Together, these six investment criteria and eight results areas provide the Board, countries, and accredited entities with guidance on how theFund seeks to shape its investment decisions. Since the first project decisions were taken in December 2015, theFund ’s project portfolio has started to take shape. The twenty-seven projects approved to date range from small-scale investments to strengthen the resilience of Pacific islands through to large-scale programmes to develop private sector markets in renewable energy. What is clear is the Board’s determination fortheFund to achieve a real paradigm shift through its investments, whether in terms of building climate resilience, or supporting the transition to low-emission economies.
2.4 Paris Agreement: climate finance needs to align climatechange mitigation needs with sustainable development Responses to the Paris Agreement in the media and business community on issues such as fossil fuel divestments have shown that the UNFCCC can and has set important impulses on the direction of future investments (e.g. Messner, 2016). However, the policy and market signals still fall short of what is needed to limit maximum warming to 2°C (IEA, 2014, p. 40), and past UNFCCC approaches have not only been positive with respect to the alignment of mitigation and sustainable development, as the CDM experience shows (compare Sections 2.2, 3.3 and 4.1.3). Therefore, Parties to the UNFCCC should consider the experience of implementing the Kyoto Protocol and ensure – to the extent possible – that the new Paris Agreement’s incentives and implementation structure meet the requirements of a 1.5°C emissions pathway as well as sustainable development. Any signals that UNFCCC Parties send not only concern the direct implementation structure of the UNFCCC, but also the incentives and political rules set for public financial institutions in national contexts as well as for private actors. In comparison to previous agreements, Parties have strengthened the legal basis forthe alignment of mitigation and sustainable development in the Paris Agreement by highlighting that any mitigation efforts take place “on the basis of equity, and in the context of sustainable development and efforts to eradicate poverty” (UNFCCC, 2015e, decision 1/CP.21, Article 2; see also Preamble, Article 4). Sustainable development is seen as a solution in reducing the risk of loss and damage due to climatechange impacts (Paris Agreement, Article 8). The promotion of sustainable development and environmental integrity is also an explicit aim for voluntary cooperation in the implementation of NDCs under Article 6, including market- and non-market-based approaches (Paris Agreement, Articles 6.1, 6.8, 6.9). Mechanisms implemented by Parties under Article 6.2 shall promote sustainable development. The Article 6.4 mechanism, which is under the authority of the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement (CMA), also has sustainable development as one of its objectives, similar to the CDM.
Our main concern has been the interplay between climateaction and financial considerations. Since the market wants to hold diversified asset holdings, the transition towards a low-carbon economy is affected by diversification motives. Diversification and climateaction are initially complementary goals, since agents want to decarbonize the economy and hold a balanced port- folio of carbon-free and carbon-intensive assets. At a certain point, however, the two goals become conflicting and a trade-off arises. This is because environmental considerations incen- tivize the economy to further reduce the dirty capital share, but in turn assets holdings become less diversified. Hence, climate policy is frustrated by the need to diversify financial asset hold- ings. Furthermore, it is usually not optimal to fully close down carbon-intensive sectors as they serve as a hedge in the long run and keeping the carbon-intensive sector open in the short run allows a faster build-up of green assets in the short run. The qualitative implications of these effects hold for three common approaches to model the adverse effects of climatechange on economic activity, the depreciation rate of capital and the risk of macroeconomic disasters, respectively. Only if the impact of climatechange on economic activity is significantly more pronounced than suggested by DICE, is it optimal to close down the carbon-intensive sector. We have also analyzed the dynamics of risk premia and the risk-free rate during the transition towards a low-carbon economy. We show that the existence of potential climate disasters is crucial for finding a significant effect of climatechange on asset prices. In the absence of climate disasters, the effect of climatechange on asset prices is moderate. From the perspective of policy makers, our findings are challenging. Our results suggest that initially policy makers should be intrinsically motivated to take climateaction, simply to reach diversified asset holdings. Only if policy makers want to speed up the process, they must take extra action. Later in the transition process matters change fundamentally. If policy makers wish to incentivize the economy to reduce the carbon-intensive capital stock beyond its fully diversified share, they must counter the effects of diversification.
