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Climate Finance

Climate Finance (53)

What is the Economics of Climate Change?

Nicholas Stern

The science of climate change

Climate change is a serious and urgent issue. There is now an overwhelming body of scientific evidence that human activity is causing global warming, with the main sources of greenhouse gases, in order of global importance, being electricity generation, land-use changes (particularly deforestation), agriculture and transport; the fastest growing sources are transport and electricity.


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The CDM market has witnessed dramatic progress in the past few months, with more than 1,700 projects in the pipeline by March 2007. However, CDM project development still faces barriers that prevent a much larger potential expansion in the number of CDM projects worldwide.
Many project developers identify lack of access to financing as one of the key reasons why numerous CDM project concepts never materialise. This has been the case especially for Africa and for other parts of the developing world. At the same time, local financial intermediaries in developing countries continue to play a limited role in financing CDM projects. Lack of knowledge about CDM modalities and procedures and about approaches for financial appraisal of CDM projects are among the reasons for this lack of participation in the CDM by local banks in host countries. UNEP’s Capacity Development for CDM (CD4CDM) Project has collaborated with EcoSecurities, a CDM project development and consultancy firm, to produce this Guidebook with the objective of closing the communication gap between financial intermediaries in host countries and project developers. The Guidebook attempts to demystify the CDM for the banking community in host countries while also aiming to build the capacity of host country project developers in understanding financial and economic factors related to CDM project structuring. We hope the Guidebook will contribute to financial intermediaries in host countries playing an increased role in the CDM. The CD4CDM Project would like to express appreciation to the primary authors of this document from EcoSecurities: Francisco Ascui, Marius Kaiser, Miles Austin and Vincent Helfferich, with inputs from Marc Stuart, Melinda Van Nimwegen, Jan-Willem Martens, David Antonioli, Souheil Abboud, Jose Castro, Eron Bloomgarden, Sonia Medina and Pieter-Johannes Steenbergen, as well as Prem Sagar Subedi from Winrock International Nepal and Fernando Alvarado from E+Co Capital. Special thanks to Veronique Bishop, the World Bank Group, who reviewed and commented on earlier drafts. I would also like to thank Glenn Hodes, Joergen Fenhann and Julia Schmid, UNEP RISOE Centre, for their insightful comments and suggestions.


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The conclusions given in this report are considered appropriate for the time of its preparation. They may be modified in the light of further knowledge gained at subsequent stages of the project. The designations employed and the presentation of material in this information product do not imply the expression of any opinion whatsoever on the part of the Food and Agriculture Organization of the United Nations (FAO) concerning the legal or development status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. The mention of specific companies or products of manufacturers, whether or not these have been patented, does
not imply that these have been endorsed or recommended by FAO in preference to others of a similar nature that are not mentioned.


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Climate Change, Competitiveness and Trade

Aaron Cosbey and Richard Tarasofsky

A Chatham House Report

June 2007

This report considers the implications of the Kyoto Protocol on competitiveness and addresses the WTO-compatibility of measures to offset competitive losses.

 From the outset the Kyoto Protocol and the United Nations Framework Convention on Climate Change have had to contend with perceived tension between effective action to slow climate change and maintenance of competitiveness. This report explores the nature of the concerns over competitiveness, trying to dissect them in a meaningful way and assess the need for concern. It employs a definition of competitiveness that applies as between firms, as opposed to any general notion of the competitiveness of nations.

Two types of competitiveness concerns are identified and addressed. The first – the ‘non-Party problem’ – is that implementation may create an uneven playing field, with firms and sectors from non-Parties enjoying an unfair advantage because they are not subject to carbon constraints. The second – the ‘implementation problem’ – is that Parties may create unfair competitive advantages for domestic industry by the manner in which they implement their Kyoto commitments.


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A Guidebook to the Green Economy

Issue 4: A guide to international green economy initiatives

United Nations Division for Sustainable Development, UNDESA

In June 2012 at the United Nations Conference on Sustainable Development (Rio+20), after months of challenging negotiations, governments agreed that green economy was an important tool for sustainable development. They also agreed that the green economy needs to be inclusive and should drive economic growth, poverty eradication, employment and decent work for all, whilst maintaining the healthy functioning of the Earth’s ecosystems. Importantly, the Rio+20 outcome document also recognises that capacity building, information exchange and experience sharing will be critical for implementing green economy policies. In this context, it invites the United Nations (UN) to work with partners to provide support to developing countries and to develop toolboxes, best practices, methodologies and models, and platforms to aid green economy policy design and implementation.

