Ilm 5 climate change finance 20140520

Module 5

Introduction to Climate Change Finance

One UN Training Service Platform

on Climate Change: UN CC:Learn



Learning Objectives

1. Describe the overall landscape of climate change finance sources

2. Identify main elements of national planning for climate finance

4. Analyze challenges and opportunities for developing

countries in terms of accessing and managing climate finance

3. Define key elements of the international climate change finance

architecture

By the end of the module

participants will be able to:

Module 5: Introduction to Climate Change Finance

2



Overview


OVERVIEW

Section 1

Introduction to Climate Change Finance

Section 2

National Climate Change Finance

Section 3

International Climate Change Finance

3



Introduction to Climate

Change FinanceSection 1


4



What is Climate Finance?

Section 1: Introduction to Climate Change Finance

5

Source: CDKN. Further info: WRI

website

No internationally agreed

definition

Often understood as “new

and additional” public

financial assistance for

developing countries

Other financing sources,

such as foreign direct

investments and regular

budgetary expenditures,

are also included.

http://cdkn.org/2012/11/news-cdkn-launches-climate-finance-advisory-service/

http://insights.wri.org/news/2013/04/why-climate-finance-so-hard-define



Main Streams of Climate Finance

International public

International private

National public

National private

6




The Need for International Climate Finance in Developing Countries

Developing countries are

the most vulnerable to

climate change

Areas of need: mitigation, adaptation, technology

transfer, capacity building

Developing countries have

limited resources to ensure an effective response

Climate finance is one of the key issues in the climate

change negotiations


7



360 billion USD

Estimates of Current Annual Climate Investments

Source: World Resources Institute

and Climate Policy Initiative 2013

8


10-20

billion USD

(4%)

Climate finance provided by

developed country governments in

2011

Global public and private climate investments in 2011

http://www.wri.org/our-work/project/climate-finance

http://climatepolicyinitiative.org/publication/global-landscape-of-climate-finance-2013/



360 billion USD

Share of Public Finance in Overall Climate Investments

Source: Climate Policy Initiative 2013

9


135 billion USD

(38%)Share of public climate finance

(including domestic investments)

Global public and private climate investments in 2011

http://climatepolicyinitiative.org/publication/global-landscape-of-climate-finance-2013/



1 trillion USD

Estimates of Annual Investments Needed in Clean Energy Only

Source: IEA 2012

10


http://www.iea.org/Textbase/npsum/ETP2012SUM.pdf



Growth of Private Investment in Clean Energy

Source: Pew Charitable Trusts (2011) in UNDP (2011), p19

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Billion

USD



Global Landscape of Climate Finance

12


Video: The Climate Policy Initiatives provides some key

numbers about global private and public climate finance flows

URL: http://vimeo.com/78310362

http://vimeo.com/78310362






National Climate Change

FinanceSection 2


13



Capacities to plan for finance

Capacities to access different types of finance

Capacities to deliver

finance and implement activities

Capacities to monitor,

report and verify

financial expenditures

and associated

results

Climate Finance “Readiness”14

Section 2: National Climate Change Finance



Many countries are already

spending considerable

amounts on climate change

through national budgets,

even though the

expenditures are not

labeled as such

Countries are looking for

more comprehensive

approaches to managing

climate finance taking into

account all sources

(domestic, external, public

and private)

National Climate Financial Frameworks

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Government Income/Revenues

Government can raise revenues through various instruments

Inspired by the “polluter pays” principles

Objective: Incentivize climate responsible behaviours

A more in depth

discussion on carbon

taxes can be found on the

IPCC website

16


http://www.ipcc.ch/ipccreports/tar/wg3/index.php?idp=251



Government Spending: Schematic Budget Process

Definition of Government

Priorities

Allocation of Budget to Ministries

Budget ExecutionEvaluation and

Reporting

17




Climate Public Expenditure and Institutional Review (CPEIR)

18

Reviews climate change policy priorities and

strategies

Improves understanding

of role and responsibilities of institutions

involved

Quantifies climate change

related expenditures in

the national budget


http://www.snap-undp.org/elibrary/Publications/DG-2013-CPEIR-Methodological-Note.pdf

http://www.snap-undp.org/elibrary/Publications/DG-2013-CPEIR-Methodological-Note.pdf



Better Use of Climate Change Finance

19


Video by the UNDP Asia-Pacific Regional Centre

Better Use of Climate Finance

http://www.youtube.com/watch?v=KQqlIPcOSOg






Case Study: Thai Climate Financial Framework

Source: GIZ

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Leveraging Private Investments through Public Policy and Finance

