Financing for Low Carbon Financing for Low Carbon Societies in Asia Societies in Asia Mizan R. Khan, R. Khan, Ph.D Mizan Ph.D Professor & Chair Professor & Chair Dept of E E nv Science & Management Science & Management Dept of nv North South University, Dhaka North South University, Dhaka mizanrk@northsouth.edu mizanrk@northsouth.edu ---- ---- Workshop on LCS in Asia, Sukuba Sukuba, Japan , Japan Workshop on LCS in Asia, 13 February 2009 13 February 2009
Presentation Outline Presentation Outline � Conceptual Framework for a Global Public Good (GPG) � Conceptual Framework for a Global Public Good (GPG) like a Stable Climate like a Stable Climate � Avenues of Financing for a LCS � Avenues of Financing for a LCS • Country Country- -based Taxes & Incentives based Taxes & Incentives • • Bilateral & Multilateral Funding • Bilateral & Multilateral Funding � Opportunities in Asia � Opportunities in Asia � Role of Japan Role of Japan � � Some Suggestions � Some Suggestions
Conceptual Framework for A GPG Conceptual Framework for A GPG � Use of atmospheric sink as a Global Commons is Use of atmospheric sink as a Global Commons is � non- -excludable, but rival excludable, but rival non � CC is a Global Public Bad; so carbon reduction (CR), � CC is a Global Public Bad; so carbon reduction (CR), aimed at halting CC, is a GPG aimed at halting CC, is a GPG � But CR as a GPG suffers from under supply & non � But CR as a GPG suffers from under supply & non- - participation, because : participation, because : • Countries are guided by short- -term cost term cost– –benefit analysis benefit analysis • Countries are guided by short –– in case of CR, costs are viewed by some to be higher in case of CR, costs are viewed by some to be higher –– • Mainstream economic paradigm does not promote the • Mainstream economic paradigm does not promote the commitment of resources for some GPG, benefits of which commitment of resources for some GPG, benefits of which are to be derived in some distant future are to be derived in some distant future
Framework of CR as a GPG ( Framework of CR as a GPG (contd contd) ) � Powerful conventional power market lobby is not a supporter Powerful conventional power market lobby is not a supporter � of cleaner technology for CR of cleaner technology for CR � � There is the free There is the free- -rider problem in this Global Commons rider problem in this Global Commons � Contribution to the problem is unequal & the more affected � Contribution to the problem is unequal & the more affected countries lack the resources to provide such a GPG countries lack the resources to provide such a GPG � Principle of CBDR establishes a responsibility & capability � Principle of CBDR establishes a responsibility & capability- - based mechanism of funding based mechanism of funding � The corollary of CBDR is the Polluter Pays Principle (PPP) for � The corollary of CBDR is the Polluter Pays Principle (PPP) for internalization of a negative externality like carbon emission internalization of a negative externality like carbon emission � If the industrial market economies accept this basic market If the industrial market economies accept this basic market � instrument for global application, the problem of financing for instrument for global application, the problem of financing for a LCS is greatly solved a LCS is greatly solved
How much a Global LCS would cost ? How much a Global LCS would cost ? � Stern Review (2007) estimates that inaction will cost 5 Stern Review (2007) estimates that inaction will cost 5- -20% of 20% of � global GDP, but action now will cost only 1% of it global GDP, but action now will cost only 1% of it � E E stimates in Japan also put a similar figure – – about 1% of its about 1% of its � stimates in Japan also put a similar figure GDP for putting Japan on a Low Carbon path GDP for putting Japan on a Low Carbon path � � Put in different terms, this equals a global Put in different terms, this equals a global av av cost of about 2 cost of about 2 cents/ kwh kwh or 25 cents/ gallon of gasoline or 25 cents/ gallon of gasoline cents/ � UNFCCC estimates about $200 UNFCCC estimates about $200 bn bn is needed to return GHG is needed to return GHG � emissions to current levels in 2030; this is just 0.3- -0.5% of 0.5% of emissions to current levels in 2030; this is just 0.3 global GDP & 1.1- -1.7% of global investment 1.7% of global investment global GDP & 1.1 � � Cost/ ton of avoided CO Cost/ ton of avoided CO emissions can be kept at an average 2 emissions can be kept at an average 2 of $25- -30/ t 30/ t of $25 � � Stern recommended doubling of public funds for energy R & D Stern recommended doubling of public funds for energy R & D to reach about $20 bn bn/ yr / yr to reach about $20
