At the 2015 Paris Climate Conference (COP21), the Parties to the UN Framework for Convention on Climate Change (UNFCCC) will reach an agreement on a new global climate regime. The agreement, which will come into effect in 2020, is the first agreement with a legally binding character since the Kyoto Protocol. For this reason, the Paris Conference will provide additional momentum for global climate change negotiations. The essence of the new climate regime is that all countries, developed and developing alike, are responsible for reducing greenhouse gas emissions to mitigate climate change. As the first step,
the Parties have submitted voluntary reduction targets to the UNFCCC, formally called the “Intended Nationally Determined Contribution (INDC).” Climate finance is deemed as the key for the successful launch of the new climate regime. As mentioned above, while participation from both developed and developing country Parties is absolutely essential, developing country Parties demand, as preconditions, that developed country Parties provide substantial financial support for climate action. In fact, the global community has agreed on mobilizing 100 billion dollars in climate finance by year 2020. However, actually meeting the goal seems uncertain at the moment.
Korea is now facing a new challenge: to minimize the greenhouse gas reduction burden imposed on the private sector, and to meet global expectations as a member of the G20. Furthermore, Korea as a member of the OECD Development Assistance Committee (DAC) is expected to provide substantial support to developing countries in order for them to tackle climate change. Also, as the host country of the Green Climate Fund (GCF) Secretariat, Korea shall seek mid- and long-term strategy that will contribute to the progress of the Fund.
In this regard, this study seeks to provide policy direction for Korea in resolving global climate challenge, in consideration of our role as the bridge between countries of the South and the North. The results of the study can be utilized in development of a logical framework for Korea's climate change negotiation strategy. The study first analyzes the level of emission reduction and financial contribution that is deemed appropriate for Korea, and compares them with other countries. To derive a level of GHG reduction and climate finance burden-sharing for major countries from years 2020 to 2050, the study utilized three indices - historical responsibility (aggregate GHG emission), equality (GHG emission per capita), and capability (GDP per capita).
By differentiating the weight on each indices, the study sought to deduce levels of GHG reduction by countries and compared them to the level stated in their INDC. Reckoning the possibility of increased donors for climate finance, the analysis considered potential donors in addition to the countries included in Annex II of the Convention. The analysis revealed that developed countries bear the most GHG reduction burden when historical responsibility is highlighted, whereas developing countries are obligated to most GHG reduction when participation from all Parties is requested.
Korea's quota for GHG reduction is estimated to be between 1.0~1.6% of the total global reduction. By year 2030, it implies that Korea should reduce at least 330 million to 410 million tons of greenhouse gas, which is a figure larger than the level suggested in its INDC (310 million tons). Furthermore, Korea's burden for climate finance is estimated to range between 1.6 to 4.5 percent when all the OECD DAC members are assumed as donors.
The study also provides an analysis of the traits and determinants in climate support of a number of donors. The regression results revealed that, in the case of Japan and Germany - the two largest donors in climate change, a positive link between climate change ODA and bilateral economic relationship exists. On the other hand, results of the analysis on France, Norway and Korea did not uncover significant contributing factors besides the recipient country's population.
Moreover, the estimation model showed low explanation power. The study suggests the followings as the causes of unsuccessful identification of climate support factors. First of all, while donors have channeled their financial support on the basis of a policy, it is unclear whether the actual disbursement or implementation followed certain standards/criteria. Secondly, there are limits to the DAC's climate change marker data which was used as a dependent variable. Donors submit their own marker data after screening individual projects according to the rough guideline provided by the DAC. Therefore, we speculate that there are limits to accurately providing what factors influence an individual donor's climate change support with such limited data available.
The study presents the following policy implications. Firstly, a more ambitious effort on GHG reduction is required. Korea's INDC states that the country will reduce 37% of GHG compared to BAU by 2030. Nonetheless, this figure is not sufficient when compared to the study results as previously mentioned. Korea's INDC also indicates that a third of the emission reduction will come from the international carbon market. Regardless, a clear agreement on the new market mechanism in the post-2020 climate regime has yet to be finalized.
Therefore, such a statement is actually accompanied by substantial uncertainty. Developing a domestic policy framework for GHG reduction is absolutely urgent for Korea. Secondly, Korea must be prepared to join as a donor of climate finance. It is difficult to refute that Korea's stance has shifted between developed and developing country Parties. Under the new climate regime, more countries will be obligated to provide support. Since Korea is among the potential donors, an adequate and timely plan regarding financial support is required. As the host country of the Green Climate Fund Secretariat and a member of the G20, Korea needs to develop a strategy/plan which will fulfill international expectations. For instance, Korea may suggest that while meeting the current goal of mobilizing 100 billion dollars by 2020 is an obligation that must be fulfilled by developed countries, developed as well as potential donors should equally bear the burden for any additional finance required.
Thirdly, Korea shall seek participation in the process of improving climate finance monitoring. Climate finance monitoring is an integral procedure that is necessary for verifying the effectiveness and implementation status of globally promised finance targets. Presently, there is no globally agreed measure other than the climate policy markers announced by the DAC. Individual organizations have been reporting different figures for public finance in leveraging private finance because of the lack of a clear terminology. Korea has suggested the use of the term "Green ODA." However, it has yet to receive sufficient attention from the international community. OECD is currently working on improving measures for tracking climate finance. It is imperative that Korean experts take a meaningful part in the various efforts and contribute to the process.
Lastly, a strategy is required on how Korea would mobilize climate finance. Korea is entirely dependent on the ODA budget for its support of developing countries. However, current global discussions repeatedly mention that ODA should mainly focus on poverty reduction while the support on climate change should be facilitated with private finance elicited through various public measures. Namely, Germany and France are major actors who pursue mobilization of additional finance by utilizing various public financial tools such as guarantees, equity investment, mezzanine financing and so on, aside from concessional loans. Korea should carefully analyze such examples and advance its own framework for scaled-up climate finance which suits its purposes.
That is, ODA funds shall be directed to awareness and capacity development regarding climate change. On the other hand, the government should be able to provide financing tools to the private sector so that private participants would be able to reduce investment risk and improve financial viability in massive projects, for instance, infrastructure development in developing countries. A precondition for the above-mentioned suggestion is a re-adjusted institutional arrangement enabling the use of financial tools for the private sector.