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Financing Opportunities for Climate Change Mitigation

Financing Opportunities for Climate Change Mitigation. Katie Dunn Carbon Finance Technical Specialist UNDP, Regional Center Panama 16 March 2011 Katherine.dunn@undp.org. UNDP’s Role.

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Financing Opportunities for Climate Change Mitigation

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  1. Financing Opportunities for Climate Change Mitigation Katie Dunn Carbon Finance Technical Specialist UNDP, Regional Center Panama 16 March 2011 Katherine.dunn@undp.org

  2. UNDP’s Role • UNDP has over 20 years of experience in accessing multiple funding sources for climate change to address a wide range of national issues, ranging from institutional capacity building to cutting edge technology deployment • A key issue for successful climate change financing is to clearly understand what type of financing instrument is most appropriate to achieve a particular goal

  3. UNDP’s Support to Countries in the area of Climate Change • Dispursed $1.58b and leveraged $3b in co-financing to support sustainable development initiatives • Supports countries to access, sequence, and combine funds to manage uncertainties of climate change, e.g., LDCF, SCCF, GEF, national funds, bi-lateral funds • Supported 102 countries to prepare their National Communications since 1996 • Supported 29 LDCs to prepare their NAPAs and access new financing from LDCF to implement NAPA priorities • Managed 60 SCCF/LDCF projects for non-Annex I countries • Supported 114 countries to prepare NCSAs • Supported 68 countries with their TNAs • Global support to develop capacity for domestic carbon market and CDM project development

  4. Current Mitigation Goals and Needs To avoid global temperature rises of more than 2⁰C above pre-industrial levels and achieve stabilization of greenhouse gas concentrations at 450ppm we need to achieve the target of 17 gigatonnes (Gt) of abatement by 2020. 1 Gt = 1 billion tonnes

  5. Current Mitigation Goals and Needs A single gigaton of emissions is roughly equivalent to putting 142,857,142 African elephants into the atmosphere every year (or enough to stretch elephants from the earth to the moon and halfway back again). It's also greater than the weight of every human being on the planet. All 6 plus billion of us. http://www.project-catalyst.info/images/2.%20Climate%20Finance/Publications/2.%20Briefing%20papers%20on%20climate%20finance/20091203%20Finance%20Needs%20Briefing.pdf

  6. Current Mitigation Goals and Needs • 5 Gt of abatement are possible without behavioral changes in the developed world in 2020. McKinsey Report • A further 3 Gt are available in the developing world at negative cost (mostly through energy savings) and would therefore not require financing • We must capture another 9 Gt of positive‐cost abatement in the developing world. These measures will require support from the developed world. How to finance the incremental costs of this mitigation is at the core of the climate negotiations.

  7. Current Mitigation Goals and Needs • $$$$ • The total investment required to avoid dangerous climate change is • more than USD 1 trillion per annum, according to the International • Energy Agency (IEA). • Around USD 400 billion per annum of investment will be required for mitigation investment in developing countries according to the World Bank. • The sum of climate-related public sector commitments currently under negotiation, even if delivered to their maximum ambition, totals around USD 110 billion. The World Economic Forum (WEF)

  8. Current international funding Current international funding dedicated to climate action in developing countries covers only about five percent of their anticipated needs. The shortfall is potentially more than USD 350 billion.

  9. Focus of Approved Funding Adaptation $1 billion Multiple Focus 1.7% $132 million REDD 4.9% $386 million Mitigation USD$6.4 billion

  10. Climate Funds • Adaptation Fund AF • Amazon Fund (Fundo Amazônia) FA • Clean Technology Fund CTF • Congo Basin Forest Fund CBFF • Environmental Transformation Fund - International Window ETF • Forest Carbon Partnership Facility FCPF • Forest Investment Program FIP • GEF Trust Fund - Climate Change focal area (GEF 4) GEF4 • GEF Trust Fund - Climate Change focal area (GEF 5) GEF5 • Global Climate Change Alliance GCCA • Global Energy Efficiency and Renewable Energy Fund GEEREF • Hatoyama Initiative - private sources HI-Pr • Hatoyama Initiative - public sources HI-Pu • Indonesia Climate Change Trust Fund ICCTF • International Climate Initiative ICI • International Forest Carbon Initiative IFCI • Least Developed Countries Fund LDCF • MDG Achievement Fund – Environment and Climate Change thematic window MDG • Pilot Program for Climate Resilience PPCR • Scaling-Up Renewable Energy Program for Low Income Countries SREP • Special Climate Change Fund SCCF • Strategic Climate Fund SCF • Strategic Priority on Adaptation SPA • UN-REDD Programme UN-REDD

