Embed Size (px)
Citation preview
CLIMATE INVESTMENT FUNDS: THE CLEAN TECHNOLOGY FUND AND THE STRATEGIC CLIMATE FUND
SUSTAINABLE DEVELOPMENT NETWORK
JUNE 9,2008
44168
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
ABBREVIATIONS AM) ACRONYMS
ADB AF AfDB C D M CEIF CIF cso CTF DAC EBRD ESMAP GEF GFDRR GHG IBRD IDA IEG IF1 ISDR JI LDCF MDBs M&E NAPA NGOs ODA OECD PHRD PPCR PPCR SC SCF SCCF SFCCD TF TFESSD UN UNDP UNEP UNFCCC WBG
Asian Development Bank Adaptation Fund African Development Bank Clean Development Mechanism Clean Energy Investment Framework Climate Investment Funds Civi l Society Organization Clean Technology Fund Development Assistance Committee European Bank for Reconstruction and Development Energy Sector Management Assistance Program Global Environment Facility Global Facility for Disaster Reduction and Recovery Green House Gas International Bank for Reconstruction and Development International Development Association Independent Evaluation Group International Financial Institution Internal Strategy for Disaster Reduction Joint Implementation Least Development Countries Fund Multilateral Development Banks Monitoring and Evaluation National Adaptation Programs o f Action Non Governmental Organizations Official Development Assistance Organization for Economic Cooperation and Development Japan Policy and Human Resources Development Pilot Program for Climate Resilience Pilot Program for Climate Resilience Sub-committee Strategic Climate Fund Special Climate Change Fund Strategic Framework for Climate Change and Development Trust Fund Trust Fund for Environmentally and Socially Sustainable Development United Nations United Nations Development Programme United Nations Environmental Programme United Nations Framework Convention on Climate Change World Bank Group
CLIMATE INVESTMENT FUNDS: THE CLEAN TECHNOLOGY FUND AND THE STRATEGIC CLIMATE FUND
CONTENTS
Executive Summary ........................................................................................................................ i
I . I1 . I11 . I V .
A . B .
V . V I .
Background ........................................................................................................................ 1
The Challenge and the International Framework ......................................................... 2
Financing Challenges ........................................................................................................ 5
The Proposed Climate Investment Funds ....................................................................... 8 The Proposed Clean Technology Fund ............................................................................. 12 The Proposed Strategic Climate Fund ............................................................................... 19
Meeting Challenges and Managing R i s k s ..................................................................... 24
Next Steps ......................................................................................................................... 26
Annexes Annex 1: Proposed Clean Technology Fund ................................................................................. 27 Annex 2: Proposed Strategic Climate Fund .................................................................................. 44 Annex 3: Other Proposed Arrangements ....................................................................................... 72
Boxes Box 1 : Bal i Action Plan ................................................................................................................... 4 Box 2: Existing resources and financing instruments dedicated to climate change ........................ 6
Box 4: Illustrative Project and Financing Plans for CTF Investment ............................................ 18 Box 3: Potential CTF Investments ................................................................................................. 15
CLIMATE INVESTMENT FUNDS: THE CLEAN TECHNOLOGY FUND AND THE STRATEGIC CLIMATE FUND
EXECUTIVE SUMMARY
1. Climate Change as a Development Challenge. Addressing climate change i s central to the sustainable development and poverty reduction agenda. An effective response to climate change must combine both mitigation-to avoid the unmanageable-and adaptation-to manage the unavoidable On the one hand, a delay in reducing greenhouse gas (GHG) emissions significantly constrains opportunities to achieve lower stabilization levels and i s likely to increase the risk o f more severe climate change impacts. On the other hand, climate change has the potential to reverse the development gains that have been hard-earned by developing countries over the past decades and progress towards achieving the Millennium Development Goals (MDGs), such as eradicating poverty, combating communicable diseases and environmental sustainability. Meeting the climate change challenge while also addressing critical poverty and growth needs, l ike energy access, i s essential.
2. To address these needs, the Clean Energy and Development Investment Framework (CEIF) put forth in 2005, the IDA and Climate Change paper, and the Bali Action Plan agreed by the United Nations Framework Convention on Climate Change (UNFCCC) in December 2007, highlighted the need for new and additional financing in the form o f concessional loans and grants to assist developing countries in achieving sustainability in their development, by reducing the risks to climate impacts and implementing mitigation actions at the country level.
