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Public and private fund flavors

June 8, 2009

A lot of the conversation here at the Bonn Climate Change Talks is about money–public money, private money, who has money, who needs it, how it gets divided, who counts it, why I don’t have more of it… you get the idea. One of the only finance issues they don’t discuss is why the conference center sells Dixie cups of coffee cost for €2,50. That’s almost 4 USD for a 3-oz. shot of regular coffee. You want cream? Add €,50. Anyway, we haven’t blogged about finance discussions because they are the most complicated, but I’ll try to cover one of the big questions involved–private versus public funds.

Many developing countries are looking for funds to cover projects that reduce their greenhouse gas impact and help them adapt to avoid climate change effects. They argue that developed countries owe funds towards these projects because the industrialized countries are the ones that caused climate change so they should fix it. There’s general acceptance that some funds will flow in this direction, but questions of what type of funds and how much are open and hotly debated.

On Friday, the discussion in one of the important groups (the AWG-LCA) moved to public versus private funding. The U.S. delegate argued that private funds are required in addition to public funds to meet the scale of the challenge. Further, he argued that the public funds would be less reliable, implying that newly elected officials can’t be relied on to continue funding projects in developing countries over the long run. Essentially, he argued that it is most important to establish policies in developed countries that encourage private investment from the developed world.

In response, several delegates argued that private funding can’t be guaranteed, so it isn’t sufficient and can’t count as a country’s contribution through the treaty. The Ugandan delegate, who I think was speaking on behalf of the Africa group, spoke in opposition, “We’ve lost two islands already… Who can predict when the private sector is going to make money available for a public activity? We can predict what the public sector can put in their five-year plans.” Delegates from China, Tanzania, and Indonesia among others supported private funds only as supplements to guaranteed public funds.

The private-public debate is important because the type of money will determine not only where it comes from, but who gets to decide how it is spent. For a developing country, this could influence the whole trajectory of development. But time is important, too. The other day I overheard an NGO member comment that adaptation funds may fail before they even get established considering the pace of negotiations. He concluded, “How much money will it take for island nations and coastal peoples to adapt to living underwater?” 

Topic for the next money post: offsets.

-Taylor

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5 Comments leave one →
  1. Phil permalink
    June 9, 2009 4:42 am

    Taylor, thanks for getting to the economic/financial issues. I should have assumed this would come up since who pays and how much and under what conditions or circumstances, as Abe Lincoln used to say, goes to the “nub” of the issues.

    I am really enjoying your postings. You and Anthony are doing an excellent job of reporting.

    Phil

    P!

  2. abaratta permalink
    June 9, 2009 4:56 am

    Thanks, Phil, for reminding us to write about finance. When you commented previously, I couldn’t believe we hadn’t written about it already.

    Obviously, there’s much, much more than we can track. Plus a lot of the conversation references previous decisions, parts of the convention, acronyms, or other issues that we aren’t aware of. We’ll post more on finance soon.

    -Taylor (logged in as Anthony)

  3. Pete Rimsans permalink
    June 9, 2009 11:01 pm

    Taylor/Anthony, nice blog! Very insightful.

    I think you’ll find–as with most things in business and politics–finace is one of the main sticking points in passing Waxman-Markey. Most politicians and business leaders tend to care more about dollars in the short run than dollars in the long run or the long-term environmental effects.

    The business lobby has already successfully fought to have cap and trade credits allocated as opposed to being auctioned. Now it is time for them to embrace the general concepts of the system.

    I would, however, point out that state’s such as Indiana that are 96% coal dependent are going to need more time to diversify thier portfolios. In the interim, there must be incentives for utilities to utilize emerging technologies to burn coal in ways that release fewer GHG emmissions than traditional coal-fired plants.

    I can tell you that regulatory certainty would go a long way in reducing across the board emmissions.

    Pete Rimsans

    Perge!

    • tcantril permalink*
      June 11, 2009 9:01 am

      Great points. Thanks for commenting.

      It’s interesting what you said about short-term and long-term thinking. If politicians and business leaders tend to care more about dollars in the short-run, how does long-term regulatory certainty work into this? If, as you suggest, they use both thinking modes, in which cases do they use short-term and in which cases long-term thinking? It seems that election cycles are only one factor affecting how people are thinking.

      One of the tricky parts about coming to an international agreement on financial mechanisms in a climate treaty seems to be that different countries run differently–politically and economically. In one country, they might have a single leader or party for over a decade. That leader could guarantee a longer-term commitment of public funds than another country in which politicians may flow in and out every 2, 4, or 6 years. There’s no guarantee that public funding would continue over the long-term. Other factors that affect the form of finance commitments seem to include government size, private sector size, and how markets are regulated.

      When delegates compare contributions from different countries to determine what is fair (or what they will accept) based on capacity and/or responsibility of paying countries, they definitely aren’t comparing apples and apples. It’s more like comparing apples, potatoes, spinach, and chipmunks.

      -Taylor

  4. October 31, 2009 8:02 am

    Thanks, we are service organisation searching for funding of underprevilaged women and child rights.

    L.Pandi
    E.D
    SERD

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