olicy makers around the world areconfronting the challenge of climatechange in a context of increasedeconomic uncertainty. At a time whenpolicy makers need to find a new balance betweensupporting a still fragile recovery and moving to a moresustainable fiscal path, fighting climate change shouldnot be seen as a luxury, but as part of the solution. Ambitious global action to mitigate GHG emissions isnot only necessary, but economically rational. Thepotential that exists to generate sizable fiscal revenuesfrom the use of market instruments in climate policy isespecially attractive in current times of financialhardship. Revenues from carbon taxes or auctionedpermits could be used nationally to support climatechange action, for example to finance adaptation andmitigation in developing countries. Following theeconomic crisis, revenues could also be used for fiscalconsolidation, while in emerging economies suchrevenues could finance other pressing priorities, suchas education, health care and poverty alleviation.Copenhagen was a critical milestone in theinternational climate negotiations, and represents animportant breakthrough for action to limit globalGreenhouse Gas (GHG) emissions and help to buildcleaner economies. But ambition needs to be steppedup going forward. A successful outcome in Cancúnshould be seen as an important first step afterCopenhagen and will need to include some progressforward on a balanced package of a number ofelements. On tackling climate change, policy makersneed to consider a portfolio of issues: mitigationaction, adaptation, climate finance, competitivenessimpacts, and clean technology innovation. A robustsystem for reporting and verifying mitigation actionand finance flows will also be essential to build trust. On GHG mitigation and costs, it is promising thatmany countries are willing to commit to specifictargets or actions. However, OECD analysis suggeststhat even the most ambitious targets declared byindustrialised countries would reduce their emissionscollectively by at most 18 per cent by 2020 comparedwith 1990 levels, and this falls short of the 25-40 percent reduction suggested by IPCC for a pathway tolimit global average temperature increase to 2oC.Compared to expected economic growth, the OECDestimates the costs of achieving these pledges to belimited, and substantially less than most estimates ofthe costs of inaction.Our latest analysis estimates the costs of action for theupper range of declared targets and actions to bearound 0.3 per cent of global GDP. Furthermore, thepotential for fiscal revenues are substantial; for theindustrialised (Annex I) countries they can exceed oneper cent of GDP (or US$400 billion) by 2020 ifmitigation actions are achieved wholly through carbontaxes or emission trading schemes (ETS) withauctioned allowances. OECD analysis shows thatoffsets have an important role to play in emissionstrading and can play a crucial role to keep the costs ofclimate policies low, allowing the cheapest mitigationoptions to be exploited first no matter where theyare. The use of offsets helps to reduce thecost of action, but at the same time reducesthe potential fiscal revenues a country canaccrue from the use of market basedinstruments (Chart 1).We also need to move quickly to establish an overallapproach to address adaptation to climate changeunder the UNFCCC. The negative impacts of climatechange will hit poor people and countriesdisproportionately. Broad agreement on adaptationRight:Policy makers areconfronting the challengeof climate change in anera of economicuncertaintyCANCÚN AND BEYOND:MAKING CLIMATE ACTIONWORK FOR ECONOMYTRADE & 028ECONOMIC DEVELOPMENTPANGEL GURRÍA, SECRETARY-GENERAL, ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD)
TRADE & ECONOMIC DEVELOPMENT029priorities and a means to address these, will helpfacilitate and coordinate support and also acceleratethe flow of finance to support action. To be effective,adaptation needs to be integrated into developmentpolicy-making and planning, including in the contextof national plans, such as Poverty ReductionStrategies. Likewise, many development activities canalso contribute to building resilience to climatechange. OECD work is highlighting what can already beaccomplished through existing channels, through workon Integrating Adaptation to Climate Change intoDevelopment Co-operation (OECD, 2009).Action on both mitigation and adaptation is closely tiedto climate change finance - one will not happenwithout the other. The Copenhagen Accord included aninitial commitment by advanced countries to deliverfast-start finance of US$30 billion for 2010-2012 anda longer-term goal to mobilise US$100 billion per year by 2020 from public and private sources.Governments also committed to create a CopenhagenGreen Climate Fund. Making this happen will becritical to building trust and co-operation betweendeveloped and developing countries. A challenge willbe to enhance the measurement, reporting andverification (MRV) of climate finance, building on theexisting information systems such as the OECDCreditor Reporting System that already tracks officialdevelopment assistance targeting climate changemitigation and, as of 2009, also for adaptation. Moregenerally, MRV of targets, actions and finance, isessential nationally to track policies and assess their effectiveness and internationally, to ensuretransparency and accountability amongst countries onclimate change, including fulfillment of internationalcommitments.Beyond an international climate agreement, tacklingclimate change requires an appropriate policy mix tocorrectly price GHG emissions. An important start is toreform environmentally harmful subsidies to fossilfuel. OECD analysis found that removing subsidies tofossil fuel consumption alone could reduce global GHG emissions by 10 per cent in 2050 compared with business-as-usual. It would also make theseeconomies more efficient, reduce the burden ongovernment budgets, and alleviatethe potentially distortiveeffects of subsidies oncompetition. In parallelwith efforts to pricecarbon, competitivenessconcerns have led to callsby some developed countriesfor border tax adjustments(BTAs) - taxes on imports fromcountries that do not face carbonconstraints. While recognising the importantchallenge that governments face in addressingthese concerns, OECD analysis has found that BTAsare a tool that come with other costs: they can slow the?