A majority of available public climate finance is for mitigation activities (energy, transportation with forestry recently included in the mix). Other than a few bilateral programs (and with the exception of the extremely modest Adaptation Fund), funds are managed by MDBs with a smaller number by other multilateral institutions. A handful of donor governments are providing the bulk of theclimate funds (see Tables 3 and 4). The continuing financial crisis is sure to put strain on these sources in the short term. While developing country governments and other accredited institutions are eligible to apply for funding, there seems to be a wide diversity in requirements along with time consuming and multistep processes. While this is generally a hallmark of public finance institutions, the particular nature of uncertain and context-driven specificities of climate resilience and green growth seem to have further reinforced the tendency. It is perhaps not surprising that LDCs and low-income countries are often frustrated in accessing the very finds that ostensibly have been set-aside specifically for them. While most of the funds are open to supporting programs from the multi-regional to the local, the majority of the efforts seem to be at the sub-national scale, often within a strong sectoral silo (agriculture, health, water, energy, transport). Programs tackling systemic climatechange impacts that cascade across multiple spatial scales and administrative levels are a rarity, donor rhetoric not withstanding. Access to the global best science and technology to green growth issues is not systematically organized. Programs managed by bilaterals and multilaterals (with the exception of MDBs that seem to depend to a greater extent on internal staff resources) appear to depend more on project-defined consulting, often from the private sector with the rules of engagement privileging “value for money”. Such an approach seriously undermines the ability of developing countries to access the best and most relevant science. “Commodifying” science also disables the free exchange of project experience and best/worst practices. Most project/program reports (at least those publicly available to developing country stakeholders) are uniformly glowing of “successes”.
Developing Asia is the driver of today’s emissions intensive global economy. As the principle source of future emissions, the region is critical to the task of global climatechange mitigation. Reflecting this global reality and a range of related domestic issues, the governments of the People’s Republic of China, India, Indonesia, Thailand, and Viet Nam have embarked upon an ambitious policy agenda. This report reviews the present and future policy settings forclimatechange mitigation and green growth in Asia’s major emerging economies. Although recent targets and commitments will involve a fundamental change in emissions trajectories, the urgency and extent of necessary global action requires ambition to be raised even further in developing Asia. An additional transformation will be required forthe trajectory of emissions and energy demand, as well as the future composition of the power generation mix. Achieving these transformations will not be easy. There are a substantial number of policy instruments available, yet significant obstacles stand in the way of their effective deployment. Governments face a number of policy challenges, including: energy sector reform, economic reform, strengthening institutional capacity, and securing international support. The principal conclusion of this analysis is that the task facing Asia’s policymakers is not simply one of setting targets and pursuing narrowly focused policies to reach them. Rather, a broad – scale approach involving all sections of the economy and government will be required to achieve the shift to a sustainable, low-emissions development trajectory.
Paradigm Shift and Transformational Change in International Climate Finance
Significantly higher ambition is needed to combat climatechange and its already irreversible effects—current practice has simply not suf- ficed to reverse the climatic trend. This has consequences forthe de- velopment of programmes and projects, but also for financial support: calling fora higher level of ambition in developing countries means that levels of funding need to shift to higher ambition levels as well. This conviction drove the decision to implement theGreenClimateFund (GCF) of the UNFCCC and other climate finance instruments. However, while there seems to be a common creed to raise the am- bition of both finance and activities, explicit declarations of how a paradigm shift or a Transformational Change may be defined in theclimatechange context are still missing. In its Governing Instrument, adopted in Durban in 2011, decison makers defined the GCF‘s key objective: “In the context of sustainable development, theFund will promote the paradigm shift towards low-emission and climate- resilient development pathways by providing support to limit or reduce their greenhouse gas emissions and to adapt to the impacts of climatechange” 4
given territory’s ‘ecological footprint’, passenger transport and energy use each contrib- ute 18 % while municipal waste accounts for 26 %. The remainder is accounted for by such activities as housing, government and services.
How should cities begin the process of moderating these emissions? They must first know their emissions profile and identify which are badly out of line with acceptable norms. Ecological footprint assessments constitute a credible entry point to the forma- tion by a city (or county) of a strategy to take actions that reduce emissions. In the case of food consumption, it can take direct action to utilise, and even grow, less energy intensive organic food and/or use localised food chains to supply canteens for which it may have sole responsibility (e.g. schools, care homes, administration) as well as animating similar approaches in other public (e.g. hospitals, higher education), private and domestic food consumption environments such as any local food and/or health alliance (Alliance 2004). Regarding passenger transport, city governance may involve using renewable fuels in public bus and delivery fleets, encouraging greater public transport use, using planning policy to limit sprawl and traffic while providing cycleways, green space and downtown housing accommodation. With respect to other energy utilisa- tion, cities can change their purchased energy consumption to renewable sources and install biomass or other clean energy technologies where they generate their own. This connects to the area of municipal waste, which through adoption of waste recycling, can supply biomass for energy production. For energy waste itself, energy-saving initiatives can be taken directly on city-owned buildings, street-lighting, traffic lights, other heating and lighting and nurseries, also indirectly by encouraging energy saving among citizens.