  11. Funds Pledged vs. Deposited and Dispersed

  12. Climate Finance Website Trackers Fast-Start Finance:  Cooperative initiative lead by the UK and the Netherlands UNFCCC:  Summary of agreements reached in Cancun, including Fast-Start Finance & Green Fund Climate Funds Update:  Tracks financial pledges from developed nations World Resources Institute:  FSF tracking from an independent NGO Project Catalyst:  Economic analysis of FSF flows to developing countries

  13. Fast Start Finance The Copenhagen Accord outlines a pledge by many developed countries to support fast start finance funds to help developing countries adapt to the impact of climate change and to pursue actions that put them on a low-carbon development pathway. The funds will “provide new and additional resources, including forestry and investments through international institutions, approaching $30 billion for the period 2010 to 2012 with balanced allocation between adaptation and mitigation.” The World Resources Institute (WRI) is currently tracking the FSF pledges http://www.wri.org/publication/summary-of-developed-country-fast-start-climate-finance-pledges

  14. The Great Green Hope: Green Climate Fund The UN Climate Talks in December 2010 concluded with a set of decisions known as the Cancun Agreements, which included the establishment of the Green Climate Fund (GCF). Intended to raise and disburse $100bn a year by 2020 to protect poor nations against climate impacts and assist them with low-carbon development. (To address both mitigation and adaption). The Fund will have the capacity to provide “direct access” to national institutions, without the intervention of international implementing agencies like the World Bank and the United Nations.

  15. Green Climate Fund The Green Climate Fund will initially use the World Bank as a trustee while giving oversight to a new body balanced between developed and developing countries: a transitional committee of 25 developing and 15 developed countries to develop guidelines for the Board to further develop the detailed rules after COP17 in Durban.

  16. Green Climate Fund • Remaining Questions: • How will countries directly access funds? • What financial instruments and models will be used? • Registry system to record financial pledges and climate-mitigating actions? • Will non-governmental groups, the private sector and international organizations all be allowed to take part? • Mechanisms to ensure environmental and social standards?

  17. Green Climate Fund Designing and making the GCF operational will take some time. Funds won’t start flowing immediately. The international community therefore needs to find a way to finance the gap as many of the vulnerable developing countries and those least able to cope are already suffering from the devastating impacts of climate change.

  18. UNFCCC Loans for Underdeveloped Carbon Markets Executive Board of the CDM to provide loans to support the following activities in countries with fewer than 10 registered CDM projects to: (a) To cover the costs of the development of project design documents (PDDs); (b) To cover the costs of validation and the first verification for these project activities. Loans are to be repaid starting from the first issuance of certified emission reductions (CERs). Implementing Agency TBD

  19. Carbon Finance to Date • Initially perceived as the main financial vehicle for mitigation activities in the developing world • Has resulted in significant financial flows to non Annex 1 countries for the transfer of low emissions technology • Has been an important vehicle for deep structural transformations which will not be reverted • Has involved multiple public and private actors in climate change that would otherwise not be involved • However, it is increasingly acknowledged that the CDM and carbon markets are only one piece of the financing puzzle to address climate change • The total value of the market grew 6% to US$144 billion (€103 billion) by year’s end with 8.7 billion tCO2e traded • Project-based transactions declined by 54%

  20. What’s Next in Mitigation Finance • From CDM to Scaled Up Mitigation Mechanisms • Standardized Baselines • Sectoral Approach Using Market Mechanisms • NAMAs supported through crediting or trading • NAMAs supported through international aid

  21. What’s Next in Mitigation Finance Nationally Appropriate Mitigation Actions (NAMAs) NAMAs are voluntary emission reduction measures undertaken by developing countries that are reported by national governments to the UNFCCC. They are expected to be the main vehicle for mitigation action in developing countries under a future climate agreement, and can be policies, programs or projects implemented at national, regional, or local levels.

  22. Nationally Appropriate Mitigation Actions (NAMAs) • Three types of broad NAMAs are being proposed: • Unilateral • Mitigation actions undertaken by developing countries on their own. • Supported • Mitigation actions in developing countries, seeking international support by finance, technology & capacity building. They will be subject to international MRV procedures to be adopted by COP. • Creditable • Mitigation actions in developing countries generating credits for the carbon market.

  23. Post 2012 Financing World Bank’s Umbrella Carbon Facility Tranche 2 (UCFT2) With initial funding of €68 million, contributed by Deutsche Bank, GDF SUEZ, and the Swedish Energy Agency, this Tranche provides the opportunity for existing carbon projects to continue selling their carbon credits well beyond 2012. “During a period of regulatory uncertainty, the UCFT2 is helping to maintain demand for post-2012 carbon credits. It means we have another tool to help bridge the gap in the carbon markets,” said Joëlle Chassard, Manager of the World Bank’s Carbon Finance Unit.

  24. Thank You Katherine Dunn Carbon Finance Technical Specialist Environment and Energy Group UNDP Regional Support Center, Panama Katherine.dunn@undp.org

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