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Climate Finance


There are two fundamental questions regarding climate finance: where will we get the money and how should we spend it? In this chapter, we argue that the money spent on fossil fuel subsidies should be reallocated to mitigation via the development and dissemination of clean energy technologies and to adaptation via financing for subsistence farmers to acquire the inputs needed to switch to genetically modified (GM) crops that can tolerate a changing climate. Eliminating fossil fuel subsidies kills two birds with one stone, since it reduces GHG emissions and frees up funding for other mitigation projects and for adaptation projects.

A related issue is how the funding will be distributed. To stabilize GHG emissions (mitigation) would require a significant reduction of emissions both in the developed and the developing world. This requires large-scale investment in energy infrastructure and other large-scale mitigation projects. Multilateral funding channels may be the best option for such large-scale financing in developing countries. On the multilateral side, we will focus on the Clean Development Mechanism and the Green Climate Fund. We also examine the three-part assessment ofclimate change and the World Bank, which addresses the role ofthe World Bank in energy projects and reforming fossil fuel subsidies, investment in clean energy technology, and adaptation. Our analysis in this chapter will complement the World Bank assessment by analyzing the fossil fuel subsidy issue, examining the relationship between climate finance and WTO law, and looking at one adaptation topic and one mitigation topic.

Our mitigation topic is the financing of the adoption of GMO technology by subsistence farmers. In contrast to large-scale mitigation projects, financing adaptation for subsistence farmers can be local and small-scale. It also has the benefit of focusing funding on the poor, in contrast to fossil fuel subsidies, which primarily benefit the rich. Financing adaptation for subsistence farmers can be carried out at the national level, by simply redirecting fossil fuel subsidies in national budgets. Our analysis expands on the analysis needed to address this adaptation topic, which was mentioned in the World Bank assessment as a priority.

National economic policy can play a central role in climate finance, but so does global economic governance. As we saw in Chapter 1, intellectual property rights can raise the cost of GM seeds beyond the capacity of subsistence farmers to pay. Thus, in Chapter 5 we argued that developing countries, in particular, should seek to maintain policy flexibility regarding intellectual property rights for plant varieties. Another way around this problem is to provide financing for subsistence farmers to afford GM seeds and the pesticides and fertilizers that accompany their use. However, as we noted in Chapter 3, subsidies may be inconsistent with the WTO SCM Agreement or the WTO Agreement on Agriculture. Therefore, in this chapter we analyze how national financing for subsistence farmers might be structured to avoid violating these international obligations.

Financing for clean energy projects also needs to be structured to avoid violating international obligations. As we have seen in Chapter 3, Ontario’s FIT program is the subject of both WTO complaints and claims filed by foreign investors under NAFTA Chapter 11. These cases highlight the importance of designing clean energy projects, whether financed locally, bilaterally, regionally, or multilaterally, with these international obligations in mind.

This chapter is organized as follows. First, we provide an overview ofmultilateral financing mechanisms. Second, we analyze the issue of fossil fuel subsidies. Third, we analyze how to structure financing for adaptation by subsistence farmers in accordance with the WTO Agreement on Agriculture. Fourth, we analyze financing for clean energy projects. Finally, we analyze the scope for private sector participation and the importance of international trade in services.

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