Avenues for A Low Carbon Society Avenues for A Low Carbon Society � Pricing of carbon – – in 3 ways: in 3 ways: � Pricing of carbon • Taxing of CO emissions (possible in revenue- -neutral way) neutral way) • Taxing of CO 2 emissions (possible in revenue 2 • Cap & trade of carbon in the Annex- -1 Parties (E 1 Parties (E U E TS), close to $100 bn bn • Cap & trade of carbon in the Annex U E TS), close to $100 – Int Int’ ’l carbon pricing is needed for l carbon pricing is needed for incentivising incentivising long long- -term investment in R D term investment in R D – of CT; a tighter emissions cap may lead to scarcity of allowances, driving s, driving of CT; a tighter emissions cap may lead to scarcity of allowance the price, but uncertainty yet after 2012 the price, but uncertainty yet after 2012 – Out of 1035 CDM projects (as of May 2008); about 60% in Asia – Out of 1035 CDM projects (as of May 2008); about 60% in Asia – – 68% 68% of CDM are E E or RE projects of CDM are E E or RE projects • Mobilization of funding through levies on activities, such as aviation iation • Mobilization of funding through levies on activities, such as av � � Adoption of techs, such as Nuclear energy, RE Adoption of techs, such as Nuclear energy, RE DD & CCS (Use of 300 DD & CCS (Use of 30 0 mn mn E E U U E TS allowances as a `carrot’ ’ for early movers in CCS demo plants) for early movers in CCS demo plants) E TS allowances as a `carrot � � Int’ ’l cooperation for E l cooperation for E E , RE & LCT, which are the core of a LCS Int E , RE & LCT, which are the core of a LCS � This cooperation is to be based on the principles of CBDR & PPP � This cooperation is to be based on the principles of CBDR & PPP
Unilateral, Country- -based E based E nergy Unilateral, Country nergy Tax & Incentives Tax & Incentives � A wide array of taxes & incentives are already in � A wide array of taxes & incentives are already in operation in both developed & developing countries: operation in both developed & developing countries: • Carbon tax on fossil fuels, Sulfur tax, Charge on nitrogen • Carbon tax on fossil fuels, Sulfur tax, Charge on nitrogen oxides, Producer tax on electricity etc. oxides, Producer tax on electricity etc. • Investment in energy saving & renewable energy as income • Investment in energy saving & renewable energy as income tax deductibles tax deductibles • Renewable energy investment subsidies/ tax credits, • Renewable energy investment subsidies/ tax credits, operating cost subsidies, import duty exemptions operating cost subsidies, import duty exemptions • Dedicated funding agency to provide loans for renewable • Dedicated funding agency to provide loans for renewable energy at below market interest rates energy at below market interest rates � Taxation of polluting fuels directly promotes RE � Taxation of polluting fuels directly promotes RE & E E & E E
Multilateral Funding for E E , RE & CT � World Bank World Bank’ ’s Investment Framework for Clean s Investment Framework for Clean � E nergy & Dev, Carbon Market Continuity Fund E nergy & Dev, Carbon Market Continuity Fund for purchasing post- -2012 credits, and Carbon 2012 credits, and Carbon for purchasing post Facility for Low Carbon Growth Facility for Low Carbon Growth � IFC � IFC’ ’s s Renewable & E Renewable & E nergy E fficiency Fund – – ~$200mn, ~$200mn, nergy E fficiency Fund to leverage private sector partnership to leverage private sector partnership � ADB is developing a carbon market to boost CE ADB is developing a carbon market to boost CE � projects, and will allocate $1 bn bn of annual lending for of annual lending for projects, and will allocate $1 E E through a proposed Asia- -Pacific Fund for E Pacific Fund for E E E E through a proposed Asia E � ADB � ADB’ ’s s CC Fund with initial allocation of $40 CC Fund with initial allocation of $40 mn mn � Asia � Asia- -pacific Partnership on Clean Dev & Climate pacific Partnership on Clean Dev & Climate
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