Climate finance in South Asia
L-R: Ice sheet in Polar regions is gradually melting. Formation of cyclones over seas is becoming more frequent.
It is now well recognised that impacts of climate change will have significant economic costs on the affected countries. Cost of inaction will also be enormous compared to the cost of mitigation and adaptation. Though there is controversy about the cost estimates due to the uncertainty on the magnitude of the problem, most studies indicate that the economic cost of climate change is very high. According to the famous Stern Review prepared by Sir Nicholas Stern on the “The Economic Cost of Climate Change” published in 2006, the cost of inaction is 5 percent of global GDP each year and the upper case estimate is 20 percent of GDP or even more. Poor countries will face in excess of 10 percent of GDP with 5-6°C warming by the end of the century. On the other hand, William Nordhaus has estimated that due to 3°C increase in temperature and precipitation there will be a cost equivalent to 3 percent of global GDP. It is important to note here that some of the damages due to climate change are either irreversible or only partly reversible. This means that once the damage is done we cannot get back the original environment and natural resource. For example, extinction of species, loss of ice sheets and loss of unique cultures cannot be reversed. Some of the impacts such as on agricultural production, infrastructure, water resources, energy, health and migration are partly reversible if adaptation policies are undertaken. However, the cost of adaptation to the impact of climate change can be very large. There are various estimates on the cost of adaptation. These costs will multiply a few hundred times due to delayed measures. The cost of adaptation can shift from USD 3 to USD 400 billion per year within a span of 20 to 30 years, depending on the assumptions of impact and the time horizon of undertaking adaptation measures. Similarly, the cost of mitigation varies from USD 1 to USD 400 billion per year depending on the assumptions and time span of the mitigation measures. Mitigation measures are required to cut or minimize the green house gas (GHG) emission that causes global warming. In South Asia none of the countries are significant emitters of GHG except India. Hence most countries actually have to develop adaptation policies and need resources for that. India has to take both mitigation and adaptation measures. Estimates show that total annual cost for adaptation ranges from USD 10 to about USD 18 billion in South Asia depending on the wettest or driest weather and the time horizon for adaptation. How resources to bear these huge costs will be mobilized is a valid question. There are two broad mechanisms of financing climate change. These are direct contributions from developed country governments and market mechanisms. The first mechanism is preferred by developing countries while the second is preferred by developed countries. Direct contributions can be bilateral and multilateral. Of the multilaterals, the United Nations Framework Convention on Climate Change (UNFCCC), the World Bank, United Nations Collaborative Programme on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries (UN-REDD), European Commission (EC), United National Development Programme (UNDP) etc are the important sources of climate funds. At the 16th session of the Conference of Parties (COP 16) of the UNFCCC held in Cancun, Mexico in December 2010, a decision was taken to establish a “Green Climate Fund” (GCF) under the UNFCCC. The objective, governing structure, sources and uses of funds, working method and functions of the GCF are currently being debated and discussed with a view to finalise the modalities of GCF during the run up to the 17th COP to be held in December this year in Durban, South Africa. There are several issues related to these climate funds. A major concern is that whether these funds will be new and additional and whether these will be accessible to developing and least developed countries easily. Second, there are also questions whether these funds will benefit the recipient countries or the donor countries. In many cases, funds are not for country driven projects. A third concern is the size of the funds and the actual disbursement of funds. It is observed that there is a large gap between the pledged and disbursed amount. Data shows that as of April 2011 the share of disbursed amount as percentage of total pledged is only 6.79 percent. A disaggregation of climate funds also indicates that the allocation for adaptation is far too less compared to mitigation. While there is not much commitment by developed countries in cutting down GHG emission the allocation pattern of climate fund is a reflection of bias towards these countries. As a regional approach on financing climate change South Asia can focus on full and effective implementation of commitments by countries and various multilateral sources. Though there are differences of interests in terms of dealing with issues on climate change, SAARC as a regional body can raise collective voice for pressuring the release of pledged fund by developed countries. They can also share new knowledge and innovative technology amongst themselves. Apart from multilateral funds, South Asia should seek funds from bilateral sources as the process of such funds is easier. South Asia is a potential carbon market because of its low emission. Hence they should develop new projects under Clean Development Mechanism (CDM). There is however, need for capacity building to develop projects under CDM which can be organized jointly. Climate finance opens new windows of opportunities for both developing and least developed countries of South Asia. It creates the opportunity not only for adaptation but also for greening their economic growth strategy through the use of new climate friendly technology. However, South Asian countries have to be mindful of the newly hyped concept of “green economy” by developed countries which may be used as trade protectionism or for imposing conditionality of aid and debt relief. Green economy initiative, if followed without taking into consideration the concerns related to equity and justice in the poor countries of South Asia, will jeopardize the long term sustainable development of these countries. Concerns arise, particularly in view of the apprehension of dumping obsolete and old technologies by developed countries to poor countries in the name of helping them adopt green growth strategy. Transfer and diffusion of environmentally sound technologies is a key element of any effective international response to the global climate change challenge and one of the pillars of the UNFCCC. In case of technology transfer main issues on the table are technology financing, research and development, including intellectual property rights and institutional arrangements. Technology transfer under Article 66.2 of the TRIPS agreement of the WTO has been a long standing demand of developing and least developed countries. South Asian countries may promote this demand jointly. South Asian LDCs can also demand LDC fund under UNFCCC for joint projects. In addition to external sources, national initiatives to develop dedicated climate funds will reflect the commitment of countries towards tackling the problem. Bangladesh and India have already created climate funds while Sri Lanka is in the process to develop such a fund. Other countries in the region can emulate this practice to address their climate related problems. Finally, accountability and governance of climate funds at the national level is critically important. Experience tells us that the issue is not only how to mobilize resources but also how to utilize them efficiently in a transparent and accountable manner. The issue is also about the adequacy, predictability, timeliness, harmonisation and appropriateness of funds. To this end, governance of climate funds is necessary also at the international level as much as it is needed at national levels.
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