Options for a draft text on legally binding financial commitments in the context of a future 2015 international agreement on the climate

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Date produced: 04/02/2014

Can you provide us with some proposals for text on legally binding financial commitments in a new international agreement on climate?

Advice:

The three options of provisions in this advice are geared towards legal bindingness and predictability of climate finance commitments from developed countries. They do not cover other crucial provisions in a future Article/Title/Chapter of the 2015 agreement about climate finance (e.g., additionality, access and disbursement principles, country ownership, accounting, MRV, mitigation/adaptation and public/private finance split, financial instruments etc.).

The options are listed in a descending order, starting from the most ambitious for developing countries in terms of bindingness and level of commitments, in a way that they can be flexibly used during negotiations. Single provisions in the various options can of course be ‘mixed and matched’ according to the negotiating needs.

Option 1 – Binding commitments tied to International Bank for Reconstruction and Development’s (IBRD) subscriptions of capital shares by developed countries

These draft provisions are not only legally binding on developed states, but also identify a quantified goal of resources to be mobilized (at least USD 100 billion per year) and a readymade burden-sharing agreement among developed countries. Each individual effort is to be matched with the amount of shares subscriptions by the contributor country to the IBRD. The rationale for choosing such a benchmark is that the distributions of capital shares in the IBRD are a reflection of the role and level of risk in development finance that developed states have already agreed to. The process to calculate individual amounts is the following:

extrapolate from the list of subscribing members only the developed country Parties which shall be contributors in the 2015 climate agreement;

the sum of their subscriptions will be equal to 100% of the USD 100 billion yearly amount;

the individual amount of subscriptions will be equal to the ratio and level of each developed country’s binding
contribution.

Pros: Sets down a one-off, clearly drafted, and time-bound binding quantity of finance to be sourced and delivered.

Cons: Very unlikely that developed countries will accept all the components of this deal, because i) the IBRD capital benchmark might not reflect the ‘political’ level of burden-sharing among contributor countries in the UNFCCC, especially considering that China is cut out from the list of contributors; ii) it would be a primer in the practice of multilateral environmental agreements under many aspects; and iii) it assumes that the USD 100 billion per year target will be sourced fully from public budgets.

Text:

1. Regardless of the entry into force and from the moment of adoption of this agreement, the developed country Parties shall be jointly responsible for the effective sourcing, channelling and delivering of a minimum amount of USD 100 billion per year until 2020 in order to assist the developing country Parties in implementing their mitigation goals, and adapting to the adverse effects of climate change. The developed country Parties shall also strive to collectively contribute with more financial resources than the minimum amount thereof.

2. The developed country Parties agree to the quantified burden-sharing individual levels of financial commitments listed in Annex X to this agreement, and to be individually responsible for the sourcing, channelling and delivering of their minimum amounts.

3. In the context of predictable, adequate, sustainable and transparent financial transfers, the developed country Parties shall regularly disburse the resources of their individual financial commitments to the Green Climate Fund, or other bilateral and multilateral entities, according to the time schedules defined by [the Green Climate Fund’s resources mobilization process] [a COP decision in implementation of this provision].

4. The yearly joint minimum amount as of paragraph 1 above shall be periodically reviewed and updated by decisions of the COP in order to match the measurable financing needs of developing country Parties in mitigation and adaptation. The COP shall periodically launch a review process of the minimum amount of finance to be mobilized by the developed country Parties.

Annex X

Burden-sharing individual levels of financial commitments

1. In the context of the joint responsibility to mobilize USD 100 billion a year up till 2020 in Article X.x of this agreement, each developed country Party shall individually source, channel, and deliver an amount of financial resources proportionate to its own amount of share subscriptions to the capital base of the International Bank for Reconstruction and Development according to the following table:

PartyAmount of IBDR shares’ subscriptionsBurden-sharing individual level ratioAmount of yearly commitment (USD million)
United States30.618,9xxXxxx
United Kingdom8.299.2xxxxxx

This is only an indicative template for the table, the specific amounts need to be calculated accordingly.

Option 2 – Binding commitments tied to a burden-sharing agreement between developed countries and an incremental finance path with mid-term goals.

This option is a variation of the previous and more ambitious one. It is different on the following aspects:

Rather than identifying a pre-existing benchmark of burden sharing, it assumes that a burden-sharing agreement will be adopted at the 2015 COP21 in Paris and attached as an Annex (i.e. with binding legal force) to the future 2015 climate agreement.

