Countdown to Copenhagen: 35 days to go<br/>

Part 2: Finance

Money is the key to the success of Copenhagen

Developing countries want up to £245bn to reduce their carbon emissions while the EU thinks it should cost them as little as £20bn. Michael McCarthy reports on the huge gap

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You think it's about greenhouse gases. You think it's about carbon emissions. And it is. But the Copenhagen agreement on climate change that the world community will attempt to sign in December is just as much about money – enormous, mind-boggling amounts of money.

In brutally simplistic terms, the essence of any deal will be to pay the developing countries of the world, led by China and India, to cut back on the carbon dioxide pouring out of their now-mushrooming economies, which will come to represent 90 per cent of all future emissions growth, and the inducement for them to do this will have to be substantial.

It has hardly dawned on the general public just how big are the sums of cash that the developing world is seeking, and that the rich world will have to go some way towards providing, if the vital pathway to keeping global temperature rises below C is to be mapped out.

But they are truly colossal, and the gap between the potential donor countries and the recipients may be unbridgeable; it is finance, rather than the setting of emissions targets, which is more likely to be the deal-breaker in Copenhagen.

Ever since the first UN global warming treaty was signed in 1992, the rich nations have accepted that they have a special responsibility over climate, as we caused the problem in the first place – most of the CO2 that has gone into atmosphere has been put there by 200 years of western industrialisation.

Now we are asking China and its colleagues in the G77 group of poorer nations to grow – and so bring their people out of poverty – in a different low-carbon way from the way in which we grew, which is difficult and expensive; do as we say, not do as we did. And it is accepted on all sides that if they are to do this, we must help them.

They need help for two essential tasks, which in the jargon are mitigation and adaptation. Mitigation means cutting back on carbon emissions, by substituting renewable energy projects, say, for coal-burning power stations; adaptation means coping with climate change which is now unavoidable, such as building enhanced flood relief schemes to deal with the threat of climate-change-induced sea-level rise. It is obvious that all of this will be costly.

Just how costly the developing world thought it would be became clear at the end of August, when the G77-plus-China, as the nations are collectively known, put forward a formal proposal for financing a new climate agreement. Their "enhanced financial mechanism" suggested that the rich countries should pay between 0.5 and 1 per cent of their gross national product every year. For the European Union, this would be between $90bn (£55bn) and $180bn annually; for the US, between $70bn and $140bn; for Britain alone, between $13bn and $26bn. The full total would be between $200bn and $400bn, a range from nearly double to nearly four times the amount of all current overseas aid flows. Moreover, it would have to be on top of existing aid, the developing countries said – it must be "new and additional", above all current overseas development assistance.

There have been no negotiations about this, because that figure has lain on the table for two months without any of the rich countries responding. But on Friday, at last, the European Union became the first rich-country bloc to come up with its own financial proposals. The EU thinks that the full amount of extra public money needed to pay for climate change in the developed world is €22bn to €50bn annually, depending on what actions the poorer countries undertake (the sum is nearly the same in pounds sterling; in dollars it is about $32bn to $72bn). Europe would probably end up paying about 20 to 30 per cent of this, perhaps €5bn to €12bn, of which Britain itself would probably pay about €1bn. The full regime would be in place by 2020, with lesser sums coming earlier.

The key point about these figures is that they are a start; they allow officials from the 192 countries involved in the treaty, including Britain, at last to start talking about money from today, when the final week of pre-Copenhagen negotiations begins in Barcelona. Oxfam recognised this at the weekend, even while protesting that the level was too low – the charity thinks that more than double the public finance is required. "Finally coming forward with numbers is a positive step but the proposed figure falls well short of the €110bn needed to help poor countries adapt to climate change and curb their carbon emissions," said Robert Bailey, Oxfam's Senior Policy Advisor on climate change.

And, indeed, getting the 27 EU members states to agree at all – some, such as Poland, being very reluctant – was a considerable achievement, for which much of the credit must go to Gordon Brown, who has been pushing hard for an EU deal for months. The EU sums will be the ballpark figures to which other rich nations, the US above all, must now react.

But will they be enough to secure a deal? The quickest glance will show that the EU's top sum is only a third of the developing countries' lowest figure. Is that gap bridgeable in negotiations? Perhaps.

It is not the only problem looming. A condition of the EU offer is "universality" – meaning that some of the richer developing countries, such as China and India, will have to contribute to the fund themselves, even if they end up net beneficiaries of it. They will not like that. But most of all, there is no cast-iron guarantee that the finance will be entirely "new and additional" on top of current aid flows, and the poorer countries fear their development aid may be cut to provide their climate funding.

Next week: The shape of the treaty

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