3. Climate Investment Funds. Recognizing that UNFCCC deliberations on the future o f the climate change regime are underway, including discussions on a future financial architecture and funding strategy for climate change, multilateral development banks (MDBs) have developed an interim measure to scale-up assistance to developing countries and build the necessary knowledge base in the development community. The new Climate Investment Funds (CIF) would build on progress made by many o f the developing countries, with the objectives o f scaling up investments in low-carbon technologies (Clean Technology Fund), and supporting various programs to test innovative approaches to climate action (Strategic Climate Fund). Designed as an interim instrument, the CIF will include specific sunset clauses linked to agreement on the future o f the climate change regime.
4. Funding and Governance. B y combining significant concessional financing with International Financial Institutions (IFI), public and private sector flows and other climate financing (such as carbon finance and Global Environment Facility (GEF), the CIF will demonstrate how MDBs can help developing countries combine poverty alleviation and growth objectives with the global climate change imperative. Donor contributions to the CIF would be new and additional to existing Official Development Assistance (ODA) fimding levels (which already include financing for climate change actions embedded within recent MDB replenishments; e.g., for IDA). Governance would be broad-based and inclusive. Key features include Trust Fund Committees with a balanced representation o f recipient and donor countries and project approval by MDB Boards. A Partnership Forum-a broad-based meeting o f stakeholders, including donor and recipient countries, MDBs, United Nations (UN) and UN agencies, GEF , UNFCCC, the Adaptation Fund, bilateral development agencies, NGOs, private
i
sector entities, and scientific and technical experts-would be convened annually to provide a forum for dialogue on the strategic directions, results and impacts o f the CIF.
5 . Clean Technology Fund (CTF). The CTF would provide scaled-up financing to contribute to demonstration, deployment and transfer o f low-carbon technologies with a significant potential for long-term greenhouse gas emissions savings. As country circumstances differ, investment programs would be developed on a country-specific basis to achieve nationally defined objectives. In order to maximize impact, the CTF would work with the private sector, as well as the public sector, to bring sufficient technological know-how and capital to dramatically scale-up clean technology deployment, while remaining technology neutral. The CTF would build on and complement the GEF, as well as link to capacity building programs o f UNEP and UNDP. It would provide grant elements tailored to cover identifiable additional costs necessary to make projects viable. It would utilize a range o f concessional financing instruments, such as grants and concessional loans, and risk mitigation instruments, such as guarantees and equity.
6. The SCF would provide financing to pilot new development approaches or to scale-up activities aimed at a specific climate change challenge or sectoral response through targeted programs. The first program to be included in the SCF would pilot national level actions for climate resilience in a few highly vulnerable countries. Other programs under consideration would: support energy efficient and renewable energy technologies to increase energy access in low income countries; and investments to reduce deforestation and forest degradation and to promote improved sustainable forest management. An important objective i s to maximize co-benefits o f sustainable development, particularly in relation to the conservation o f biodiversity, natural resources ecosystem services and ecological processes.
Strategic Climate Fund (SCF).
7. Together with other MDBs, the Bank will be responsible for implementing programs and projects financed by the CIF, following i t s normal programming and implementation procedures. In addition, the World Bank will serve as Trustee for the two trust funds and will host an Administrative Unit to administer the CIF. The World Bank, as Trustee, will enter into multi-donor trust fund administration agreements with donors and financial procedures agreements with each MDB for CIF funds.
World Bank’s Role.
8, Monitoring and Evaluation. Monitoring and evaluation and dissemination o f lessons will be critical for optimizing impacts o f the CTF and SCF. Each MDB will follow i t s procedures for monitoring and evaluation. Each Fund will include a results framework and annual reporting. Provisions for independent evaluations are included in the design.
9. Mitigating Risks. The two funds face risks for which mitigating measures have been built into the design. The most important measure i s steady engagement o f the Bank with the UNFCCC and GEF and other key stakeholders to ensure that the operations are indeed supportive o f the UNFCCC negotiations and, in the interim, facilitate progress in advancing the Bal i Action Plan. The CIF, therefore, avoids conditionality, while grounding projects in country- led sustainable development plans. The second risk mitigation measure i s to maintain a close working relationship with the newly created Adaptation Fund Board. Other measures address the need to avoid or manage potential or perceived conflicts o f interest relating to the Bank’s roles in hosting the Administrative Unit, acting as Trustee and serving as one o f the implementing agencies.
ii
10. The CIF has been designed to make a positive contribution to supporting the goals o f the climate change negotiations through learning by doing and by demonstrating in concrete terms actions at scale that meet countries’ sustainable development objectives while responding to climate coneerns and by taking full advantage o f the MDB capabilities. The CIF will serve to better position the MDBs to address climate change issues in anticipation o f a positive outcome o f the UNFCCC negotiations.