The left-hand side of (9) is the marginal productivity of fossil fuels minus the marginal cost of providing them. This does not only measure the marginal benefit to society from using additional fossil fuels; it also measures the cost arising from foregoing the use of a marginal unit, i.e. the marginal abatement cost. In the optimum, the marginal abatement cost must equal the present value of marginal environmental damage. The marginal environmental damage at time t is the marginal rate of substitution between pollution and consumption, . Future damages are discounted at the gross rate of interest, , including the return on Yaari bonds, plus the natural rate of decay of pollution, . Given that is part of the discount rate, it follows that increased longevity (a lower ) raises the willingness to pay for avoiding climatechange. However, there is also an indirect effect as achange in longevity affects aggregate savings behaviour and this affects the long-run interest rate.
These two conditions are isoclines in a (K,C) phase diagram and standard procedures show that the optimum solution is an increasing saddle path approaching the unique intersection point of the two curves. See Blanchard (1986, p. 232) or Heijdra (2017, p. 569), the only difference being that in our case the production function contains an externality, which, however, does not affect the qualitative result. Figure 1 depicts the isoclines and the equilibrium. The ( ) line approaches the vertical golden-rule line, , asymptotically for . It is seen that golden rule does not hold in the equilibrium. This is a standard result of the Blanchard-Yaari model and it is due to the turnover effect. The turnover term affects aggregate consumption growth negatively, and therefore less capital is accumulated in the long-run. The dashed line shows location of fora decrease in mortality and it is seen that with lower mortality, long- run capital and long-run consumption are larger. Since an increase in capital implies that the marginal productivity of fossil fuels is increased (due to and ), it follows that the carbon tax or emission permit price, , will also rise.
Possible interpretations of our findings are as follows. Some countries specialize in relatively clean industries and production techniques as they become richer. Higher income can also provide more fiscal resources for public investment in environmental protection (Bhagwati 1993). On the other hand, developing countries face significant governance and environmental issues in tackling environmental policy issues, which may be the reason why they find it hard to move from relatively poor and dirty to relatively poor and clean. Furthermore, the environmental awareness of the general public tends to be lower in developing countries and there are thus fewer mechanisms for advocacy. For instance, in the PRC, while there seems to be a growing level of dissatisfaction with pollution in big cities such as Beijing, there is little public debate about solutions. The prevailing perception among stakeholders seems to be that environmental deterioration is a price worth paying for economic growth. Compared to developed countries, in many developing countries, there are fewer mechanisms in place for citizens to lobby forgreen transformation. For example, in the PRC there are no institutional channels for public and social organizations to participate in environmental protection, and only very few environmental nongovernmental organizations exist.
We acknowledge that a better proxy for governance factor would be variables related to pollution regulations, a proxy for which is the World Bank’s Country Policy and Institutional Assessment (CPIA) indicators on the environment. However, this data series is only available from 2005-2014. Given that our data on air quality is only available until 2012, the investigation period from 2005 to 2012 is insufficient to conduct any meaningful empirical analysis. Alternatively, one might think about including dummy variables or indices which could represent the degrees to which regulations seek to control fine particulate matter (PM) emissions, such as vehicular emissions standards (e.g., Euro 2 or Euro 4), technological standards for coal power plants (e.g., whether flue desulphurisation is required), national air quality standards, and so forth. Unfortunately, all of these possible data series are inadequate, in terms of both time-series and cross-section of countries.
Other impact categories, such as agriculture, forestry, energy, water, storm damage, and ecosystems, are directly expressed in monetary values without an intermediate layer of impacts measured in their ‘natural’ units (Tol 2002a). Impacts of climatechange on energy consumption, agriculture, and cardiovascular and respiratory diseases explicitly recognize that there is a climatic optimum, which is determined by a variety of factors, including plant physiology and the behaviour of farmers. Impacts are positive or negative depending on whether the actual climate conditions are moving closer to or away from that optimum climate. Impacts are larger if the initial climate conditions are further away from the optimum climate. The optimum climate is of importance with regard to the potential impacts. The actual impacts lag behind the potential impacts, depending on the speed of adaptation. The impacts of not being fully adapted to new climate conditions are always negative (Tol 2002b).
