This paper considers how public finance in developed countries can best be used to support climate change mitigation in developing countries. It describes the role of public finance in climate change mitigation in relation to other instruments and analyses market failures and barriers to mitigation technologies that could be overcome by public finance. The paper maps and assesses current initiatives and proposals to raise and deploy public money to support international climate change mitigation. The paper notes that climate change policies are likely to have a significant impact on public finances; on the revenue side, pricing carbon through taxes will initially increase public finances, while on the expenditure side, investments will be needed to enhance the climate resilience of the economy and its physical infrastructure. The paper reports that a consensus seems to be emerging on the following key elements of a cost-effective policy response for curbing greenhouse gas emissions:

market-based instruments that put a price on carbon
policies that support innovation and accelerate technology development
regulations and standards to overcome market barriers to achieve energy efficiency
policies that address the forestry sector and deforestation.

The paper provides the following guidance on how public finance might play a role in the post-2012 climate architecture.

Conceptually the easiest way of dealing with mitigation support to developing countries would be a global governance system with sufficient power to oversee the effective and efficient use of funds.
There are many uncertainties as to what would constitute good public spending beyond the criterion that it should complement and leverage private finance; flexibility through using multiple approaches provides room for manoeuvre.
A pledge and review model for public support for technology, finance and capacity building is appropriate and corresponds with the approach taken in the Bali Action Plan.
Investments are needed in monitoring, reporting and verifying information: criteria must be set to ensure that the data is of sufficient quality and money being spent is not reported more than once.
A multilateral agreement to use earmarked revenues would go a long way towards securing adequate public funds for climate change mitigation.