... 111
PROPOSED CLIMATE INVESTMENT FUNDS: THE CLEAN TECHNOLOGY FUND AND THE STRATEGIC CLIMATE FUND
I. BACKGROUND
1. F r o m the Clean Energy Investment Framework...The 2005 Gleneagles G-8 Summit in July 2005 stimulated a concerted effort by the development community to broaden and accelerate support to developing countries related to energy access addressing climate change through the Clean Energy and Development Investment Framework (CEIF). Through the CEIF, the World Bank Group (WBG), the African Development Bank (ADB), the Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), and the Inter-American Development Bank (IADB) (hereinafter referred to as the Multilateral Development Banks (MDBs)), working with other key partners such as the GEF and motivated private sector leaders, have, in a short period o f time: (a) accelerated investments in Sub-Saharan Africa for access to energy, (b) assisted several interested countries to undertake low-carbon energy investments and move towards less carbon intensive growth; and (c) elevated the knowledge and ability o f countries most vulnerable to climate r isks to start the transition towards sustainable, climate resil ient poverty reduction and development’’
2. The CEIF identified a major gap in the international architecture for development to address climate change (both mitigation and adaptation) in developing countries at a scale necessary to initiate transformational change. Among others, i t identified the need for financing at more concessional rates than standard MDB terms, and at the scale necessary to help interested developing countries with implementing sustainable development plans and investment decisions that integrate nationally appropriate mitigation and adaptation actions. In the area o f access to energy for the poorest, the WBG will continue to enhance i t s efforts to address unmet needs, with additional financing and leveraging for infrastructure needs at the core o f the recently developed World Bank Group Sustainable Infrastructure Action Plan2.
3. .... To a Broadening of the Agenda. In i t s Fourth Assessment (2007), the Intergovernmental Panel on Climate Change (IPCC) makes clear that warming o f the climate system i s unequivocal and that a delay in reducing greenhouse gas emissions significantly constrains opportunities to achieve lower stabilization levels and i s likely to increase the risk o f more severe climate change impacts. A consensus i s growing that moderating and managing climate change i s central to every aspect o f poverty reduction, economic growth and development, and that climate change disproportionately affects the urban and rural poor worldwide. The CEIF provided the basis for definition o f a range o f initiatives to respond to climate change within each MDB, with a set o f concrete results and impacts in terms o f scale-up. As a direct response, the Strategic Framework for Climate Change and
1 See “Clean Energy for Development Investment Framework: Implementation Report on the World Bank Group Action Plan”, as Annex 1 o f the paper “Towards a Strategic Framework on Climate Change and Development for the World Bank Group - Concept and Issues Paper,” March 27,2008. DC2008-0002. 2 “WBG Sustainable Infrastructure Action Plan, FY09-1 l”, May 29,2008. SecM2008-0209.
1
Development (SFCCD) i s being developed, with the objective o f facilitating WBG operations to support countries’ efforts to take climate actions without compromising growth and poverty reduction through i t s regional and global operation^.^ The Development Committee in October 2007 empowered the WBG to “help catalyze substantial additional resources from both public and private sources, including concessional finance as appropriate”. Linked to the SFCCD and to the emerging strategies o f the other MDB’s, the Climate Investment Funds proposed in this paper will provide new and additional financial resources and appropriate technology for climate change consistent with the MDBs’ core mission o f growth and poverty reduction and inclusive and sustainable globalization.
11.’ THE CHALLENGE AND THE INTERNATIONAL FRAMEWORK
4. Climate Change as a Development Challenge. Addressing climate change i s central to the sustainable development and poverty reduction agenda, and an effective response to climate change must combine both mitigation-to avoid the unmanageable-and adaptation-to manage the unavoidable. A delay in reducing greenhouse gas (GHG) emissions significantly constrains opportunities to achieve lower stabilization levels and i s likely to increase the risk o f more severe climate change impacts. Yet, achieving growth and reducing poverty require, among other things, access to energy, which remains a critical driver for the development agenda.
