China's Perspectives on Financial Mechanism of Climate Change for post 2012 Xianliang YI September 2008, Oxford, UK

Contents I Requirements on financial mechanism (FM) II Existing FMs and their deficiency III New proposals on FM and their shortcomings IV Chinese position and perspectives on FM

I Requirements on financial mechanism (FM) 1. Article 4, 11 and 21 of the Convention 2. Decisions made by COP and COP/MOP

1. Existing FMs 1) Special Climate Change Fund 2) Least Developed Countries Fund 3) Adaptation Fund 4) Individual programs' financial aid from GEF 5) Regional and bilateral financial support II Existing FMs and their deficiency

2. As the major financial resources mobilzer and operator required by the Convention and COP, GEF, in the past 17 years since its setting-up, provided 3.74 billion US$ to 1950 projects, including 2.2 billion US$ to 574 projects of climate change, mainly focused on capacity building, renewables and sustainable city policy. This 2.2 billion US$ had promoted / mobilized 14 billion US$ investment and loan to developing countries.

3. Problems 1) lowering political will of the developed country 2) enlarging gap between the need by the developing side and the provision by the developed side 3) declining ability of FMs including GEF to mobilize resources ( GEF 4th replenishment period: 1 billion $ for climate change in total, of which180 million $ for the LDCF and 9 million SCCF ) 4) forgotten AF en facto (only about 400 thousand US$ in total and the only source is the levy from CDM) 5) unsatisfactory governance and operation of FM (GEF)

III Recent proposals on FMs 1. Climate Investment Fund （ CIF, World Bank) with two sub-funds: Clean Technology Fund & Strategic Climate Fund ( Developing countries concern: 1) CIF may have negative effect on the ongoing negotiation process for the post 2012 arrangement on FMs; and 2) developed countries may use CIF to dilute their financial obligation under the Convention. ) 2. Climate Change World Fund (Green Fund, Mexico) The Fund's initial scale would be 10 billion USD every year, and could be up to 30 billion USD every year. but the Mexican requests all countries, developed and developing, to contribute to the Fund, without due consideration of the principle of Common But Differentiated Responsibilities) 3. Proposal of G77 + China

IV China's position and perspectives on FMs 1. Support developing countries as a group to negotiate with developed countries in solving the FM in one package 2. General requirements - based on grant and concessional condition; - additional to ODA - under guidance and governance in the context of UNFCCC 3. Size and division of the financial resource - X (0.5) % of the GDP of all developed countries - divided into functional parts: adaptation, technology, capacity building and voluntary actions in mitigation