An initiative of the ACP Group of States funded by the European Union

Global Climate Change Alliance: Intra-ACP Programme

Training ModuleClimate Change Finance

Module 1 – Financing Climate Change

Ms Isabelle MamatySenior Expert

Climate Support Facility

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

2

Climate change and sustainable

development linkages?

Climate change and sustainable

development linkages?

3

Climate change and sustainable development

4

Environment

Social dimension

Economy

Sustainable development

Climate change

Biophysical effects

Socio-economic impacts

Both adaptation and mitigation support more

sustainable development

In turn, the pursuit of sustainable development

enhances society’s response capacity

Climate change and MDGs

5

Potential impacts on

MDGs

Eradicate extreme poverty & hunger

(Goal 1)

Reduce child mortality (Goal 4)

Promote gender equality & empower

women (Goal 3)

Improve maternal health (Goal 5) Combat major

diseases (Goal 6)

Ensure environmental

sustainability (Goal 7)

e.g. Adverse effects on food

security

e.g. Increased incidence of waterborne

diseases

e.g. Dependence on livelihoods put

at risk by CC

e.g. Higher incidence of

anaemia resulting from malaria

e.g. Heat-related mortality & illnesses e.g. Increased stress

on ecosystems and biodiversitySource: OECD (2009a)

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

6

Mainstreaming climate change into national

development planning and budgeting

Mainstreaming climate change into national

development planning and budgeting

7

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 responseso 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

8

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

9

NAPAs and NAMAs

Many developing countries have now submitted their NAPAs (& NAMAs) to the UNFCCCo NAPAs = national adaptation programmes of action

Help LDCs build national capacities and identify priority adaptation projects with developmental benefits

o 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

10

Financing climate changeFinancing climate change

11

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)

12

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: oCommon but differentiated responsibility oPrecautionary approach oSustainable 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

13

Global response to climate change under UNFCC (2)

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

14

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

15

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

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Global environment facility (GEF) (1)

GEF is since 1994 the financial mechanism of the following conventions:o UN Framework Convention on Climate Change(UNFCC), o Convention on Biodiversity, o Stockholm Convention on persistent Organic Pollutants o UN Convention to Combat Desertification.

Supports activities on management of chemical products under the Montreal Protocol on Ozoneo Manages two funds under the UNFCCCo Special fund for climate change (SCCF)o Least developed countries fund (LDCF)

Secretariat of the Adaptation Fund17

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

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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):

o $ 2 billion for climate change o $1.5 billion for biodiversityo $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 :o below the threshold to use the total of their allocations across all and any STAR

focal areas during the GEF-5 cycleo 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 proportionso 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)

19

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:

o Emissions trading “carbon market”o Clean development mechanism (CDM)o Joint implementation (JI)

184 Parties of the Convention have ratified its Protocol to date.

20

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.

21

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

22

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

23

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

24

Estimating the Costs of climate change

The estimates of climate change financing needs of developing countries are as follow:

omitigation : $500 billion to 1100 billion/year (UNFCC, 2009; World Bank report 2010; UNDESA (WESS, 2010)

o Adaptation : 100$ billion to $ 450 billion/year (UNFCC 2007; World Bank 2010; Parry et al. (2009)

25

External sources of climate change financeExternal sources of climate change finance

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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

27

Public funding (multilateral/bilateral funds)Public funding (multilateral/bilateral funds)

28

Complex architecture of the funds

29

Main sources of external financing (1)

30

Source of funding Activities supported

Development cooperation programmes Adaptation and mitigation with a focus on development

Least Developed Countries Fund Preparation and implementation of NAPAs

Special Climate Change Fund Adaptation (priority objective), technology transfers, mitigation in high-potential sectors

GEF Trust Fund’s climate change focal area

Mitigation projects, adaptation demonstration projects and ‘enabling activities’

Adaptation Fund Projects and programmes that reduce the vulnerability of communities and sectors to CC

Green Climate Fund(operations not yet started)

Channel for future multilateral funding for adaptation and mitigation

Clean Technology Fund Demonstration, deployment and transfer of low-emission technologies