10 weights. The estimated social costs of carbon differ between regions, with richer regions facing higher cost estimates. This confirms that optimal climate policy has different carbon tax rates for different countries (Chichilnisky and Heal 1994;Sheeran 2006). These results underline the importance of discounting and the distribution of income and impacts for evaluating the appropriate level of a carbon tax. Note that the framework presented here is incomplete. I ignored distributional issues within regions (Baer et al. 2009). I ignored uncertainty (Weitzman 2009). I assumed that the trade-offs between people living at the same time are governed by the same curvature of the utility function as trade-offs between people living at different times (Atkinson et al. 2009). I use strictly utilitarian welfare function fora global planner (Anthoff and Tol 2010). I ignored that population growth (incl. migration) is endogenous (Blackorby and Donaldson 1984). I omitted that, if the discount rate forclimate policy is different, this would have an effect on the capital market (Ramsey 1928). These issues are deferred to future research. Acknowledgements
Dawn of a New Climate Policy Paradigm?
The Paris Agreement can and should be criticised. Clearly, the Paris Agreement does not resolve climatechange as an environmental problem. Critics have voiced concerns over increasing inconsis- tency between the collective goals and pledges (and actions even more so) from individual countries (Geden 2015). The emissions reductions pledged by countries under the Paris Agreement are widely out of line with its global target. Assuming these pledges are implemented, the global mean temperature would most like- ly still increase in the range of 2.7 °C to 3.5 °C, and the actual achievement of contributions is not a legally binding obligation. Yet it is remarkable that this shortfall of ambition has been ex- plicitly highlighted in the decisions accompanying the Agree- ment (UNFCCC 2016, para. 17).
its own way to climatechange mitigation policies. Industrialized regions based their historical growth on fossil fuels and have a lock-in to carbon intensive technologies. New investments into carbon free technologies increase the costs of the energy production, but these regions are also often technological leaders and might be very successful in developing new technologies. The export of such new low carbon technologies might be profitable for industrialized regions. Developing countries that are in the process of installing their energy production sector call for information on which technology will be most important in the future. Depending on the geographical determinants, the renewable potential can vary significantly. These potentials determine for example the share and role of wind and solar energy in the future energy production mix. Different types of potential are considered: The theoretical, geographical, technical economic and implementation potential. The regionally highest potential of onshore wind energy is found forthe USA: 21PWh/y, while lowest figures are found for South East Asia, Southern and Western Africa and Japan. Nevertheless, potentially high contributions of solar PV are expected in North, East and West Africa and Australia. In Japan, OECD Europe and Eastern Europe the relative potential is less (see Hoogwijk ). Moreover, the use of biomass might induce conflicts between cheep carbon free energy production and regional food demand. Beside the potential of renewable energy technologies, the regional endowment with fossil reserves determine the decision of the investments into the future energy mix and whether a country is willing to push climatechange mitigation or not. However, perhaps losses due to reduced fossil fuel exports might be compensated partly by biomass exports in aclimate policy. Because of these differences between regions influencing theclimatechange mitigation costs and strategies significantly, for an adequate analysis multi-regional IA models should be used. Nevertheless, a regionalization of an IA model introduces new decision options like the emission permit allocation scheme.
of results-based action. These submissions had been considered by the AWG-LCA during 2012 and resulted in a technical paper for further consideration in Doha.
