COP27- Some Thoughts…
By G.Upadhyay
On the Finance front once again, the issue of Loss and Damage reparation/ compensation on account of Climate Change is expected to come to the fore at the forthcoming Sharm el-Sheikh COP27 Climate Change Conference. Some thoughts regarding Climate Finance which follow are i) the need for Developed countries to act on a tipping point based risk sensitive Climate action strategy and provide Climate Finance ii) Some Financing Options for raising climate finance iii) Physical Solutions/knowhow transfers
Adopting Solutions-Floating Architecture
The Santiago convention visualized the broad terms of engagement for solutions to meet the CC impacts by catalysing technical assistance of relevant organizations, bodies, networks and experts. Hence apart from finance and insurance, could some ‘experience adaptation’ provide an immediate solution? Some of the pressing problems, wrought by Climate Change such as flooding and its impacts on homes in the Small Island States and many shoreline locales from sea level rise, could be addressed by adopting successful experiments at dealing with such exigencies. One such suggestion is the use of floating architecture knowhow and construction for homes in areas affected by sea level rise. The likes of Amsterdam’s Schoon schip reported to be the most sustainable floating neighbourhood in Europe is what one had in mind. (https://schoonschipamsterdam.org/en). Whether it could be used to solve say Vanautu’s problems. There are others too in this field of floating architecture for homes.
So severe is the issue of flooding that even previously successful adaptive practices such as floating farming practiced in Bangladesh are unable to contend with the extent of damage and call for emergency responses. These transpositions may be funded by grant and soft funds or barter/ exchange, which may also have a stimulant effect on the economies.
Insurance/ Reinsurance
This industry is going to face the landfall of Climate Change impacts. Insurance and reinsurance might have probably written new rules of engagement with Climate Change impacts affecting this planet in unprecedented ways. Force Majeure will need to be reimagined now with Man being a bigger influencer than God! Exposure mix of Insurance will probably have to be mapped to Vulnerability Indices! How crop insurance by both government agencies and private firms are going to shape is another point to be flagged. And reinsurance for the same.
Lease Finance
Use of lease financing for end user beneficiaries for deployment of alternative climate friendly technologies is another option. The case of electric vehicles usage seems to be a good candidate for lease models whether in developed or developing countries.
Finance Alternatives –Replication
Some of the tried methods of resource mobilisation recently necessitated by the Pandemic, such as allocation of additional SDRs and the International Finance Facility for vaccines could be considered again to meet any of the pillars of climate finance. One suggestion for examination is an International Finance Facility for Climate Change. The other would be Floating Bonds with incentives .The size of Climate Finance vis a vis the overall size of the financial market- equities bonds MDB assets, is so small that it is almost intriguing as to why voluntary contributions to the US$ 100bn commitment is yet not forthcoming from the bequeathers of the pollution legacy. How else could they be engaged to contribute to the 3 pillars of Climate Finance required by developing and the vulnerable countries paying unjustly a heavy price. Should they be given an option to pay in installments? Looking at the design of the Global Premium Bonds, Ernie Bonds in the UK and now adopted by some other countries too, would something like this work to draw capital for reparations administered by MDBs. Contributions of the Developed countries could also be made towards say “higher” coupon rate differentials to raise resources from the financial markets. How to tap and increase ESG funds is also another area for exploration.
An International Finance Facility for Climate Change could perhaps be considered backed by pledge of commitments from the developed countries as well as philanthropic resources. The International Finance Facility Mechanism has been used for Immunisation, vaccine development, education, reproductive, new born and adolescent health. Closer in memory is COVAX- COVID-19 Vaccines Global Access a global collaborative. Climate Change is equally if not more deadly than the virus. If this becomes part of the developed countries psyche the urgent need to make financial contributions particularly where the vulnerable countries are unjustly bearing a skewed burden of the extreme effects, would need no pleading. The distinct advantage of IFF is the deferred schedule of commitments of donors, tapping and leveraging contributions to raise funds
Allocation of SDRs has been used before during preceding global crisis. In 2021, US$ 650bn of SDRs was given by IMF to its members to contend with the economic crisis caused by the COVID 19 crisis. The viability of such a measure for use for climate finance needs expert evaluation..
Best use of funds.
The Alliance of Small Island States (Aosis) has drawn up plans for a Loss and Damage Response Fund. In addition several groups are also sensitized to the idea of loss and damage and other pillars of climate finance. The Vulnerable Twenty (V20) Group and the G7 are reported to launch a Global Shield against climate Risks to respond to loss and damages at COP27. Denmark is reported to have offered specific loss-and-damage funding of $13.1 million. Germany is expected to support loss and damage as an agenda at COP27. Climate Justice Resilience Fund, a Washington D.C.-based philanthropy is reported to be assisting Bangladesh with a grant. What could aggregation of all these finances enable? Can they be leveraged to raise more resources.
Global Federalism in Taxes
This Is again an area which cannot be enforced but only appealed to-moral suasion. A recent example being the suggestion of taxing the windfall profits of oil and gas companies. Solidarity taxes for meeting finance for crisis management have been used before by nations. In the USA we have seen recently some progressive taxation measures. But in the global arena of financial commitments only moral suasion appears to be available as of now unless some ingenious way is found.
Management of Basic Necessities in Crises
The market has its own way of responding to crisis. Ironically even in crisis hit affluent countries, the return to old ways such as chopping wood for the winter, from centralized heating to old time coil portable heaters, rationing of food and energy, to less green old energy sources, are visible increasingly.
For the less developed countries particularly, it may become necessary as a matter of governance, irrespective of political ideology, to consider Food banks and public distribution systems instead of purely market managed ones for both procurements and distribution. At a recent global conference on trade, some measures were being contemplated for reducing speculative profits from food trading. It is precisely for this reason we need the UN agencies, the multilateral organisations, the various Development Banks and countries like India that propose to champion developing countries interests.
As usual with finance there are allocation priority issues. One could think that tipping points as identified by the IPCC may guide the priorities for action on all fronts. Risk sensitive strategies will ensure lesser human suffering and probably more efficient outcomes.
4 November 2022