Global Environment

The Second Asia Pacific Seminar on Climate Change - Section 4

4.FEASIBLE FINANCING MECHANISMS AND INNOVATIVE ECONOMIC INSTRUMENTS TO COUNTER CLIMATE CHANGE

(Item 6 of the agenda)

54. Mr. Jeremy Warford, while underlining the critical issues of financing of climate change-related programs, mentioned that the mobilization of domestic resources would have to be relied upon heavily to implement response strategies because of external financing contributing only a tiny fraction of required funds. Economic instruments, including fees for effluent and subsidies, might have limited potential because of monitoring problems. A more efficient system would combine economic instruments (including deposit-refund scheme, performance bonds, and so forth,) with regulations to reduce pollution and, therefore, financing requirements. User charges could be the single best means of raising revenue by inducing efficiency and reducing waste. Priority should also be given to reforms in energy (such as pricing), transportation, water resources, and forestry. Financial surpluses may be generated through the adoption of a long run marginal cost (LRMC) policy for electric power, which includes components of environmental costs (such as carbon taxes). External funding from sources such as ADB will continue to be available to support "no-regrets" activities. However, given limited availability and willingness to borrow from such sources, official assistance should give priority to "no-regrets" activities. Although policy reforms and projects fail the test of economic justification, they could be justified on environmental grounds for dealing with global issues. GEF measures are likely to be available but in limited amounts. There is also a proposal to have a regional environment fund particularly for funding policy reforms in selected areas where such policy reforms were critical and made economic and environmental sense.

55. The Seminar noted that incremental costs associated with mitigation and adaptive measure for combating climate change are likely to be available through funding for the implementation of the Framework Convention on Climate Change. It recognized that economic- and market-based instruments could be effective in promoting efficiency and reducing capital requirements for funding pollution control programs. However, the application of these instruments in developing countries of the region was limited. Efforts are necessary to sensitize various important groups, including policy makers, to the benefits of such economic- and market-based instruments so as to ensure its wide acceptance. The meeting also noted with interest a study on the incidence of carbon taxes on different consumer groups, which was found to be repressive especially for the poor. Further studies may be required to assess comparative advantages of different economic instruments for pollution control and improvement in efficiency, particularly in the regional context.

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