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Source: UNFCCC 2008, p8



Instruments to Incentivize/Redirect Private Investment - Examples

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Capacity and Information Based Instruments

• Building climate awareness of decision-makers in the private and public sectors

• Enhancing technical skills required for green and climate resilient technologies

• Changing consumption choices through awareness-raising campaigns

• …

Regulatory Instruments

• Standards (e.g. building codes/energy performance requirements)

• Mandatory labelling (e.g. energy labels for refrigerators)

• Zoning laws (e.g. land zoning to protect climatesensitive ecosystemservices)

• …

Financial and Market Based Instruments

• Fiscal incentives (e.g. carbon taxes or phase out of fossil fuel subsidies)

• Early market development mechanisms (e.g. project development grants)

• Environmental market trading mechanisms (e.g. carbon cap and trade markets).

• De-risking measures(e.g. partial riskguarantees)

• ...



“We should invest like mad…”

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Video: Lord Nicolas Stern talking about opportunities

and obstacles for incentivising private investment.

URL: http://www.youtube.com/watch?v=0S-QcOsOoRs

http://www.youtube.com/watch?v=0S-QcOsOoRs






In Focus: UNEP ClimateChange Finance Page

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http://www.unep.org/climatechange/finance/





International Climate

Change FinanceSection 3


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Internat. Financial Flows for Climate Action in Developing Countries

Source: Adapted from SEI 2009, p4

Section 3: International Climate Change Finance

26



The Financial Mechanism of the UN Convention on Climate Change



27



Financial Mechanisms under the COP of the UNFCCC

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Source: Adapted from UNDP 2011, p65



GEF Administered Trust Funds

• Global Environmental Facility Trust Fund

GEF

• Special Climate Change FundSCCF

• Least Developed Countries FundLDCF

• Adaptation Trust FundAF

29


http://www.thegef.org/gef/trust_funds

http://unfccc.int/cooperation_and_support/financial_mechanism/special_climate_change_fund/items/3657.php

http://unfccc.int/adaptation/workstreams/national_adaptation_programmes_of_action/items/4723.php

http://unfccc.int/cooperation_and_support/financial_mechanism/adaptation_fund/items/3659.php



Accessing Climate Funding

Directly

Via accredited national agencies

Example: UNFCCC

Adaptation Fund

Indirectly

Via implementing agencies

Example: GEFSource:

freedigitalphotos.net

30


http://www.freedigitalphotos.net/



The Green Climate Fund

New multilateral fund agreed

upon at COP 16 (2010)

Expected to generate

climate finance of USD 100

billion per year by 2020

Board hosted by the Republic of

Korea

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http://gcfund.net/home.html



In Focus: UNFCCC Finance Portal for Climate Change

32


http://unfccc.int/cooperation_support/financial_mechanism/finance_portal/items/5824.php





Multilateral and Bilateral Funding for Climate Action



33



Examples of Multilateral & Bilateral Sources

Examples of multilateral sources

Clean Technology Fund (CTF)

Strategic Climate Fund (SCF)

Examples of bilateral sources

EU: Global Climate Change Alliance (GCCA)

Germany: International Climate Initiative (ICI)

UK: International Climate Fund (ICF)

34


https://www.climateinvestmentfunds.org/cif/Clean_Technology_Fund

https://www.climateinvestmentfunds.org/cif/Strategic_Climate_Fund

http://www.gcca.eu/

http://www.international-climate-initiative.com/en/

https://www.gov.uk/government/policies/taking-international-action-to-mitigate-climate-change/supporting-pages/international-climate-fund-icf



Example: Pilot Program for Climate Resilience (PPCR)

Source: Pilot Programme For Climate Resilience

35


https://www.climateinvestmentfunds.org/cif/Pilot_Program_for_Climate_Resilience

https://www.climateinvestmentfunds.org/cif/node/4



In Focus: Climate Finance Options

36


http://www.climatefinanceoptions.org/





Traditional Development Aid Versus “New and Additional” Finance



37



Climate Financing and Development – Friends or Foes?

Climate finance supposed to be additional to

the official development assistance (ODA)

target of 0.7% of gross national income (GNI)

ODAClimateFinance ?

38


http://www.unmillenniumproject.org/press/07.htm



Carbon Markets



39

Further info:

Renewable Energy

World Website

http://www.renewableenergyworld.com/



The Kyoto Protocol Flexibility Mechanisms

International Emissions Trading

Clean Development Mechanism (CDM)

Joint Implementation (JI)

Source:

freedigitalphotos.net

40


http://www.freedigitalphotos.net/



Example of a CDM Project41


Case of a power utility in a developing

country:

Needs to decide whether to invest in

coal-fired power plant or a wind power

plant.

The costs of wind power is higher than

the cost of coal-fired power.

However, wind power produces less

carbon than coal-fired power.

Power utility chooses to invest in wind

power because it is compensated for

emission reduction with carbon credits.

Can sell credits on the carbon market.

Source: UNFCCC

http://cdm.unfccc.int/contest/photo.html



Challenges for Carbon Finance42


Low price for carbon credits and allowances

Uneven regional distribution of CDM projects

(only 2.9% of projects located in African region)

CDM and JI focus on projects rather than

sectors

Concerns with regards to non-additionality and

double-counting of emission reductionsFurther info: CDM Pipeline website

http://www.cdmpipeline.org/regions_7.htm




International Private Finance for Climate Action



43



Estimate of North-South Private Climate Investments

44

Source: OECD 2012 p9


http://www.oecd.org/environment/cc/50034816.pdf



Additional ResourcesAnnex


45



Module Summary

Additional Resources

There is a need for additional funding for climate related

activities.

Actually, private investments account for most of climate

finance.

National institutions already spend a lot of money on climate

related activities, even though it is not usually recorded as

such. Procceding to a Climate Public Expenditure and

Institutional Review (CPEIR) can help get a better view of

climate-related expenses.

A national government can provide incentives to channel

private investments into climate related activities.

Climate finance readiness is important to attract international

climate related funding.

There are multiple streams of international climate finance

that channel either public or private funding.



Useful Links

UNEP Finance Initiative

UNDP MDG Carbon

UNFCCC Focus: Finance

Climate Investment Funds

(CIF)

Climate Policy Initiative:

Landscape of Climate Finance

Climate Finance Options

Climate Funds Update – Climate

Finance Fundamentals

UNEP Risoe CDM/JI Pipeline

Analysis and Database

Multilateral and Bilateral Funding

Sources


http://www.unepfi.org/

http://www.undp.org/content/undp/en/home/ourwork/environmentandenergy/projects_and_initiatives/mdg-carbon/

http://unfccc.int/focus/finance/items/7001.php

https://www.climateinvestmentfunds.org/cif/node/1

http://climatepolicyinitiative.org/publication/the-landscape-of-climate-finance/

http://www.climatefinanceoptions.org/cfo/index.php

http://www.climatefundsupdate.org/resources/finance-fundamentals


https://unfccc.int/cooperation_and_support/financial_mechanism/bilateral_and_multilateral_funding/items/2822.php



Recommended Readings


UNDP (2011). Catalysing Climate Finance

UNDP (2012). Readiness for Climate Finance

CDDE and UNDP (2012). Making Sense of Climate

Finance

UNDP UNFCCC (s.d.). Fact Sheet: Financing Climate

Change Action Investment and Financial Flows for a

Strengthened Response to Climate Change

UNFCCC (2007). Report on the Analysis of Existing and

Potential Investment and Financial Flows Relevant to the

Development of an Effective and Appropriate International

Response to Climate Change

48

http://www.uncclearn.org/catalysing_climate_finance_%E2%80%93_guidebook_policy_and_

http://www.uncclearn.org/readiness_climate_finance_framework_understanding_

http://www.snap-undp.org/elibrary/Publications/DG-2013-MakingSense-of-ClimateFinance.pdf

http://unfccc.int/press/fact_sheets/items/4982.php

http://unfccc.int/cooperation_and_support/financial_mechanism/items/4053.php



Main References


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Stockholm Environment Institute (SEI) (2009). Bilateral

Finance Institutions and Climate Change: A Mapping of

Climate Portfolios

UNDP (2011). Catalysing Climate Finance

Climate Policy Initiative website

World Resources Institute website

http://sei-international.org/mediamanager/documents/Publications/Climate-mitigation-adaptation/bilateral-finance-institutions-climate-change.pdf

http://www.uncclearn.org/catalysing_climate_finance_%E2%80%93_guidebook_policy_and_

http://climatepolicyinitiative.org/

http://www.wri.org/our-work/project/climate-finance

Documents

Ilm 5 climate change finance 20140520