The Stern Review estimates that confronting climate change will cost about 1 percent of gross world product.  Financing mitigation and adaptation will require additional investment, as well as a redirection of existing capital flows. This should included increased assistance to developing nations to promote clean energy technologies and greater energy efficiency.

7.1 Net North-South Flows: The net public and private resource flows from all developed countries to developing countries (including loans) amounted to about US$ 280 billion in 2005, increasing from about $150 billion in 2004 (see Figure 3 below). The increase came mainly because of an increase in private flows, which besides being fickle are concentrated in just a few countries. Development Assistance (ODA) amounted to just 0.25% of gross national income in 2005 (see Figure 4 below).

Figure 3: Total net flows by type of flow

7.2 Energy-Related North-South Flows: Most of the resources for energy development (~60%) are raised locally within developing countries. Energy-related flows (see Table 2 below) have averaged about $7 billion a year between 1997 and 2005. This amount contrasts with a need of ~$300 billion a year in developing and transition economies, as estimated by the IEA. According to the World Bank, this sum of $300 billion would need to be augmented by $34 billion a year to support “green” energy development. The Stern Review similarly estimates the incremental amount at ~$20-30 billion per year. Some of these funds could also finance the transfer of technology.

Table 3 makes an attempt to summarize the order of magnitude numbers for the activities that require both a re-direction of existing flows and additional flows. The sum is a manageable amount, as the Stern Review suggested, but by no means insignificant.

Questions for GLCA:

-What are the prospects for a new global fund for mitigation and adaptation to climate change, such as the International Finance Facility (IFF)?

-How should incentives be designed for increasing private sector investments?

Table 3: Categories of expenditures required for an effective global response to
Climate Change

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