Strategic Climate Fund (SCF) - Pilot Program for Climate Resilience

Climate risk and resilience mainstreaming in development planning

Main sources of external financing (2)

31

Source of funding Activities supported

SCF- Forest Investment Program REDD- related activities, sustainable forest management

SCF - Program for Scaling Up Renewable Energy in Low-Income Countries

Deployment of renewable energy sources

REDD+ (various streams of funding incl. UN-REDD, which promotes the mainstreaming of REDD strategies in national development)

Preparation, pilot implementation and deployment of national strategies for reducing emissions from deforestation/forest degradation

Prototype Carbon Fund Pioneering approaches to mitigation that contribute to sustainable development

BioCarbon Fund Carbon sequestration projects in forests and agro-ecosystems

Main sources of external financing (3)

32

Source of funding Activities supported

Forest Carbon Partnership Facility Preparation of national REDD strategies, pilot financial transfers based on verified emission reductions from REDD

Carbon Partnership Facility Long-term, post-2012 mitigation projects

Global Energy Efficiency and Renewable Energy Fund

Energy efficiency and renewable energy projects

Global Climate Change Alliance Mainstreaming of CC in poverty reduction and national development strategiesAdaptation, DRR, participation in REDD/CDM

MDG Achievement Fund, ‘environment and climate change’ thematic area

Mainstreaming of environmental issues in national and sub-national policies, planning and investment frameworks

Clean Development Mechanism Mitigation projects in developing countries

Voluntary carbon markets Mitigation projects

Funding by theme

Split of overall funding by themeSplit of overall funding by theme

Source: www.climatefundsupdate.org

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Gaps in climate funds flows (1)

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Fund Pledged Disbursed

Adaptation Fund 254.95 25.61

Clean Technology Fund 4433.00 384.00

Congo Basin Forest Fund 165.00 15.71

Forest Carbon Partnership Facility 436.90 11.35

Forest Investment Program 599.00 14.00

GEF Trust Fund - Climate Change focal area (GEF 4: 2006 - 2010)

1032.92 915.70

GEF Trust Fund - Climate Change focal area (GEF 5: 2010 - 2014)

1141.00 1.00

Global Energy Efficiency and Renewable Energy Fund 169.50 

Gaps in climate funds flows (2)

35

Fund Pledged Disbursed

International Climate Initiative 680.40 562.10

International Forest Carbon Initiative 216.27 47.60

Least Developed Countries Fund 379.86 107.71

MDG Achievement Fund – Environment and Climate Change thematic window

89.50 83.30

Pilot Program for Climate Resilience 982.00 55.00

Scaling-Up Renewable Energy Program for Low Income Countries

352.00 6.00

Special Climate Change Fund 206.39 86.10

UN-REDD Programme 150.84 117.90Total: 32719.05 2666.90

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

36

Difficulties in capturing resources for developing countries (1)

Internal difficulties in developing countries

Problem in designing projects

Sequencing

Coordination

Lack of absorptive capacity

37

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

38

Funds evaluation – ground level reality

39

National climate funds National climate funds

40

National climate funds

Several countries have now established a ‘national climate fund’ (trust fund) to:o channel and manage external funding related to CCo leverage existing funds and initiatives (incl. those

financed with national resources)o support the mainstreaming of climate-related programmes

and projects into national development strategies Expected benefits:

o Alignment of external funding with national prioritieso Building of national capacities and institutionso Scaling up of the response to climate change

41

Private-public partnership initiatives Private-public partnership initiatives

42

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.

43

Market-based instruments Market-based instruments

44

Market carbon structure

CSRCSR

Australia, EU, Canada, Japan, New Zealand, USA

Compliance Market

Voluntary Market

JI & CDM

Voluntary

Kyoto compliance: Annex1 countries

EU emissions Trading Scheme

Pre-compliance

RetailNGOs

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

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)

47

Turning words into actionTurning words into action

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Discussion

Questions and answersGeneral 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

49

• Thank you

• Contact: Dr. Pendo MARO, ACP Secretariat pendomaro@acp.int or +32 495 281 494

www.gcca.eu/intra-acp