Global Climate Change Alliance: Intra-ACP Programme Training Module Climate Change Finance

1. Global Climate Change Alliance: Intra-ACP Programme Training ModuleClimate Change Finance Module 1 – Financing Climate Change Ms Isabelle MamatySenior ExpertClimate Support Facility

2. Module Structure • Climate change and sustainable development linkages • Mainstreaming climate change into national development planning and budgeting • Financing climate change • External sources of climate change

3. Climate change and sustainable development linkages?

4. Climate change and sustainable development Both adaptation and mitigation support more sustainable development Climate change Biophysical effects Environment Sustainable development Socio-economic impacts Social dimension Economy In turn, the pursuit of sustainable development enhances society’s response capacity

5. Climate change and MDGs Reduce child mortality (Goal 4) Eradicate extreme poverty & hunger (Goal 1) e.g. Increased incidence of waterborne diseases Promote gender equality & empower women (Goal 3) e.g. Adverse effects on food security Potential impacts on MDGs e.g. Dependence on livelihoods put at risk by CC Improve maternal health (Goal 5) Ensure environmental sustainability (Goal 7) Combat major diseases (Goal 6) e.g. Higher incidence of anaemia resulting from malaria e.g. Heat-related mortality & illnesses e.g. Increased stress on ecosystems and biodiversity Source: OECD (2009a)

6. Adaptation and mitigation measures • Adaptation and mitigation measures should be considered as opportunities to development co-benefits towards a green growth • Mitigation should be compatible with adaptation policies and instruments, rely on environmentally sustainable practices while adaptation should take account of emissions. … then this helps moving to climate-resilient development and low- emissions development … only if climate change is mainstreamed into policymaking and planning

7. Mainstreaming climate change into national development planning and budgeting

8. Mainstreaming climate change into national development planning • There is a strong case for mainstreaming climate change into all development planning • There are entry points for mainstreaming climate change at all stages of the policy cycle • Mainstreaming climate change at strategic planning levels supports more integrated, effective, efficient and sustainable responses • But top-down and bottom-up approaches to adaptation are complementary and mainstreaming is also justified at local level • Evidence supports both the engagement of key actors and the development of a communication and advocacy strategy

9. Mainstreaming climate change into national development budgeting • Climate-related policies and measures can impact the national budget in multiple ways • There are entry points for mainstreaming climate change at practically all stages of the budgetary process - including at the stage of ex post evaluation (PERs) • It is recommended to set up systems to keep track of adaptation- and mitigation-related expenditures • Multiple sources of funding exist to support adaptation and mitigation – focus on eligibility and objectives • Where conditions are met, budget support is a suitable modality for supporting CC mainstreaming efforts

10. NAPAs and NAMAs • Many developing countries have now submitted their NAPAs (& NAMAs) to the UNFCCC • NAPAs = national adaptation programmes of action • Help LDCs build national capacities and identify priority adaptation projects with developmental benefits • NAMAS = nationally appropriate mitigation actions • These voluntary mitigation measures are consistent with a country’s development strategy, and are meant to put it on a more sustainable development path • These are a good starting point for addressing the climate challenge without compromising development objectives

11. Financing climate change

12. Global response to climate change under UNFCC (1) • 165 nations signed the 1992 United Nations Framework Convention on Climate Change (UN-FCCC) at Rio de Janeiro • The Convention divides countries into two main groups Annex I (developed) & non- Annex I (developing)

13. Global response to climate change under UNFCC (2) • Annex I (Developed Countries) agreed to reduce their GHGs by 5.2 % below 1990 levels in 1st commitment period 2008 – 2012 • Convention hinges on three principles: • Common but differentiated responsibility • Precautionary approach • Sustainable Economic Growth and Development • Commitment by developed countries to provide funding for the “agreed full incremental costs” of climate change in developing countries under Article 4.3: Convention, Kyoto Protocol, successive COP agreements and decisions

14. UNFCC key decisions on climate finance (1) • 1991 - Creation of the Global Environment Facility (GEF) hosted at the World Bank. • 1992 - Rio Earth Summit- Decision to restructure GEF • 1994 - GEF becomes a permanent, separate institution and the financial mechanism of the following conventions: UNFCC, Convention on Biodiversity, Montreal Protocol on Ozone, Stockholm Convention on persistent Organic Pollutants and UN Convention to Combat Desertification. • 1995 - COP 1 Berlin – discussion on Kyoto Protocol

15. UNFCC key decisions on climate finance (2) • 1997-COP 3 - Kyoto – Adoption of Kyoto Protocol (binding commitment on emissions reduction) • 2001-COP 7- Marrakesh Accords- Rules of implementation for the Kyoto Protocol, new funding and planning instruments for adaptation and establishment of technology transfer framework • 2005- Kyoto Protocol into force • 2006- Adoption of Nairobi action plan on adaptation to assist all Parties (in particular LDCs and SIDs in improving and assessing impacts of CC and information on practical adaptations actions

16. UNFCC key decisions on climate finance (3) • 2007- COP13- Bali Road Map: launching of the Adaptation Fund • 2009- COP 15- Copenhagen: Copenhagen Accord– Short term-finance = 30 billion USD for 2010-2012 (Fast start) + Mobilisation of 100 USD billion a year by 2020 to address developing countries needs. • 2010- COP 16- Cancun – Cancun Agreements: Establishment of a Green Climate Fund to scale –up long term Finance for developing countries. • 2011-COP 17 Durban: agreement to move into a second commitment period for the Kyoto protocol in 2013

17. Global environment facility (GEF) (1) • GEF is since 1994 the financial mechanism of the following conventions: • UN Framework Convention on Climate Change(UNFCC), • Convention on Biodiversity, • Stockholm Convention on persistent Organic Pollutants • UN Convention to Combat Desertification. • Supports activities on management of chemical products under the Montreal Protocol on Ozone • Manages two funds under the UNFCCC • Special fund for climate change (SCCF) • Least developed countries fund (LDCF) • Secretariat of the Adaptation Fund

18. How does GEF work ? • GEF provides grants to programmes embedded in national planning in eligible countries : • they meet eligibility criteria established by the relevant COP; and • are eligible to borrow from the World Bank (IBRD and/or IDA); • and/or they are eligible recipients of UNDP technical assistance through country programming related to climate change, international waters, land degradation, the ozone layer, biodiversity, and persistent organic pollutants). • Resources for the GEF Trust Fund are replenished every four years: current replenishment period is the GEF fifth replenishment - GEF-5 for period 2010-2014 • Country allocation is provided under the new System for Transparent Allocation of Resources (STAR) that replaces the former Resource allocation Framework (RAF) system under GEF-4 period

19. System for Transparent Allocation of Resources (STAR) • STAR covers biodiversity, climate change and land degradation • Allocation is given to individual country taking account of their vulnerability • Minimum Allocation floor (threshold): • $ 2 billion for climate change • $1.5 billion for biodiversity • $0.5 billion for land degradation • Maximum allocation (cap):11% of total funds for climate change and 10% for biodiversity and land degradation • However STAR provides flexibility for countries : • below the threshold to use the total of their allocations across all and any STAR focal areas during the GEF-5 cycle • with a total allocation of up to $7 million to allocate these $7 million in any or all of these focal areas without having to respect the proportions • To be able to use more than 50% of their indicative allocations during the first two years (elimination of the GEF-4 fifty percent rule)

20. Kyoto Protocol • Annex I (Developed Countries) agreed to reduce their GHGs by 5.2 % below 1990 levels in 1st commitment period 2008 – 2012 • Kyoto Protocol is a legally binding agreement for emissions reductions by industrialised countries through three market-based mechanisms: • Emissions trading “carbon market” • Clean development mechanism (CDM) • Joint implementation (JI) • 184 Parties of the Convention have ratified its Protocol to date.

21. Emission Trading under Kyoto Protocol (1) Emission trading (Art. 17 of Kyoto Protocol): Parties under Kyoto Protocol (Annex B Parties) have committed targets for limiting or reducing CO2 expressed as levels of allowed emissions or « assigned » amounts over 2008-2012 period. The allowed emissions are expressed as « assigned amount units » (AAUs) which can be traded by parties that have not used them to parties that are over their targets.

22. Emission Trading under Kyoto Protocol (2) Other traded units under Kyoto are: • A removal unit (RMU) on the basis of land use, land-use change and forestry (LULUCF) activities such as reforestation •  An emission reduction unit (ERU) generated by a joint implementation project (article 6 of the Kyoto Protocol) : a country of Annex B party to Kyoto Protocol is allowed to earn emission reduction (ERUs) from an emission –reduction or emission removal project in another Annex B Party. • A certified emission reduction (CER) generated from a clean development mechanism project activity (article 12 of Kyoto Protocol). A annex B country Parties to Kyoto Protocol is allowed to earn saleable CER from an emission-project in developing countries. • Transfers and acquisitions of these units are compiled in the registry systems under the Kyoto Protocol

23. Financing Adaptation • Copenhagen Accord 2009: priority of funding for adaptation to LDCs, SIDs and Africa • COP 2010 adoption of Cancun Adaptation Framework: commitment for support to developing countries for adaptation action under the National Adaptation Programs of Action (NAPAs) • Cost of adaptation: public versus private finance • Majority of International climate funding instruments are ODA transfers • Finance through dedicated adaptation funds: 21% of total climate finance approved in 2011 • Uneven distribution: poorest countries received less

24. Financing Mitigation • Copenhagen COP 2009: commitment to mobilise $100 billion per year in climate finance by 2020 • Green Climate fund (GFC): Cancun COP 2010 • 2/3 of total climate change since 2008, primarily in renewable energy technologies activities (Asia Pacific region) • GEF projects seek to support rural electrification using renewable energy technologies to reach the poor (exp. Scaling Renewable Energy Program of the CIFs • Need for transformation in policy and regulatory frameworks to address mitigation

25. Estimating the Costs of climate change • The estimates of climate change financing needs of developing countries are as follow: • mitigation : $500 billion to 1100 billion/year (UNFCC, 2009; World Bank report 2010; UNDESA (WESS, 2010) • Adaptation : 100$ billion to $ 450 billion/year (UNFCC 2007; World Bank 2010; Parry et al. (2009)

26. External sources of climate change finance

27. Sources of Climate Change Finance • Public funding (multilateral/bilateral funds) • National climate funds • Private-public partnership initiatives (e.g. GEEREF) • Market-based instruments (« market carbon »): Compliance market (CDM/ EU emissions trading scheme)/voluntary market

28. Public funding (multilateral/bilateral funds)

29. Complex architecture of the funds

30. Main sources of external financing (1)

31. Main sources of external financing (2)

32. Main sources of external financing (3)

33. Funding by theme Split of overall funding by theme Source: www.climatefundsupdate.org

34. Gaps in climate funds flows (1)

35. Gaps in climate funds flows (2)

36. Financing NAPAs • NAPAs focus on immediate and urgent needs of the LDCs to adapt to cliamet change. Only 20% of NAPAs needs are being met from dedicated climate funds • 46 countries have developed NAPAs focusing on agricutlture food security and water projects

37. Difficulties in capturing resources for developing countries (1) • Internal difficulties in developing countries • Problem in designing projects • Sequencing • Coordination • Lack of absorptive capacity

38. Difficulties in capturing resources for developing countries (2) • Difficulties related to the funds • Proliferation of funds runs contrary to the Paris Declaration principles for aid effectiveness • Complication of reporting, monitoring and verification of financial commitments • Heavy administrative burden placed on recipient countries

39. Funds evaluation – ground level reality

40. National climate funds

41. National climate funds • Several countries have now established a ‘national climate fund’ (trust fund) to: • channel and manage external funding related to CC • leverage existing funds and initiatives (incl. those financed with national resources) • support the mainstreaming of climate-related programmes and projects into national development strategies • Expected benefits: • Alignment of external funding with national priorities • Building of national capacities and institutions • Scaling up of the response to climate change

42. Private-public partnership initiatives

43. Private-public Linkages Many climate change responses, especially in relation to mitigation will involve the private sector (exp. Energy efficiency), therefore government should: • Involve private sector representatives to the climate change task-force and/or other national committees/councils; • Involve the private sector in setting amended national standards and codes to respond to the challenge of climate change; • Assist the private sector to take up climate change responses by providing incentive schemes, and by initiating public-private partnerships • Identify and seek the support of private enterprise in national climate change initiatives and in particular, the Clean Development Mechanism.

44. Market-based instruments

45. Market carbon structure Compliance Market Kyoto compliance: Annex1 countries Australia, EU, Canada, Japan, New Zealand, USA JI & CDM EU emissions Trading Scheme CSR Voluntary Market Retail NGOs Voluntary Pre-compliance

46. Market-based Instrument Challenges(1) • Challenges in host countries: • Lack of institutional capacity • Lack of financing and information • Perceptions of investment risk • Small size (e.g. small volume) of emissions reductions

47. Market-based Instrument Challenges (2) • Uncertainty over a second commitment period (after 2012) for the Kyoto Protocol raises questions about the future of the CDM • Private Public partnership : challenge in designing instruments to address private sector risk while ensuring public accountability for delivering impact and results (incl. developmental and social co-benefits)

48. Turning words into action

49. Discussion • Questions and answers • General discussion and sharing of experiences concerning the use of the existing climate change funds and market-instrument mechanisms and difficulties encountered by your organisation and/or country

50. Thank you Contact: Dr. Pendo MARO, ACP Secretariat pendomaro@acp.int or +32 495 281 494www.gcca.eu/intra-acp