Could California or other states provide international climate finance?

Noted climate scholar Benito Mueller of Oxford University and Oxford Climate Policy has a new “Think Piece” called “The Paris Predictability Problem: What to do about climate finance for the 2020 Climate Agreement?” His essay dissects a subset of the problems in the international climate negotiations associated with the provision of financial support by rich countries for mitigation and adaptation in poor countries, captured by the term “climate finance.” Mueller’s focus on predictability is an alternative to a focus on the scale of such finance or its “additionality” (whether it is not simply repurposed from other development aid).

There is much of interest in this essay, but what particularly caught my attention was his suggestion that subnational sources—like California’s cap and trade program—might be a possible source of appropriately predictable financing. (Note that this is different from considering whether “offsets” under a cap and trade policy could be sourced internationally.)

It is widely held that a major progress on climate finance is necessary for success in the Paris COP this December (see, for example, this statement by French President Francois Hollande, and Mueller makes the point himself). But there is little chance that what the developing countries would most like to see—new concessional financing for adaptation and mitigation that is and provided from the national budgets of the wealthy nations—will be forthcoming. As Mueller puts it understatedly, “…domestic requirements as a rule prevail over foreign needs in budgeting discussions,” and the taste for increasing “foreign aid” in the wealthy countries at the moment is vanishingly small. And, whatever climate finance components that do come through such national allocations are most decidedly not “predictable.”

Mueller’s piece therefore considers raising climate finance in ways that would bypass national budgets. Examples do exist, like the adaptation levy on Clean Development Mechanism transactions. Levies on international air travel have been suggested for many years, but, since the issue is governed by the International Civil Air Association (ICAO), which has been stalling any major action on reducing emissions from air transport, such a plan is unlikely to be implemented anytime soon. Other proposed sources do not necessarily have any relationship to emissions; for example, Mueller notes that climate change, along with development aid and fighting epidemics, is among of the proposed uses for the funds raised by the new EU .

What I found most interesting in Mueller’s essay was his suggestion that such innovative finance streams might come, not from international or national levies, but rather from sub-national levies. Technically, there is no reason that a state or other subnational body could not earmark some of its climate-related revenue for international financial support. From a theoretical perspective, if one thinks about carbon taxes or permit prices as “internalizing the externality” of the damage from greenhouse gases, compensating those harmed by the externality is a logical use of any such funds, at whatever level they are applied.

As a practical political matter, however, there is little precedent for states or other subnational bodies to invest in anything that might be considered broadly as foreign aid; such contributions are typically considered an aspect of foreign policy and are left to national governments. Furthermore, given that almost any such tax or fee incurs substantial political opposition, and (in the context of states) prima facie puts them at a competitive disadvantage relative to other states, suggesting that even a fraction of the revenue raised might be shipped overseas would likely be regarded as somewhere between a “tough sell” and a “non-starter.”

However, as impractical as it may sound, Mueller’s idea of subnational contributions to international climate finance has a lot going for it. Notably, it provides climate-savvy political leaders like in California an opportunity to raise the issue of international solidarity and global justice in the context of state-level debates. In Mueller’s words, “it would not seem too farfetched to think that in California, at least, there could be sufficient political will to earmark some share of, say, California’s aviation revenue as a solidarity charge for the poorest and most vulnerable countries,” or that “California could decide to use part of the revenue from auctioning allowances for its emission trading scheme.”

One might think that since there has been a substantial effort made just to ensure that money from California’s cap-and-trade funds gets spent on California’s own low-income residents (the focus of California’s SB535; for recent news, see for example, here), there isn’t likely too much appetite today for sending a share of the revenue overseas. But it is also the case that the strongest advocates for environmental justice in California, who support the progressive use of cap-and trade-funds, typically are strongly sympathetic with global justice issues as well.

Furthermore, given the recent announcement of a multi-state climate Memorandum of Understanding between California and eleven other subnational bodies (including three other US states and states/provinces in Germany, Mexico, Brazil, Canada, the UK and Spain), the international aspect of subnational cooperation is already getting additional visibility.

A strong case can be made that, in the long run, solving the global climate crisis will require a substantial increase in international cooperation and a political basis in an ethic of international solidarity. Forward-looking leaders like Brown, along with environmental justice organizations, are in a position to begin promoting such views in their messaging. Providing international climate finance from within California or other states has a time-line longer than the Paris COP this December, but advocating for it could be a building block for the longer-term changes that we need.