The Fight Over International Climate Investments

Lawmakers continue to debate the fiscal year 2011 budget. As we approach the next showdown this week over another temporary extension of the continuing resolution, a final resolution of the 2011 budget, or a government shutdown, the top climate issue in this debate is whether the Environmental Protection Agency should have the authority to regulate greenhouse gases.

A no less critical issue, however, is the potential cuts to international climate investments and assistance. The stakes are high on this issue, and we can see the divide between congressional Republicans and the Obama administration between the initial continuing resolution released in January and the president’s 2012 budget.

In short, cutting these investments now would endanger crucial U.S. leadership on efforts to reduce greenhouse gas emissions worldwide.

Climate investments are critical now

At this stage in the international climate negotiations the flow of money is key to continuing the process and having any chance of achieving some semblance of climate safety moving forward.

Most experts agree that the world needs to cut emissions in half by 2050 to have a decent chance of limiting temperature increase caused by carbon pollution at two degrees Celsius over pre-industrial levels. Climate scientists concur that holding temperature at this level is key to avoiding the worst effects of global warming. While it is generally accepted as a matter of fairness that the first and deepest cuts should come from developed countries it would be impossible to stabilize emissions at acceptable levels without the participation of developing countries.

To take just one example, the most recent analysis from the Energy Information Agency shows that the Asia and Oceanic region of the world is now emitting twice as much carbon dioxide as North America. These increases are unfortunately offsetting concomitant reductions in emissions by developed countries. So while U.S. emissions went down 7 percent between 2008 and 2009—primarily due to the economic recession—India’s went up 8.7 percent in the same period.

We should certainly expect emissions increases in developing countries because of the difficulty in transitioning away from high-carbon to low-carbon power sources as their economies grow to bring their populations out of poverty. Even with India’s recent growth there are millions of people still living in abject poverty and millions more in “energy poverty” without access to reliable sources of electricity on a daily basis.

The only way to achieve our goals for climate stabilization is to help these countries develop in a more sustainable way using lower-carbon or zero-carbon energy sources so that their rate of pollution increase slows down and eventually comes down as ours hopefully will.

When and to what extent developing countries are able to begin slowing and bringing down their emissions greatly affects our chances of holding temperature at two degrees Celsius. Last year when the American Power Act was introduced in the Senate the Environmental Protection Agency analyzed two scenarios on developing country action. In one scenario developing countries’ emissions peak beginning in 2025 and return to 26 percent below 2005 levels by 2050. In the second developing countries adopt policies in 2050 holding emissions constant at 2050 levels. Assuming that developed countries fulfill their stated goal at the 2009 G8 summit in Italy to reduce emissions 80 percent by 2050 we only have an 11 percent chance of holding temperature at two degrees Celsius under the scenario where developing countries begin holding their emissions in 2050. If developing countries peak emissions in 2025 then these odds improve to a 75 percent chance of holding emissions at two degrees.

It is in the context of these odds—which are essentially a bet on our children’s future welfare—that we need to understand the critical nature of current debates in the budget over international climate investments. At the 2007 U.N. climate summit in Bali, Indonesia the Bush administration agreed to the “Bali Action Plan.” This laid out the basic formula for enticing developing countries to take a more aggressive path toward reducing their emissions and potentially agreeing to a binding framework for those emissions. The essential elements were that developing countries would agree to reductions in exchange for finance and access to clean energy technology.

At the 2009 U.N. climate summit it was agreed that the first down payment on this agreement would be the release of $30 billion in “fast start” financing from developed to developing countries. The Obama administration immediately moved to allocate approximately $4 billion toward this total for a collection of bilateral and World Bank initiatives in climate adaptation, clean energy development and deployment, and avoided deforestation programs.

These programs not only help developing countries begin decreasing their emissions but also create opportunities for investments by U.S. companies that deliver the programs that capture these pollution reductions. Moreover, the United States’s ability to reduce our own domestic emissions and our contributions to the global funds that collectively bring down global emissions to tolerable levels is essential for maintaining our credibility in the international arena. Our international partners are skeptical of our ability to deliver on our own domestic pollution reductions given the failure of Congress to pass comprehensive climate legislation. Thus our continued ability to deliver on funds for overseas climate investments becomes even more important to bolster our credibility in this process.

The House plan to eliminate climate investments

The original House continuing resolution or CR for the fiscal year 2011 budget slashes international clean energy and climate program funds to a debilitating level and eliminates entire programs that are crucial for helping developing countries adapt and advance on a low-emission economic trajectory. The level of international climate and clean energy financing in the CR—around $822 million—is significantly less than what the president requested in his budget. The CR also slices the $1.3 billion Congress appropriated for international climate funding in 2010 by more than half.

The starkest example of these cuts is the CR’s zeroing out of two very important World Bank climate funds: the Clean Technology Fund and the Strategic Climate Fund. The $4.4 billion Clean Technology Fund, or CTF, helps to scale up clean energy technology in large-emitting developing countries. Every $1 invested in the CTF leverages around $8 in co-financing from multilateral development banks, governments, the private sector, and other development organizations.