5 . Distributional Impact. Moreover, the distributional impact o f the costs o f climate action remains a key issue. Climate change presents an urgent challenge to the well-being o f all countries and particularly to the poorest countries and the poorest people. The impacts o f climate change include, among others, increased frequency and severity o f droughts, floods and storms, water stress, decline in agricultural productivity and food security, collapse of ecosystems and further spread o f water-related diseases, particularly in tropical areas. The poorest countries and communities are already feeling the impact o f climate change and will suffer the hardest because o f their geographical location, low incomes, and low institutional capacity, as well as their greater reliance on climate-sensitive sectors like agriculture.
6. Collective Action. Stabilization o f GHG concentrations within the levels that would keep the impacts o f climate change manageable, would require limiting global GHG emissions through multilateral action involving policy incentives and the deployment, on a global scale, o f a portfolio o f currently available and future low-carbon technologies in a range o f sectors, including energy supply, transport, buildings, industry, agriculture, forestry and waste management. This translates into significant emission reductions by developed countries and curbing growth in GHG emissions by developing countries, with eventual stabilization in the long term. The need for collective action in the area o f both adaptation and mitigation actions was central to the Bali Action Plan in December 2007, and will underpin the development o f the Strategic Framework on Climate Change and Development (SFCCD).
3 “Towards a Strategic Framework on Climate Change and Development for the World Bank Group - Concept and Issues Paper,” March 27,2008. DC2008-0002.
2
7. Cooperative Arrangement. Because o f their lower historical contribution to C 0 2 concentrations, developing countries expect a cooperative arrangement to provide financing and investment to support action on mitigation and adaptation and technology cooperation in accordance with the principle o f common but differentiated responsibilities and respective capabilities. Developing countries understandably place the highest priority on fulfil l ing immediate development needs rather than on mitigating climate change or on making their economies more resil ient to longer-term threats from climate change. Therefore, even though emerging and transition economies have opportunities to choose lower-carbon technologies as they develop, they have l i t t le incentive to do so when the additional costs are not commensurate with the expected local benefits. Developing countries need resources and tools to level the playing field between conventional and cleaner technologies, eliminating or compensating for market imperfections, and financing the difference in cost.
8. financial resources to address climate change. The UNFCCC Conference o f the Parties in Bal i in December 2007 launched a comprehensive process to enable the full, effective and sustained implementation o f the Convention through long-term cooperative action to address global climate change. The key areas for negotiations include mitigation o f climate change, adaptation, technology development and transfer, and provision o f financial resources in support o f developing countries’ actions (Box 1). It recognizes the need for financial resources to be provided to developing countries to assist them in meeting the costs o f mitigation and adaptation measures.
UNFCCC and the Bali Action Plan. The UNFCCC foresees a broad range o f
3
Box 1: Bali Action Plan
The Ba l i Action Plan was formulated by member countries o f the UNFCCC at COP 13 in order to enhance the implementation o f the Convention and negotiate firther actions for a post-2012 period. While r e a f f m i n g that socio-economic development and poverty reduction are global priorities, the Bal i Action Plan calls for:
0 Enhanced action on mitigation o f climate change: 9 nationally appropriate, measurable, reportable and verifiable mitigation commitments or actions,
including quantified emissions limitation and reduction objectives by al l developed countries, taking into account differences in their national circumstances; nationally appropriate mitigation actions by developing countries in the context o f sustainable development, supported by technology and enabled by fmance and capacity building in a measurable, reportable and verifiable manner; pol icy approaches and incentives relating to emissions reductions from deforestation and forest degradation in developing countries; and cooperative sectoral approaches and sector-specific actions, as wel l as market-based approaches.
international action to support implementation o f adaptation actions; risk management and risk reduction strategies, including risk sharing and transfer mechanisms such as insurance;
economic diversification to build resilience.
9
9
9
Enhanced action on adaptation to climate change: 9 9
9 disaster reduction strategies; and 9
Enhanced action on technology development and transfer to support mitigation and adaptation: 9 effective mechanisms for scaling-up the development and transfer o f affordable and
environmentally-sound technologies to developing countries, and ways to accelerate their deployment and diffusion; cooperation on research and development o f current, new and innovative technology; and mechanisms and tools for technology cooperation in specific sectors.