Following Rio+20, the UN Division for Sustainable Development (UNDSD) began publishing a new series of guidebooks on the green economy which aim to provide useful resource guides for practitioners and other stakeholders on various emerging green economy issues. Issue 1 of A Guidebook to the Green Economy provided a guide to the history and emerging definitions of green economy and related concepts such as green growth and low-carbon development 1. It also included a concise guide to approximately 90 recent green economy publications including reports, policy papers, toolkits and national strategies.


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The economics of avoiding action on climate change

Eleven of the past 12 years were the warmest on record, atmospheric concentrations of carbon dioxide (CO2) are higher than at anytime over the past 650,000 years and glacier melt threatens the availability of water to 500 million people in South Asia and 250 million people in China. So reports the Chairman of the Intergovernmental Panel on Climate Change (IPCC). Yet the world has failed to act despite such outcomes having been predicted for 20 years or more. Could part of the reason be that economists have been fiddling to produce figures recommending inaction while the planet gets set to burn?

Although economists first applied their craft to climate change in the early 1970s, “greenhouse economics” has been a minority interest until recently. Those conducting economic studies tended to believe control costs matched or outweighed the benefits of avoiding damages. This changed in October 2006 when a UK government backed and funded report by Sir Nicholas Stern, an ex-Chief economist of the World Bank, concluded international action to reduce emissions was economically justified. Economic Nobel laureates clamored to make statements of support. Does this apparent awakening of mainstream economists offer hope, a case of better late than never?


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Climate Change and Economic Development: A Pragmatic Approach

Two major problems promise to dominate economic and social policy during the twenty first century. These are global climate change and the growing gap between the rich and the poor. Economists are facing these issues at a time when many of the standard tools of economic analysis—for example, competitive general equilibrium and the theoretical system that supports it—have fallen into disfavor in analysing global issues involving uncertainty and irreversibility. This is both a challenge and an opportunity for development economics. This paper first examines economic models of human development and climate change, drawing, where possible, on the situation in Pakistan. We then outline an approach to coping with climate change based on new perspectives in behavioural and development economics, and on the likely consequences of global warming for Pakistan. We focus on adaptation to climate change rather than on mitigation strategies. 


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A new market in carbon has grown up over the last few years, and some small communities are benefiting from it. In Nepal, households in remote rural areas are being helped to install biogas plants, which means that they no longer need to spend time collecting wood or spend money on kerosene. In Honduras, a small hydroelectric project is bringing better electricity services to communities, enabling community members to set up small businesses and allowing their children to study in the evenings. To what extent can other communities do the same and benefit from carbon finance? This guide aims to help communities to identify opportunities in the carbon market and to consider whether a carbon project would be suitable for them. It is not possible for every community to benefit and some communities may not feel that a carbon project would improve their lives. But it is important for communities to make these decisions on the basis of knowledge about the carbon market.


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The scientific evidence is now overwhelming: climate change is a serious global threat, and it demands an urgent global response. This Review has assessed a wide range of evidence on the impacts of climate change and on the economic costs, and has used a number of different techniques to assess costs and risks. From all of these perspectives, the evidence gathered by the Review leads to a simple conclusion: the benefits of strong and early action far outweigh the economic costs of not acting. Climate change will affect the basic elements of life for people around the world –access to water, food production, health, and the environment. Hundreds of millions of people could suffer hunger, water shortages and coastal flooding as the worldwarms.


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COP 16: Regional Views: Cancun Agreements Save the UN process

February 2011

The UN Climate Change Conference in Cancun ended in the late hours of December 11th, 2010 with the adoption of a package of decisions that aimed to set up a "Green Climate Fund," protect tropical forests and share clean energy technologies. Despite protests from Bolivia who pointed out that the deal was just not ambitious enough and "went back to the Copenhagen Accord", the package, dubbed the "Cancun Agreements" was welcomed by the other Parties in the final plenary.


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