Rather than sticking to a fixed goal of USD 100 billion a year it proposes an incremental mobilization with the setting of mid-term goals in the period up till 2020. After that, the COP shall review the minimum yearly amount to be mobilized.

Pros: this draft is more likely to get developed countries aboard, because i) it gives them more flexibility to bargain and arrange a burden-sharing agreement reflecting the extant financial situation at the time of adoption of the 2015 agreement; and ii) it allows them to scale up progressively their individual contributions, by mitigating negative impacts on their public budgets.

Cons: Despite being still in a legally-binding framework, this solution would result in less total financial resources disbursed for the period up till 2020, unless otherwise negotiated.

Text:
1. Regardless of the entry into force and from the moment of adoption of this agreement, the developed country Parties shall be jointly responsible for the effective sourcing, channelling and delivering of the following minimum amounts of finance in order to assist the developing country Parties in implementing their mitigation goals, and
adapting to the adverse effects of climate change:

a. for the commitment period starting from 1 January 2016 until 31 December 2017, a minimum amount of USD 75 billion a year; and

b. for the following commitment period starting from 1 January 2018 until 31 December 2020, a minimum amount of USD 100 billion a year.

2. The developed country Parties shall also strive to collectively contribute with more financial resources than the above minimum amounts.

3. The developed country Parties agree to the quantified burden-sharing individual levels of financial commitments listed in Annex X to this agreement, and to be individually responsible for the sourcing, channelling and delivering of their minimum amounts.

4. In the context of predictable, adequate, sustainable and transparent financial transfers, the developed country Parties shall regularly disburse the resources of their individual financial commitments to the Green Climate Fund, or other bilateral and multilateral entities, according to the time limits defined by [the Green Climate Fund’s resources mobilization process] [a COP decision in implementation of this provision].

5. The yearly joint minimum amount as of paragraph 1 above shall be periodically reviewed and updated by decisions of the COP in order to match the measurable financing needs of developing country Parties in mitigation and adaptation. The COP shall periodically launch a review process of the minimum amount of finance as of paragraph 1 above.

Annex X

Burden-sharing individual levels of financial commitments

1. In the context of the joint responsibility to mobilize USD 100 billion a year up till 2020 in Article X.x of this agreement, each developed country Party shall individually source, channel, and deliver an amount of financial resources according to the following tables:

a) Minimum amount for the first commitment period (1 January 2016 – 31 December
2017)

PartyRatioAmount of yearly commitment (USD millions)
United States30%2250
United Kingdom5%375
Total USD 75 billion

This is only an indicative template for the table

a)    Minimum amount for the second commitment period (1 January 2018 – 31 December 2020)

PartyRatioAmount of yearly commitment (USD millions)
United States30%2250
United Kingdom5%375
Total USD 100 billion

This is only an indicative template for the table

Option 3 – Binding but flexible commitments dependent on a Recommendation of the Standing Committee on Finance, after approval from the COP.

This final option is the least ambitious, because despite making each collective and individual yearly pledge legally binding it nevertheless leaves the identification of collective and individual commitments to a flexible/informal process. However, in order to maintain centrality of the UNFCCC in the formulation of the financial commitments, a clear recommending role is given to the COP’s Standing Committee on Finance.

Pros: Developed countries might be more inclined to this kind of deal. While the collective and individual commitments are legally binding, there is no set amount of any minimum amount of finance.

Cons: developed countries have a wide margin of discretion. Despite the influence of the Standing Committee on Finance, this might lead to unambitious binding amounts of finance.

Text:

1. Regardless of the entry into force and from the moment of adoption of this agreement, in the context of a collective pledge of USD 100 billion per year until 2020, 10 the developed country Parties shall be jointly responsible for the channelling and delivering of minimum collective financial amounts in order to assist the developing country Parties in implementing their mitigation goals, and adapting to the adverse effects of climate change. The developed country Parties shall also strive to collectively contribute with more financial resources than the minimum amount herewith.

2. Each minimum collective financial amount shall be identified according to periodical burden-sharing agreements to be adopted by the developed country parties during COP meetings and in accordance with the recommendations provided by the UNFCCC Standing Committee on Finance.

3. The periodical burden-sharing agreements shall constitute integral part of this agreement and shall specify the individual level of financial contribution for which each developed country Parties shall be responsible.

4. In the context of predictable, adequate, sustainable and transparent financial transfers, the developed country Parties shall regularly disburse the resources of their individual financial commitments to the Green Climate Fund, or other bilateral and multilateral entities, according to the time schedules defined by [the Green Climate Fund resources mobilization process] [a COP decision in implementation of this provision].