The Strategic Climate Fund includes the Forest Investment Program, or FIP, which supports carbon financing that facilitates the development of revenue streams flowing from the reduction of greenhouse gas emissions to be used for reducing deforestation in developing countries and the program for Scaling-up Renewable Energy in Low Income Countries.

The Strategic Climate Fund also funds the Pilot Program on Climate Resilience. Poor countries such as Bangladesh, Niger, and Tajikistan were named recipients of this program in November 2010. These countries will receive a total of $270 million to establish climate adaptation strategies including buttressing deteriorating coastlines, improved land use and ecosystem practices, and adopting clean energy. These efforts could save millions of people from the impacts of warming we are already experiencing today.

The CR’s cuts are so deep, in fact, that they threaten to render critical programs ineffective. For instance, U.S. funding for the Global Environment Facility, or GEF, currently the primary source of international clean energy investments, would be cut by 63 percent down to $32 million in the CR budget. The GEF distributes hundreds of millions of dollars annually through the United Nations Framework Convention on Climate Change, namely the Least Developed Countries Fund and the Special Climate Change Fund. The Special Climate Change Funds disburses funds for adaptation, clean technology transfer, and assisting developing countries transition to a diversified clean energy economy.

The GEF is a critical tool for leveraging additional bilateral and multilateral investments. For instance, on February 17, 2011, the GEF announced a $33 million energy efficiency and renewable energy project in India that will save 276,000 megawatt hours per year and expand the market for clean energy technologies in India. The $7 million grant from the GEF leveraged an additional $26.2 million in co-financing by the Indian government and the United Nations Industrial Development Organization. President Barack Obama is requesting a 92 percent increase from FY 2010 for this important financial mechanism.

The CR also cuts funding for the Millennium Challenge Corporation, or MCC, by 30 percent to $790 million. The MCC, an initiative the Bush administration championed, was created by Congress in 2004 to allocate U.S. foreign assistance for recipient country-led policies that integrate environmental, economic, and social goals. Policies that address climate change are a priority for the MCC because they generate economic growth, job creation, and improved livelihoods.

The MCC is already helping countries establish and implement development policies that align environmental sustainability with economic development. A project in El Salvador is providing electricity to approximately 8,600 people in rural areas through the installment of clean solar power. Communities and families benefit from lower energy costs and improved health outcomes from avoiding burning oil and wood. And we all benefit from avoided emissions.

The CR also excludes provisions for the bipartisan-supported Tropical Forest Conservation Act, or TFCA. TFCA supports debt-for-nature swaps that allow developing countries to relieve debt owed to the United States by conserving and protecting forests.

The program—originally sponsored by Sen. Rob Portman (R-OH) while he was serving in the House and Sen. Richard Lugar (R-IN) in 1998—provides significant opportunities for public-private partnerships and leveraging private finance. But Rep. Tom McClintock (R-CA) is offering an amendment to the CR that would rescind funding for TFCA.

International climate assistance in the presidential budget

International aid—including climate assistance—should be a priority in the budget because it is an investment in America’s long-term security. Without international assistance there is little motivation for other countries to cooperate with us on our security goals. This priority is reflected in the president’s 2012 budget.

The total presidential budget for development assistance flowing from the State Department is $2.9 billion—more than twice the amount the CR allocates to bilateral development assistance. The White House budget directs around $1.3 billion for international climate change financing including $659 from the Treasury Department and $651 million flowing from the State Department “to address the environmental, human security, economic, and political threat of global climate change.”

The administration allocates $1.125 billion toward the MCC in the 2012 budget. It maintains and increases funding to both the Strategic Climate Fund at $190 million and the Clean Technology Fund at $400 million. The GEF receives a boost of up to $144 million, a 40 percent increase. The TFCA is reduced to $15 million from $20 million in previous years. According to the president’s budget this level of financing for TFCA will generate $260 million for forest conservation over time.

But we can already see the intention to roll back these advances with the fight over the CR and the announcement of Congressman Paul Ryan’s (R-WI) budget plan this week. The Ryan budget cuts the international affairs budget of the State Department by 27 percent for FY 2012, which would make it impossible to achieve the climate investment milestones laid out in the president’s budget. Combined with the expected cuts this year from any budget compromise the United States could effectively get dealt out of a large part of the international climate negotiations. In other words, if we fail to dole out funding we are in trouble in the international community.

The stakes are already high. Just this week the new year of international negotiations started in Bangkok, Thailand. They will lead up to the next U.N. climate summit at the end of this year in Durbin, South Africa. Already the talks are breaking down on whether the parties should continue with the progress made with the Cancun agreements last December or delay for a discussion on the future of the Kyoto Protocol. The United States is pushing hard for the former but uncertainty over its ability to continue showing leadership in climate finance will jeopardize this position.

The critical importance of international climate investments must be kept in the forefront of budget discussions.

Rebecca Lefton is a Policy Analyst and Andrew Light is a Senior Fellow and Coordinator of International Climate Policy at the Center for American Progress.