Developed nations need to triple their contribution to make climate finance credible: Avinash Persaud

What are your initial responses to Article 6.4 (for global carbon markets)? It’s been called a sell-out to Big Oil because it allows them to get away with things like untested and unproven technologies like carbon capture. 

I think we need to have an international market system. I think the existing approach on Article 6, which was designed around markets, was not working. I think this is an improvement, but we’ve got a long way to go. I think the big challenge we found is that markets work where there’s domestic enforcement. So the European carbon market is worth $800 billion; the U.S. and Canada have significant carbon capture markets, but cross-border, there are no legal enforcements. All we have is Article 6 and a framework. And because there’s no enforcement that market cross-border is worth less than $2 billion which, in my mind, is nothing compared to the $2.4 trillion we need. So the key issue is less about the plumbing, the framework or the definition, and more about enforcement. We need to find ways to make cross-border commitments enforceable, and that way we’ll get a higher price for carbon.

The other challenge is that the carbon price in a voluntary system is too low. It’s about 2% of the price where it is not voluntary, and because the price is so low there isn’t enough money there to actually spend on systems of integrity, monitoring and evaluation. So you’re getting a low price and a system of low integrity. The two things are feeding off each other, so that the voluntary carbon market is now smaller today than it was yesterday. So there’s a tiny market getting smaller rather than getting bigger.

This has been called the finance COP, and you’ve suggested a middle way on how to achieve, say, $300 billion to $380 billion, the tripling of the fund so far. Could you explain your proposal briefly and what it will take to be accepted?

I think that one of the lessons of the $100 billion mechanism is that it has become an irrelevant number in recent years. It began to make the system lose integrity. We’re fighting over a number that’s not going to change anything. We need to begin by making sure a dollar put into a multilateral development bank can become $7, $8, or $9 of lending at low-cost.

So, I think that a figure of around $300 billion of commitment led by developed countries will help to make the trillion dollars of needed finance a credible goal. If we don’t have credibility there, countries like India and other countries will say, why bother having an ambitious nationally determined contribution (NDC) if there’s no finance. That will be a very, very dangerous precedent if India and Indonesia and South Africa and Mexico conclude that there’s no point them making efforts. Then we unravel and the planet is lost.

But what will it take for these countries to the developed countries to actually cough up the 300 billion? Do you have any political approach?

 I can’t tell countries what to do. They have to make their decisions. I think how we can help is to explain how it is possible.

The U.S. is pushing China to pay more under the NCQG, and there’s a broader pressure for countries like India and Indonesia to increase climate finance. Is this desirable, or is this sort of against the principle of Common but Differentiated Responsibilities?

I think Common but Differentiated Responsibility should allow for countries that are large emitters and becoming richer to be making contributions that are proportional. 

Of course, the developed countries continue to be very large consumers and producers of carbon per capita. It is very unlikely that their per capita consumption will fall to a level that is actually a sustainable level per capita. And so it does require rapidly growing, large emerging markets to make great efforts, and those efforts need to be supported globally and internationally. That’s the point of the NCQG.

From the point of view of small island states who have a very powerful voice here, what should be the stance of India and China. Both are positioning themselves as leaders of the Global South. Is that acceptable to smaller island states and smaller developing countries?

I think that there has been a tremendous amount of unity by what is called the Global South, the developing countries. You see that in these negotiations. 

I think that unity must be around something that is in the interest of development and the interests of the planet. Because we do share, as it says on the tin, common if differentiated responsibilities. It’s in the interest of SIDS (small island developing states) and very vulnerable countries that the Indias of this world are very much part of this process. There is no pathway to save the planet, to stop islands from submerging, unless the large middle-income countries rapidly transition their new energy demands.

If India does not transition its new energy demands and nor do Indonesia and Mexico and Brazil and others, then there is no pathway to save many of these most vulnerable countries.

On Europe’s CBAM and other protectionist green taxes. It’s strongly opposed by developing countries. What is the way out of this? It’s causing a lot of heartburn, especially in countries like India?

I don’t think it’s reasonable actually for developing countries to say that we want to stop what developed countries determine that they want to import. It needs to be done, not in a unilateral, discriminatory way. In fact, I think a global system of carbon border adjustment mechanisms, for India to have its own as well, is actually the right system. The alternative to that system is a single global carbon tax. That would be worse for developing countries because a single price for carbon will hit harder for poorer countries, where the cost of capital is expensive, and the cost of transitioning is expensive, than it would be for rich countries.

How would it benefit India or Indian companies?

The benefit compares to the alternative. The alternative is a single global carbon tax so that Indian companies are paying the same tax as European companies. That will hurt Indian companies more because a high tax in an environment of high cost of capital is going to be more painful for Indian companies to transition. So how do I have a system where Indian companies pay a different tax than European companies? It is through carbon border adjustment mechanisms.