Sources and Types of Climate Financing Mechanisms

Ms Wairimu Mwangi

Green-Next Sustainability Ltd

Presented at the ACX Executive Climate Change and Carbon Trading Course Workshop held at

Kenya Forest Research Institute (KEFRI)

Outline:

1. Key Messages on Climate Finance

2. Climate Finance Overview

3. Investment Needs

4. Sources of Climate Finance

5. Instruments of Disbursement of Climate Finance

6. Intended Uses for Climate Finance

7. Innovative Means of Leveraging Climate Finance

8. Conclusions

1. Key Messages on Climate Finance

Key issues to be addressed :

•How much CF is needed for mitigation, adaptation, technology development & transfer & Capacity developmentin African countries?

What are the sources of CF?How will resources be effectively disbursed to recipients?How will processes and outcomes be monitored?

Climate finance is a major issue in the UNFCCC framework

Key Messages On Climate Finance

:

Opportunities include:•Technology Devlopment & Transfer•Multiplier effects in the economy – employment creation, rise of cottage industries, •Promotion of Green growth •Infrastructure development

Opportunities for climate Finance on development

2. Climate Finance Overview

The Main Existing Global Funding MechanismsGlobal Environmental Facility (GEF)• The financial mechanism created as the operating entity

under the UNFCCC convention. • Fund’s replenishment occurs on a fixed 4 year cycle• Focus mainly on mitigation efforts, limited success on

Africa (cumbersome administrative and disbursement procedures.

• Other funds that are governed by the GEF: Least Developed Countries Fund (LDCF), and the Special Climate Change Fund (SCCF)

• They are mainly based on voluntary pledges by donor countries

Climate Finance Overview

Adaptation Fund

• Created under the Kyoto Protocol of the UNFCCC.

• This fund is financed by 2 per cent of the Certified Emission Reductions (CERs) issued for the Clean Development Mechanism (CDM) activities.

• Main focus is assisting developing countries that are a party to the protocol to meet the cost of adaptation to climate change impacts.

• The operating entity of the Fund is the Adaptation Fund Board supported by the GEF as the secretariat and World Bank as a trustee

Climate Finance Overview

Multilateral FundsWorld Bank • Climate Investment Fund (CIF) mainly focussed

on mitigation initiatives and the • Pilot Program for Climate Resilience (PPCR)

focussed on adaptation initiatives. PPCR fund was driven by the G8 Plan of action on

climate change in 2005. The fund is administered mainly through the provision of concessional loans rather than through grants

2. Climate Finance Overview

The Cancun Agreements for more adequate, sustainable and

Predictable financing

• Finance:

•“Fast Start” Finance of $30 billion (2010-12)

Parties to submit information to UNFCCC annually on resources

provided and how to access them

The disbursed funds so far are about $6 billion only:

•Mobilize Long-term Finance of $100 billion per year by 2020

Variety of sources : public, private, bilateral, and multilateral

-“balance for adaptation and mitigation-

Additional funding

Significant share of multilateral funding for adaptation should flow through Green Climate Fund

2. Climate Finance Overview

• Decision to establish Green Climate Fund:

–“accountable to and under guidance of”COP

To support mitigation, adaptation, capacity development and technology devpt & transfer

•Provisions for reforming

the Clean Development

Mechanism (Carbon markets for developing countries)

3. Additional investment needs in developing countries, by 2030

Source World Bank 2010

4. Sources Of Climate Finance

Sources of funding :

There are 4 major sources:

1. Private

CDM & Carbon Offset markets

2. Public

(official aid and policy money)

3. Global Capital Markets (

institutional investors, high-net

worth individuals and lending

institutions)

4. Multilateral

Uses of funding:

Enabling policies, Legislations, institutions & markets - adaptation and mitigation

Catalyze transformational private & public investments & devpt programs.

Low-carbon technologies (renewable energies, energy efficiency in industry, transport, buildings

Terrestrial carbon(agriculture and forestry)

Climate resilience practises (agric...)

Support research, development & deployment of new technologies

Sources Of Climate Finance

• Climate policy initiative estimates global climate funding at around USD 97 billion.

Private Sources

(Equity & Debt)

USD 55B

Public sector

USD 21B

Multilateral sources

USD 20B

Carbon Markets

USD 2B

5. Instruments Of Disbursements Of Climate Finance

• LOANS

About USD 74-87 billion out of USD 97 billion, can be classified as investment.

• Market rate Loans – are about USD 56 billion:USD 18 billion by bilateral and multilateral agencies like IFC while USD 38 billion by the private sector.

• Equity -USD 18 billion of which USD 16 billion by the private sector. • Concessional loans - About USD 13 billion typically provided by

bilateral and multilateral banks

• AID The remainder of Climate Finance between USD 8 and 21 billion. This is

comprised of policy incentives, risk management facilities (USD 1 billion), carbon offset flows (USD 2 billion) and grants (USD 4 billion).

6. Uses Of Climate Finance

• MITIGATION EFFORTS

The large majority of climate finance (USD 93 billion out of USD 97 billion) is used for mitigation measures. Mostly for capital investments in mitigation measures like renewable energy.

• Most of the financing (USD 55 billion out of USD 93 billion) - from the private sector in the form of capital investment.

• Bilateral and multilateral institutions -USD 19 billion and USD 14 billion respectively.

• Funds contribute USD 2.4 billion. • The offset market provides USD 2.2 billion of incremental cost

financing.• Voluntary / philanthropic contributions are estimated to provide USD

240 million, slightly more than their contribution to adaptation.

Uses Of Climate Finance

Adaptation:

• Adaptation receives a small share of about USD 4.4 billion,

• Adaptation is predominantly financed through bilateral institutions (USD 3.6 billion out of USD 4.4 billion),

• Multilateral institutions (USD 475 million) and

• Voluntary / philanthropy (USD 210 million).

• A relatively small share (USD 65 million) is provided by dedicated funds

7. Innovative Means Of Leveraging More Finance

• International transport levies

• Concessional debt

• Auctions of domestic emission allowances

• Create new investment vehicles (green bonds, green venture funds)

• More stringent commitments for developed countries under the KP to generate additional demand for credits from CDM and other mechanisms

• Expand the 2 per cent levy on CDM

contribution to the adaptation fund to

include other mechanisms such as the

Joint Implementation mechanism (JI) and the

Emissions trading mechanism

8. Conclusion

Financial Mechanisms suitable for African Countries should mainly

emerge from Public sources in form of Aid and the remainder from a mix of private, bilateral and multilateral

sources

THANK YOU FOR YOUR ATTENTION

QUESTIONS AND DISCUSSIONS

Wairimu.mwangi@green-next.com

www.green-next.com