Hence, the major fora of REDD+ negotiations in Doha were the SBSTA and the AWG- LCA, with the treatment of technical issues under the SBSTA being the main track in the first week of negotiations. After the opening session of the REDD+ SBSTA contact group Parties shifted directly into the informal negotiations mode and meetings were held behind closed doors until Saturday to discuss methodological guidance for NFMS and MRV. Initially, substantial progress was achieved: national forest monitoring systems were agreed to be linked to safeguard information systems and a link between the setting of reference levels and MRV methods was established, ensuring that consistent and similar methods need to be used in all countries. However, negotiations stalled when Parties touched on the issue of verification and a major divide between donor countries and developing countries emerged. While Norway, currently the biggest investor in activities to reduce deforestation, was pushing for independent verification of actions by international experts, Brazil was opposed to external verification, arguing that MRV of REDD+ should be consistent with the process of international consultation and analysis (ICA) that was agreed for NAMAs and which is considerably softer on developing countries. With Parties unable to resolve this issue in Doha and an agreement on verification out of reach, the final text on NFMS and MRV remained bracketed and Parties decided to continue the work during 2013 with a draft decision to be prepared by COP19 in Warsaw. 29
research activities in this area. Among the initiatives, the most comprehensive one is the re- cently published OECD book on ‘the benefits of climatechange policies’ (2004). 1
The OECD book presents a selection of review papers each focussing on different aspects of the benefits of mitigation policy. The study points out that problems with coherent benefits research arise for two reasons, partly due to lack of research and partly due to lack of synthe- sis of research into some coherent measure or set of measures for policymakers and the public to understand and weigh the benefits. The goal, thus, is to provide a survey of available in- formation and to set out a framework and priorities for future research work. The overall aim of the OECD initiative is to improve the information on the benefits of climate policies for policymakers. Several interesting studies exist that focus on the quantitative assessment of the costs and benefits of mitigating climatechange with the help of integrated assessment models (e.g. Tol et al. 2004, Nordhaus and Boyer 2000, Fankhauser 1994, Hope 2004, etc.). The models differ in their regional, sectoral and time coverage and need to be seen in light of the model structure, assumptions and uncertainties as pointed out below. Fora survey and discus- sion of studies using an integrated assessment approach see also Pittini and Rahman (2004) and Schellnhuber et al. (2004).
Figure 3: (ICA, Ma cr ) Combinations and Pareto Optima for Study 5 (ILR-02 @ 3600 nm)
Own illustration, Institute of Aerospace System (2016)
Comparison with results from literature
Study 4 and study 5 are designed to match the study cases of Dahlmann (2011) and Koch (2013) respectively, both obtained using the DLR code AirClim in combination with the aircraft design tool PrADO of the Technical University of Braunschweig. Most dominant difference between the DLR results and the investigations within this research project for long distances is theclimate impact in altitudes between 38,000 and 30,000 ft. In the present investigation the used climate model of Schwartz Dallara (2011) allocates strong correction factors for aircraft induced cloudiness AIC leading to an increase in climate impact if lowering the altitude in this altitude range. This is in contrast to the results of Dahlmann (2011) and Koch (2013) who do not observe such detrimental effect. Instead, in their investigations any lowering of altitude leads to a continuous substantial reduction of climate impact. Artificially reducing the correction factor for AIC of Schwartz Dallara (2011) model leads to better agreement of the obtained results with those from DLR. This exercise proofed that AIC modelling causes the major part of discrepancy. As there is no chance for classical validation and verification of the two approaches of Schwartz Dallara (2011) and DLR due to lack of suitable data it is not possible to determine whether the modelling of Schwartz Dallara (2011) leads to an overprediction, or whether the DLR model does not account forthe effect of AIC appropriately.
The modeling of the transportation cost takes into account the frequency, traffic congestion and tourism-specific pattern of travel flows and is made using a nested logit estimation model. The passenger demand model is specific to short-distance movements (below 100km) and long-distance (equal or greater than 100km). The former considers four alternative modes (rail, bus, car passenger and car driver) fora tour n, whereas long-distance considers air travel as well. Importantly, each transport mode and destination choice accounts for accessibility linked to induced traffic and thus accounts for seasonal peaks in travel flows which are especially relevant during the summer season. The Appendix 2 provides more details on the different estimation stage and the structure of the Trans-Tools model used to obtain our bilateral transport cost estimates. It is important to note that Trans-Tools provides travel cost estimation at the geographical NUTS3 level. When building our transport cost matrices at NUTS2 level, we thus include the average cost of transport between each EU NUTS2 regions based on the NUTS3 estimates using weighted-population data. This in turn allows us to measure within-NUTS2 transportation cost as an average of the NUTS3 cost estimates in the same way as previously explained forthe hotel price data. The Trans-Tools estimated were also adjusted in order to add up to Eurostat country-level totals by origin and destination country. To adjust the national trips with a holiday purpose we have not considered intra-zonal trips (the ones with origin and destination in the same NUTS3 region, assuming that they will not lead to hotel overnights) and have used the ratios for national and international tourism flows available from Eurostat for each country instead (for Cyprus, Malta and Luxembourg we consider intra-zonal trips as they are comprised of only one zone). Once the TT trips are adjusted we aggregate the costs across modes and across the NUTS3 in each NUTS2 region using TT adjusted trips and TT shares across modes, the latter not being affected by the adjustment fora given origin and destination region. Hence, to produce a cost matrix at NUTS2 level we also have to construct a trip matrix at the same level of regional detail and that adds up to Eurostat tourism trips figures based on total number of bednights observed at regional level.