INTERNATIONAL POLICY ANALYSIS Governance Challenges in Financing Green and Sustainable Energy Policies MICHAEL T. CLARK JUNE 2010 n The Copenhagen climate summit in December 2009 confirmed that there is broad international agreement on tasks to be accomplished. However, the summit ended by presenting UN Member States with a fundamental choice between two incom­patible forms of agreement: the»grand coalition« approach that has evolved for nearly two decades under the UNFCCC, aiming at a comprehensive legal agreement arrived at by consensus among all UN Member States(G192), or the more limited »plurilateral« approach and voluntary commitments of the Copenhagen Accord. A third approach is also possible and would emerge from a broader»grand bargain« that bundled systemic reforms in global financial governance for broader sharing of commitments to climate stabilization. n The key to understanding all three approaches is the underlying funding mechanism that each strategy relies upon to enable worldwide public and private investment in climate mitigation and adaptation. The Copenhagen Accord relies upon, and can support little more than a»tax and transfer« mechanism. The UNFCCC grand coali­tion approach is required to enable a powerful alternative mechanism: raising the price of atmospheric carbon to reflect its true social costs and also, thereby, incentiv­ize strong market responses, including private investment and international offsets trading. The»Grand Bargain« approach opens the door to a third mechanism- emis­sions of IMF Special Drawing Rights in order to finance abatement and adaptation in the developing and emerging countries. n There are vital differences between the three approaches, and the goal of this paper is to demonstrate how and why the choice of frameworks will have profound conse­quences for the efficiency and effectiveness of governance and for the development of sustainable energy policies at the national level. Dialogue on Globalization