LONDON (Reuters) - Industrialized countries will have to enlist the private sector to help deliver $100 billion annually in climate aid to the world's poor by 2020, the European Union's executive Commission said on Friday.
Developed countries' coffers are low after dealing with the aftermath of a global banking crisis, meaning they could not on their own supply climate funds committed at a U.N. conference in Mexico at the end of last year, a paper from the Commission said.
"Many advanced economies will face serious fiscal constraints in the years to come," said Olli Rehn, Commissioner for Economic and Monetary Affairs.
"Therefore this cannot be paid by public money alone. We need to rely also on innovative sources of financing, in particular, in the private sector and carbon markets." The funds are meant to help the world's poorest countries cut their own greenhouse gas emissions and prepare for climate change, including more droughts and floods.
The paper estimated the EU's contribution would be about one third, or a little over $30 billion annually in 2020. It agreed with a U.N. panel which said last year that the global amount was "challenging but feasible."
Many developing countries insist that most of the money should come from public sources, referring to Industrialized countries' historical contribution to climate change after centuries of carbon emissions, and distrusting the reliability of private sector funds.
That is one of several sources of deadlock in U.N. climate talks, which endured a difficult week on April 3-8 in Bangkok, failing to establish a formal work plan for 2011 just 20 months before the current round of the Kyoto Protocol expires.
"A mix of public finance, carbon market finance and private finance, and some of these sources leveraged by development banks, will be required to deliver this amount of funding," said the Commission's paper, "Scaling up international climate finance after 2012." It confirmed that the funds would include debt as well as grants.
One important source of EU public funds would be the revenues from auctioning carbon emissions permits to EU industry under the bloc's emissions trading scheme (ETS) from 2013-2020, which could raise more than 20 billion euros ($28.80 billion) annually by 2020, the paper said.
But private sector funding under the EU carbon market would also play a big role. EU industry, for example, could supply up to an additional 3 billion euros ($4.32 billion) annually from 2013-2020, through purchases of carbon offsets from developing countries, it said.
Development banks such as the European Investment Bank would be a further source of capital.
(Editing by Anthony Barker)