Enhanced action on the provision o f financial resources and investment to support mitigation and adaptation: 9 improved access to adequate, predictable and sustainable financial and technical support and
provision o f additional resources, including off icial and concessional funding for developing countries; positive incentives for developing countries to enhance mitigation and adaptation actions; innovative means o f assisting developing countries that are particularly vulnerable to adverse impacts o f climate change, including fmancial and technical support to capacity-building; incentives to implement adaptation via sustainable development policies; and mobilization o f public and private sector funding and investment, including facilitation o f carbon-fiiendlv choices.
0
0
9 9
0
9 9
9 k
9. There are already several mechanisms in place that have started responding to the challenge o f climate change. The GEF, for example, i s the financial mechanism o f the UNFCCC (article 11) and has over the past 17 years financed $2.4 bil l ion in mitigation pilots and related capacity building. I t also manages two funds established by the Conference o f the Parties to the UNFCCC, which provide financing for climate change activities: the Special Climate Change Fund and the Least Developed Countries Fund. The GEF also serves as the Secretariat to the Adaptation Fund established under the Kyoto Protocol, which was made operational by a decision taken by the third meeting o f the Kyoto Protocol parties. With a more private sector orientation, the Kyoto Protocol was designed to stimulate an
4
international carbon market to generate revenues for developing country investments in low carbon developments. While less than four years in formal operations, the Kyoto Protocol flexible mechanisms (Clean Development Mechanism and Joint Implementation) have stimulated a global carbon market generating revenues to developing country companies and governments o f over $7 bil l ion in 2007.
10. In addition, to i t s financial mechanism, the UNFCCC stipulates that “developed country parties may also provide and developing country Parties avail themselves of, financial resources related to the implementation o f the Convention through bilateral, regional and other multilateral channels” (article 11 o f the UNFCCC, paragraph l(5)).
111. FINANCING CHALLENGES
11. The urgency in addressing climate change requires immediate financing and incentives that can act as a bridge while UNFCCC negotiations take place and until carbon markets, other financial mechanisms and policy signals have matured. The Bali Action Plan anticipates enhanced action on the provision o f financial resources and investment to support mitigation and adaptation, and indeed this will be one o f the central areas on which the negotiations on the future o f the climate regime will focus on. In this context, the MDBs have been actively pursuing ways to increase the availability o f innovative financing through existing and new instruments and to accelerate the access o f developing countries to carbon finance, building on comparative advantages o f the various institutions and their strong development policy dialogue with client countries (Box 2).
12. In particular, the time has now come to take the important lessons learned from pilot and prototype projects and programs and capacity building efforts, such as those supported by the GEF, to broader programs that help reduce poverty, foster growth, build climate resilience, and increase energy access using new low-carbon approaches to development, thus mainstreaming climate action into MDB programs.
13. Finance for Mitigation. While the estimates o f the overall magnitude o f the investment required to pursue low-carbon growth vary, i t i s clear that existing sources o f financing can cover only a small fraction o f the need. Estimated incremental cost to enable power investments in developing countries to reach a low carbon threshold i s in the order o f $30-$40 bil l ion per year. Global incremental costs for a low-carbon trajectory, including all sectors, are estimated to be $100-$200 bi l l ion per year. These figures compare to the C D M market, which was about $7 bil l ion per year in 2007. GEF i s expected to contribute about US$ 250 mil l ion to mitigation activities. A strong market for carbon trading and policy instruments i s a condition for the private sector to address the remaining investment gap.
5
Box 2: Existing resources and financing instruments dedicated to climate change
Financing Source RoldScopdOperational criteria Financing Source RoldScopdOperational criteria
GEF ca $265 million pea. Focuses on global environmental Trust Fund $250 benefits to finance incremental costs mi l l ion p.a. o f removing barriers to market SCCF - $15 mi l l ion development o f near commercial p.a. technologies through capacity
building, pol icy and regulatory reform, institutional development, innovation, pi lot ing and demonstration.
GEF Adaptation Fund- Funding for the Adaptation Fund $300 mi l l ion to $1 w i l l mainly come from a 2 percent bi l l ion by 2012 l e v y o n revenues generated by the (estimate); Clean Development Mechanism
(CDM);
Least Developed Countries Fund (LCDF)-$180 implementation o f national million; adaptation programs o f action
(NAPAs) in the least developed countries;
SCCF supports adaptation projects in
L D C F helps in the preparation and
Special Climate Change Fund (SCCF) ~ $ 9 0 al l developing countries; mi l l ion (for adaptation);
Clean Development Improves financial returns through Mechanism (CDM) long-term purchase agreements for and Join the GHG emissions reductions Implementation resulting f?om climate-friendly (JI) projects. The Bank manages 11
carbon funds, including the recently launched FCPF.
Strategic Priority to SPA i s a funding allocation within Pilot an Operational the GEF Trust Fund whose objective Approach on i s to support pi lot and demonstration Adaptation projects that address local adaptation (SPA)-$50 needs and generate global mi l l ion environmental benefits in al l GEF
focal areas.
Global Facility for Disaster Reduction International Strategy for and Recovery Disaster Reduction (ISDR), (GFDRR) focusing on building capacities
$8 mil l ion FY07+$40 mi l l ion FY08
I D A
IDA15 replenishment development goals. IDA w i l l increased by $9.5 bi l l ion over IDA14 (about 30%)
Partnership within the UN
to enhance disaster resilience and adaptive capacities in changing climate. The goal i s to reduce disaster losses by 2015.
IDA15 increase was, in part, in recognition that climate change w i l l increase the cost o f meeting
focus on adaptation investments which reduce the damages from climate change and yield net benefits that are competitive w i th alternative development projects.
6
14. Country programming discussions with client developing countries have made it clear that countries are often unwilling to borrow for discrete mitigation activities, and some appear to be reluctant to act until resources that are clearly “additional” to ODA commitments are made available. In many cases, low-carbon technologies are perceived as unattractive due to: (a) technical risks associated with new technology; (b) slower uptake for new technologies due to slower pace o f price decreases; and (c) higher capital costs. Developing countries understandably place a higher priority on fulfilling immediate development needs than on mitigating climate change or on making their economies more resilient to longer-term threats from climate change. In the absence o f predictable, long-term revenue streams for carbon which reflect i t s social cost, and given market imperfections, political risk and other barriers, investment in lower-carbon technologies i s likely to continue to be sub-optimal. Grant and concessional financing i s critical to catalyze increased flows o f commercial capital and to support early action by the developing countries to address the challenges o f climate change.
15. Each MDB i s refining i t s climate change interventions based on CEIF experience, striving to help client countries make lower-carbon investments. MDBs have shown that some scaling up o f investment activities can be achieved in a short time using the MDB’s existing and proven instruments. Priority has been given to identifying opportunities to further scale up the deployment o f these instruments, based on client country demand to demonstrate efficiency gains and local environmental benefits, overcome market barriers, and mobilize the private sector. Collective l ow carbon annual lendinghnvestments i s expected to be around $5 bi l l ion in FY09, and could reach $10.6 bi l l ion by FY2011 (in support o f projects/programs totaling $41.3 billion). These projections compare to annual average collective lending/investments for energy access o f $1.3 bi l l ion and $1.9 bil l ion for low carbon in the 2003-05 period. A number o f opportunities have been identified for the MDBs to further leverage their existing instruments if the funding from the proposed CIF were to be available.
16. Financing for Adaptation. The provision o f adequate funding for adaptation to the adverse effects o f climate change i s seen by most developing countries as an essential component o f the UNFCCC negotiations. Estimates o f the resources needed to make development climate resil ient vary widely but most place the amount in the low tens o f billions in the near te rm with the UNFCCC estimating financial flows o f $28 bil l ion to $67 bil l ion in 2030. Current funding for adaptation in development assistance i s less than $100 mi l l ion per year with most allocated as grants o f a few mi l l ion dollars or less. Adaptation Funds managed by the GEF are expected to add approximately $400-$500 mi l l ion per year for adaptation actions in developing countries. This could grow to $1 bi l l ion per year by 2012 through the operationalization o f the Adaptation Fund which relies on a 2% levy on revenues generated by the CDM.
17. As shown in the 2007 International Development Association (IDA) and Climate Change paper4 a key priority i s to support a development process in low income countries that i s sustainable and resilient to climate variability. IDA and similar mechanisms in other MDBs
“IDA and Climate Change- Making Climate Action Work for Development”. International Development Association, Sustainable Development Network. October 2007.
7
are well positioned platforms for achieving this objective, through budget and multi-sectoral financial and technical support which mainstreams adaptation actions. IDA countries will need additional finance just to maintain the development benefits o f projects at their ‘without climate change’ level. The increase in IDA credits that would make this possible has been estimated to range from $600 mi l l ion to $1.9 bi l l ion per year (Le., a 6 to 21 percent increase from the total FY06 IDA credits). The additional amount required to mainstream climate resilience in the development process will be substantially higher. Yet, there i s virtually no experience in developing countries in mainstreaming climate resilience in the development process at the national, multi-sectoral levels, resulting in a substantial knowledge gap as well.
IV. THE PROPOSED CLIMATE INVESTMENT FUNDS
18. Rationale. Within this context, and recognizing that climate change i s central to the sustainable development and poverty reduction agenda, the WBG, in consultation with the regional development banks, developed and developing countries, other development partners and stakeholders, i s seeking to establish the CIF. These aim to mobilize new and additional financing for activities and investments that demonstrate how financial and other incentives can be scaled-up to support adaptation and mitigation efforts in a coherent and integrated manner. Recognizing that UNFCCC deliberations on the future o f the climate change regime include discussions on a future financial architecture and funding strategy for climate change, the CIF will be an interim measure designed for the MDBs to assist in fi l l ing immediate financing gaps and building the necessary knowledge base in the development community. The funds, therefore, will include specific sunset clauses linked to the agreement on the future o f the climate change regime
19. Early Initiatives. The CIF was sparked by the early initiative o f the United Kingdom (UK) for an Environmental Transformation Fund to support a Transformation Fund for Sustainable Development. This partnership also takes into account the United States o f America (USA) proposal for a Clean Technology Fund, and Japan’s Cool Earth 50 initiative announced in May 2007. Building on these initiatives, the World Bank undertook a series o f consultations with the objective o f developing an instrument that would generate broad-based support, especially from other donor countries and the developing countries to address these various objective^.^ The establishment o f the CIF i s consistent with the acknowledgement that climate change i s a development issue, as well as an environment issue.
20. While recognizing that the UN i s the appropriate body for broad policy setting on climate change, and that the MDBs should not preempt the outcomes o f climate change negotiations, there i s also an opportunity acknowledged for MDBs to help interested countries to undertake actions for low carbon and climate resilient growth and to strengthen the knowledge base for climate actions. Such action should be guided by the principles o f
Consultations included: a donors meeting in March 2008 (Paris); Consultations with developing country representatives on April 10,2008 (Washington);and Design meetings with developed and developing country representatives on April 14-15,2008, (Washington) and May 21-22,2008 (Potsdam). Consultations were also held with non-governmental organizations and the private sector during the design process.
8
the UNFCCC and should serve as a contribution to the ongoing climate change negotiations and to the MDBs’ own operations.
21, Two New Trust Funds. The proposed CIFs will comprise o f two new trust funds: the CTF that will scale up investments in cleaner technologies, and the SCF that will be broader and more flexible in scope and will serve as an overarching fund that can support various programs to test innovative approaches to climate action. The SCF will include, as an initial program, a pilot program on climate resilience. Two separate t rust funds are proposed because o f the clear differences in objective and scope, and therefore, necessary differences in governance and administration. It i s also likely that there will be a different set o f donors interested in, and recipients benefiting from, each trust fund. The design o f these two funds was agreed through a consultative process involving a broad range o f stakeholders, and in particular representatives from developing and developed countries (See Annex 1 and 2 for the text o f the agreements).
22. The CIF will be supported by a broad-based and inclusive governance structure, including a strong role for MDB Boards, equal representation for recipients and donors on Trust Fund Committees, and a Partnership Forum to give voice to all stakeholders. The Trust Fund Committees’ and sub-committees’ decision-making will be by consensus. MDB representatives will participate in the Committees. The Committees will also benefit from inputs from other stakeholders such as GEF, UNFCCC, United Nations Development Program (UNDP), and UNEP.
Governance Arrangements.
23. A Partnership Forum will be established to provide an opportunity to optimize the contribution o f the CIF operations to the implementation o f the Bali Action Plan. The Partnership Forum, a broad-based meeting o f stakeholders, including donor and eligible recipient countries, MDBs, UN and UN agencies, GEF, UNFCCC, the Adaptation Fund, bilateral development agencies, NGOs, private sector entities, and scientific and technical experts will be convened annually to provide a forum for dialogue on the strategic directions, results and impacts o f the CIF. The Partnership Forum will have a consultative nature and will not engage in producing outcomes (such as agreed texts, declarations) that might be used as a basis for discussions in the UNFCCC. The Partnership Forum will be co-chaired by the World Bank Vice President for Sustainable Development and a country representative elected by countries participating in the Partnership Forum. The United Nations Environment Program (UNEP) will be invited to collaborate with the Administrative Unit in proposing to the Trust Fund Committees ways to ensure scientific and expert input, based on personal qualificati,ons and experience o f experts and a balance o f developed and developing country expertise, into the Partnership Forum. At the Partnership Forum, donor and recipient countries will agree, within their respective caucuses, on their representation on the Trust Fund Committee.
Partnership Forum.
24. Additionality of Donor Support. Contributions from donors to the CIF should be additional to existing ODA funding levels. I t i s very important that donor support to address climate change in developing countries does not offset current and future commitments to assist these countries in their efforts to alleviate poverty and stimulate economic growth. The CIF funds will be closely monitored to ensure continued additionality.
9
25. Sunset Arrangements. Recognizing that the establishment o f the CIF i s not to prejudice the on-going UNFCCC deliberations regarding the future o f the climate change regime, including i t s financial architecture, the CIF will take necessary steps to conclude i t s operations once a new financial architecture i s effective. Notwithstanding the provisions to close each Fund, if the outcome o f the UNFCCC negotiations so indicate, the Trust Fund Committees, with the consent o f the Trustee, may take necessary steps to continue the operations o f the CIF.
26. Country Ownership. Activities financed by the CIF will be grounded in country-led and owned development strategies, consistent with the MDBs’ own policies and procedures, and in support o f the Paris Declaration focus on country ownership. Actions to address climate change mitigation and adaptation considerations will be integrated into the sustainable development process so as to contribute to the basic human needs o f the poorest. MDBs’ role should be: (a) to ensure access o f developing countries to adequate financial resources and appropriate technology for climate actions, and (b) to assist them to build country-level knowledge, capacity and development project experience about the feasibility and implications o f addressing climate change.
27. Complementarities between activities foreseen for the CIF and activities o f the GEF and the UN, especially at the country level, will be identified to maximize synergies and avoid overlap. One o f the key concerns that emerged during the consultations with external stakeholders was the risk o f duplication o f roles, responsibilities and actions o f the pilot program for existing mechanisms, most notably the GEF and the new Adaptation Fund. By working closely with GEF Secretariat, the Adaptation Fund Board, and key UN agencies such as UNDP and UNEP, the MDBs have been able to propose CIF trust funds whereby: (a) the design benefits from experience o f GEF operations, (b) the operations will be coordinated with, and where appropriate undertaken together with, UN programs, and (c) the Pilot Program for Climate Resilience will contribute to the operational base for the new Adaptation Fund by giving priority to sharing lessons with, and receiving guidance from, the Adaptation Fund Board.
28. Role of the Private Sector. In pursuing a strategy that will combine public and private sector action, the CIF will seek to provide incentives necessary to leverage significant investments in achieving the objectives o f the Funds. Working through the MDBs, including their private sector arms, the CIF will include a combination o f public and private sector initiatives. As the foundation o f economic growth, the private sector has a significant role to play in addressing climate change. The relationship between public sector reform and private sector action i s critical. While many private initiatives can be tested and operate in a less than optimal policy and regulatory environment, full engagement and wide scale growth o f the private sector will only occur if the policy and regulatory environment i s both attractive and stable within a country. An appropriate business environment i s particularly important for promotion o f small and medium-sized enterprises that are critical to broad-based growth and technology adoption.
10
29. Investment Approval Process. Each MDB will remain accountable to i t s governing body and will therefore apply i t s own policies and procedures in project and program preparation, approval, and implementation. All operations financed by the WBG with the proceeds o f the CIF will follow the WBG’s operational policies and procedures, including environmental and social safeguards. In the case o f IBRDADA, programs and projects will be approved by the Board, regardless o f whether there i s IBRD/IDA lending associated with CIF co-financing. Programming will be integrated in the Bank’s country sector dialogue. Regional vice-presidencies will be responsible for identification, appraisal and supervision o f operations, as part o f their annual work programs. Documentation requirements will be the same as for lending operations, and management review arrangements, including for risk assessment and risk control, will apply. In the case o f IFC, all projects financed with CIF funds will be submitted to an internal credit committee, which will be responsible for ensuring projects comply with CIF and approved proposal requirements. In keeping with current IFC practice for GEF, only projects that blend CIF funds and IFC funds will be approved by the IFC Board. