Bridging the Gap on Climate Change

By Richard G. Lugar and Henry M. Paulson Jr.
Monday, July 14, 2008

Despite the scientific consensus that climate change is occurring, there remain sharp political disagreements both here in the United States and around the world about how policymakers should respond. Nowhere is this gap more profound than between developed and developing countries.

As our vigorous domestic debate shows, there is disagreement within America about whether we should take strong steps to limit greenhouse gas emissions if fast-growing emitters in the developing world do not make similar commitments. Yet nations such as China and India say that fossil fuels are essential to power their economies, raise living standards and pull millions of their people out of poverty. Expanding the use of clean technologies is one way to address the common challenge of reducing greenhouse gas emissions while transcending the differences here at home and between developed and developing countries.

That is why we support a new multilateral initiative to help finance the deployment of commercially available clean technology to the developing world. This Clean Technology Fund, proposed by President Bush last September, is an important opportunity for which American leadership is vital.

The Group of Eight countries, led by the United States, Britain and Japan, in conjunction with the World Bank, have been working with potential donor and recipient countries over the past eight months to create the fund. The aim of the CTF is to reduce the growth of greenhouse gas emissions in developing countries by helping finance the additional costs of using cleaner energy technologies. It will stimulate private-sector investment in existing clean technologies and speed the deployment of emerging technologies once they are market-ready. Such emerging technologies include carbon capture and storage, which separates carbon dioxide before it goes up a smokestack and sequesters it underground.

Equally important, the fund will promote international cooperation to pursue a future climate agreement. Given the grave economic, security and environmental threats posed by climate change, such an agreement must prescribe significant long-term reductions in global emissions by requiring commitments from all major emitters in an equitable and flexible way.

The challenge is enormous. The greenhouse gas emissions of developing economies are rising more rapidly and will soon surpass those of developed countries. The International Energy Agency reports that by 2030 global demand for energy could increase 55 percent, with almost 80 percent of this increase coming from developing countries.

But each time an emerging economy invests in a cheaper but dirtier technology, the harder and costlier it becomes to mitigate the effects on the climate in the future. Electric power plants can last 30 years or more. The World Bank estimates that the price of the incremental costs to deploy clean energy technologies in just the power sectors of the developing countries would be $30 billion annually.

The CTF plans to use a mix of loans, grants, equity investment and credit guarantees to finance this incremental cost. For example, if the difference between building a traditional fossil-fuel power plant and a wind farm were $10 million, the fund could help the recipient country finance the wind farm's extra cost. Recipient countries and the private sector would pay the bulk of the cost of such projects, but the fund would help make the choice between clean and dirty technologies economically neutral.

The proposed U.S. contribution of $2 billion would be matched by up to $8 billion from other donors to the fund, which is to be housed at the World Bank. At last week's G-8 summit, the leaders stated their support for the program. The fund recognizes that addressing climate change presents economic opportunities, not just constraints, and that with advanced technology developing countries can curb emissions growth without limiting economic growth.

The program will offer U.S. companies a new market for their technologies in countries that will be searching for cleaner alternatives. As America takes steps to reduce its carbon emissions on a national scale, we expect countries assisted by the CTF to develop credible nationwide carbon mitigation plans and to work constructively toward a successful conclusion to the U.N. climate negotiations.

This program will pilot concepts and approaches for the post-2012 climate change framework and will build trust among developed and developing countries in the U.N. negotiations over that framework. If we do not act immediately to help provide developing countries with the right incentives, their investments today may lock in a legacy of highly polluting, less efficient technologies.

We encourage our colleagues in Congress to come together to support this multilateral initiative. It is one of the most significant efforts proposed in years to address the challenges of climate change.

Richard G. Lugar is a Republican senator from Indiana. Henry M. Paulson Jr. is secretary of the Treasury.

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