 is looking at. The G20 is looking at things like financial transaction taxes, fossil fuel subsidy phase outs and using money from those two pots to move some of that least towards climate finance. So I don't think we're going to see clarity on those issues now. That's going to take some more time.
Monica Trauzzi: And your take on who should be governing the money? Should it be the World Bank?
Jon Sohn: Well, I think the World Bank's financial institutions, their climate investment fund and other MDBs have made a lot of progress. They've put forward equal representation in the governance of those funds so developing countries and industrialized countries have equal representation in how those funds are used. That's a good start and I think the challenge for the bank going forward is to make sure that the process to get that money out the door for real emissions reductions is not too bureaucratic and, at the same time, show substantial accountability to donors who don't want to see issues such as environmental and social safeguards that are hallmarks of U.S. policy with respect to the bank, we don't want to see those issues undermined either. So there's a balance going forward if the bank is going to play that role.
Monica Trauzzi: OK, we'll end it right there. Thanks for coming on the show.
Jon Sohn: Thank you very much.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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