Pembina Institute's Response to Environment Canada's announcement on international climate financing contribution — Oct. 5, 2010
Last week saw the federal government finally reveal where Canada's 2010 international climate financing contribution will go. Unfortunately, the news shows that Canada's contribution to helping poor countries tackle climate change is less than it appeared when first announced.
To recap the story so far:
- Last December in Copenhagen, developed countries committed to provide US$30 billion in "new and additional" support for developing countries from 2010 to 2012. That's one piece of a longstanding commitment to help poor countries cope with a global climate problem that many of them did virtually nothing to create.
- In June, just before the G8 and G20 meetings in Canada, Environment Minister Jim Prentice announced that Canada would contribute C$400 million in 2010. Pembina's response was positive: our analysis is that $400 million, or about 4% of the 2010 total, would be a "fair share" contribution from Canada to the Copenhagen Accord's $30 billion short-term total. However, the government's June announcement provided no details about where the funding would go.
Late last Friday, the government announced its plans to spend the funding. Seventy-two per cent of the total will take the form of loans to the World Bank's private-sector lending arm, the International Financing Corporation, for "clean energy" projects. Just 11 per cent is dedicated to grants to help poor countries cope with climate impacts, including a $20 million grant to the UN's Least Developed Countries Fund (a fund that we support).
There are three main concerns about the government's financing plans.
The problems with loans
First, Canada's 2010 financing is too heavily weighted towards loans. We'd like to see the overwhelming majority of Canada's financing provided as grants, not loans. It's true that loans can be useful for helping support clean energy development, but there are significant needs — for feasibility studies, government policy support, training, and more — where grants are required to get the job done. A June analysis from Project Catalyst shows that, on average, other developed countries will provide just under one third of their financing as loans (see Exhibit 6, page 16). Canada trails far behind, expecting recipients to repay nearly three-quarters of its climate contribution.
At the very least, since Canada has chosen to make loans such a huge part of its 2010 commitment, the government must be transparent about how it accounts for those loans. There are accepted methodologies in international financing that allow countries to convert loans to their "grant equivalent," which would allow us to see how much of a benefit these loans are really providing to their recipients. So far, Canada hasn't published that information, instead taking credit for the full value of its loans. This decision overstates Canada's contribution; if the government accounted for just the "grant equivalent" of Canada's financing, it would add up to much less than $400 million.
And while we're on the question of transparency, it's worth noting that the government's announcement does not provide any details about how it will define "clean energy." Will Canada ensure that the financing supports real climate solutions, like renewable energy and energy efficiency? And will it report back to Canadians on the projects it supports?
Striking a balance
Next, there's the split between spending on actions that reduce emissions ("mitigation") and spending on solutions for adapting to climate change. The Copenhagen Accord calls for a "balanced allocation" between those two priorities, since both are important. For the poorest, adaptation is the overwhelming priority: emissions are already extremely low in those communities, and many people are very vulnerable to the consequences of global warming. "Balanced" doesn't necessarily mean 50–50, but spending just 11 per cent of Canada's total on adaptation is definitely not balanced.
Doing the math
Finally, there's the question of where these dollars come from. Climate change hasn't make fighting poverty any less important, so we hoped to see Canada provide new funding that's over and above our international aid budget. Instead, it appears that the funding comes from the aid dollars that the federal government announced in its 2010 budget — which means less funding is available from Canada for other international aid, like supporting schools, disaster relief and hospitals in poorer countries. (The government says that its contribution is "additional," because it's more funding than they were planning to provide before the Copenhagen Accord was negotiated. We're not arguing with that — but we don't think it's the right starting point for determining what's really "new and additional.")
In 2011 and beyond, Canada can do much better. For example,
- The government should announce its 2011 and 2012 contributions earlier, providing more predictability for the countries who will receive the funding. (This could also help Canada become one of the financing leaders, instead of being among the very last countries to announce a contribution.)
- Canada needs to offer more grants, and to be clear about the real value of any loans it does provide.
- Canada shouldn't play down the urgent needs of very poor communities to adapt to climate change: adaptation needs to be a bigger part of the government's effort.
- Canada should ensure that "clean energy" projects it supports are truly clean. Energy conservation, efficiency, and low-impact renewable energy meet that test.
- And finally, the government needs to find new, innovative ways to support climate action in poorer countries — ways that don't cut into the aid budget. (In a briefing note Pembina co-wrote with Oxfam last year, it was suggested that revenues from a price on greenhouse gas pollution in Canada would generate more than enough funding to provide Canada's fair share.)
After all — we helped to create this problem, and have a responsibility to help fix it. Fair's fair.