Sources of Financing to Address Climate Change

Sources of Financing to Address Climate Change TACC Training Module 7 1

Overview • Section 1: Introduction to Financing a Green Economy and Climate Change Action • Section 2: Mobilizing Finances to Address Climate Change at the Sub-national Level • Section 3: International Sources and Support to Access Climate Change Financing Territorial Approach to Climate Change - Phase 1

Financing a Transition towards a Green Economy • A Green Economy can generate as much growth and employment as a brown economy (more in the medium and long term) • Need to combine smart public policy and innovative financing mechanisms • Need to address the misallocation of capital in public finance and spendingby subsidy reforms Territorial Approach to Climate Change - Phase 1

Challenges and Opportunities of Climate Change Financing • Addressing the global climate change challenge requires major reorientation of investment flows • Required additional investment and financial flows by 2030 (UNFCCC) • 0.3-0.5 % of global domestic product • 1.1-1.7 % of global investments • New and innovative financing opportunities are emerging • Opportunities for countries to pursue low carbon and climate resilient development paths Territorial Approach to Climate Change - Phase 1

Estimates of Costs and Investment Requirements: Adaptation Territorial Approach to Climate Change - Phase 1

Estimates of Costs and Investment Requirements: Mitigation Territorial Approach to Climate Change - Phase 1

No-regret Options in Climate Change Adaptation and Mitigation • No-regret options are Negative-cost or No-cost measures … • ...that reduce climate change risks… • …and create conditions that enable net economic benefits • Examples of no-regret options include • Disaster risk management • Improving emergency response system • Improving efficiency standards • Improving water and energy pricing to encourage more efficient consumption Territorial Approach to Climate Change - Phase 1

Overview of Sources to Finance Climate Change Action • National and Sub-national Budgets • Multilateral Funds and Official Development Aid (ODA) • Market-Based Mechanisms/Carbon Financing • Private Funds Source: Fotolia Territorial Approach to Climate Change - Phase 1

National and Sub-national Budgets • Funding of basic infrastructure development (e.g. transport) • Tax incentives to promote certain investments • Support for research and development (e.g. for new technology) • Loan guarantees for private investment • Etc. Territorial Approach to Climate Change - Phase 1

Multilateral Funding and Official Development Aid • Official Development Assistance encompasses all government-contributed aid • Traditionally linked to specific projects • Recent trend to provide increasingly sector budget support • Important source for least developed countries (1-7% of GDP) • Relevant sources to address climate change include • GEF Administered (UNFCCC and Kyoto Protocol) • Multi-lateral Development Banks (MDBs) • UN Funds and Programmes • Bilateral Development Aid Territorial Approach to Climate Change - Phase 1

Relative Contribution of ODA in Different Groups of Countries Territorial Approach to Climate Change - Phase 1

Market Mechanisms and Carbon Markets • Carbon Financing Schemes under the UNFCCC/Kyoto Protocol • Clean Development Mechanism • Joint Implementation & Emissions Trading • Gold Standard • Community-focused Micro-scale Scheme Launched, May 2010 • streamlined procedures and lowered transaction costs for poor community-focused micro-scale project activities; LDCs, LLDCs and SIDS • Carbon Financing Schemes under the Voluntary Market Territorial Approach to Climate Change - Phase 1

Reaping the Potential of the Clean Development Mechanism (CDM) Territorial Approach to Climate Change - Phase 1 CDM allows emission-reduction projects in developing countries to earn certified emission reductions (CERs) More than 4880 registered CDM projects in 81 developing countries CDM projects must lead to sustainable development in the host developing country Projects must be voluntary and approved by the National CDM Authority http://cdm.unfccc.int/

CDM Project Cycle Territorial Approach to Climate Change - Phase 1

Private Funds • Bank loans • Private equity funds • Venture capital • Insurance schemes • Etc. Source: Flickr Territorial Approach to Climate Change - Phase 1

Green Climate Fund (GCF) • COP 18, endorsed decision of the GCF Board for Songdo, Incheon, Korea to host GCF • GCF was established at COP 16 (2010) and its governing instrument approved at COP 17 (2011) • A fully operational GCF to disburse up to US$100 billion per year by 2020 to support mitigation and adaption efforts of developing countries Territorial Approach to Climate Change - Phase 1

Possible Elements of a Future Financial Framework under the UNFCCC Territorial Approach to Climate Change - Phase 1

Questions and Challenges • How can sub-national authorities generate revenue to support climate change action? • How can sub-national authorities access multi-lateral and ODA finances? • What strategies and capacities need to be put in place to access external financing? Territorial Approach to Climate Change - Phase 1

Examples of Adaptation Measures Requiring Financing • Addressing observed climate change impacts (e.g. reconstructing an area devastated by a storm) • Climate proofing of socio-economic activities (e.g. elevating a road in an area at risk of flooding) • Building adaptive capacity to deal with future risks (e.g. research on resilient crops) • Etc. Source: dfid.gov.uk) Territorial Approach to Climate Change - Phase 1

Strategic Areas of Adaptation Funding Territorial Approach to Climate Change - Phase 1

Financial Sources to Support Adaptation Territorial Approach to Climate Change - Phase 1

Examples of Mitigation Measures Requiring Financing • Promotion of clean energy sources (e.g. solar panels in villages) • Phasing out energy intensive industrial production • Reforestation and avoidance of forest degradation • Etc. Source: UNFCCC Territorial Approach to Climate Change - Phase 1

Financing Sources to Support Mitigation Territorial Approach to Climate Change - Phase 1

The Role of Public-Private Funding in Promoting New Technology Territorial Approach to Climate Change - Phase 1

Financial Instruments: From Research to Commercial Maturity Territorial Approach to Climate Change - Phase 1

Sources of Multilateral and ODA Funding • GEF Administered Funds under the UNFCCC and Kyoto Protocol • Multi-lateral Development Banks • UN Funds and Programmes • Bilateral Funds Source: Flickr Territorial Approach to Climate Change - Phase 1

Global Environment Facility • Established in October 1991 to assist in the protection of the global environment and to promote environmental sustainable development • Provides grants for projects related to six focal areas: biodiversity, climate change, international waters, land degradation, the ozone layer, and persistent organic pollutants • Each GEF country member has designated an officer responsible for GEF activities, known as GEF Operational Focal Point , who plays a key role in assuring that GEF projects are aligned to meet the needs and priorities of the respective country http://thegef.org/gef/gef_projects_funding Territorial Approach to Climate Change - Phase 1

Proposals for GEF Grants Territorial Approach to Climate Change - Phase 1 • To be taken into consideration, a project proposal has to fulfil the following criteria: • It is consistent with national priorities and programmes • It addresses one or more of the GEF Focal Areas, improving the global environment or advance the prospect of reducing risks to it • It involves the public in project design and implementation • It is endorsed by the government of the country in which it will be implemented Before drafting a project proposal, the applicant should contact the Country Operational Focal Point and verify that the proposal complies with the criteria mentioned above

GEF Administered UNFCCC/Kyoto Protocol Funds Territorial Approach to Climate Change - Phase 1

Multilateral Development Banks • Finance institution created by a group of countries • MDBs provide financing and professional advice to support development • Memberships include developed donor countries and developing borrower countries • Project financing in the form of long-term loans at and below-market rates and through grants Territorial Approach to Climate Change - Phase 1

Multilateral Development Banks (cont.) • MDBs include • World Bank • Regional Development Banks • African Development Bank • Asian Development Bank • European Bank for Reconstruction and Development • Inter-American Development Bank Group Territorial Approach to Climate Change - Phase 1

MDB Funds to Support Action on Climate Change Territorial Approach to Climate Change - Phase 1

The Pilot Programme for Climate Resilience (World Bank) • First targeted program under the Strategic Climate Fund (SCF), a multi-donor Trust Fund within the World Bank’s Climate Investment Funds • The objective of the PPCR is to pilot and demonstrate ways to integrate climate risk and resilience into core development planning • Pilot programs implemented under the PPCR: • are country led • build on National Adaptation Programs of Action and other relevant country strategies • are strategically aligned with the Adaptation Fund and other donor funded activities • take into account poverty reduction and sustainable development goals • Pilot countries include Bangladesh, Bolivia, Niger, Saint Lucia, Tajikistan, Tonga, and Zambia Territorial Approach to Climate Change - Phase 1

UN Funds and Programmes • Most UN agencies are engaged in providing support to address climate change • UN Chief Executive Board for Coordination (CEB) provides coordinating framework • Some agencies have established dedicated funds and support initiatives, e.g. • UNDP/Japan Adaptation Programme in Africa • UNEP Green Economy Advisory Services • UN REDD • At the national level, United Nations Country Teams (UNCT’s) provide coordination Territorial Approach to Climate Change - Phase 1

UN Funds and Programmes (cont.) Territorial Approach to Climate Change - Phase 1

The Case of the UNDP MDG Carbon Facility • Launched in 2007 with the goal to offer an innovative means of harnessing resources of the carbon market for developing countries • Offers technical assistance and a comprehensive package of project development services to develop emission reduction projects • Operates within the framework of the Clean Development Mechanism and Joint Implementation of the Kyoto Protocol Territorial Approach to Climate Change - Phase 1

Main Objective of the UNDP MDG Carbon Facility Territorial Approach to Climate Change - Phase 1

Bi-lateral Development Aid • Aid provided from one country directly to another country • Supports the economic, social and political development in partner countries • Different from short-term humanitarian aid by focusing on alleviating poverty in the long term • Usually bi-lateral agreements are negotiated between the two partners • Paris Declaration provides overarching guiding principle for effective development aid Territorial Approach to Climate Change - Phase 1

Bilateral Climate Change Funds • Dedicated funds established by a country/group of countries to support Non-Annex 1 countries in implementing the global climate change regime • Usually managed directly by the country which provided the financing Territorial Approach to Climate Change - Phase 1

Overview of Bi-lateral Climate Change Funds Territorial Approach to Climate Change - Phase 1

The Global Climate Change Alliance - GCCA (EU) • Aims at supporting the poorest and most vulnerable countries with respect to their capacity to adapt to the effects of climate change • Platform for dialogue and regular exchange between the EU and these countries • Regional level dialogues (e.g. with African, Caribbean and Pacific States, the African Union and SIDS Territorial Approach to Climate Change - Phase 1

The Global Climate Change Alliance - GCCA (EU) (cont.) • Five priority areas: • Implementation of measures to adapt to climate change • Reducing emissions from deforestation in developing countries • Enhancement of participation in the Clean Development Mechanism (CDM) • Promotion of disaster risk reduction (DRR) • Integration of climate change into poverty reduction strategies and programmes • More resources of about €200 million under the intra-ACP programme in the area of climate change, the environment and disaster risk prevention, will be made available Territorial Approach to Climate Change - Phase 1

The Cool Earth Partnership (Japan) • Initiative of the Government of Japan which commenced in 2008 • Provides assistance to developing countries to achieve climate compatible growth • Up to US$ 10 billion for mitigation in the form of loans with preferential interest rates • Supporting institutions include • Japan Bank for International Cooperation (JBIC Asia and Environment Facility) • Nippon Export Investment and Insurance • New Energy and Industrial Technology Development Organization • Up to US$ 2 billion for adaptation in the form of grant aid, technical assistance and aid • Adaptation component implemented through international organizations Territorial Approach to Climate Change - Phase 1

Sources of Financing to Address Climate Change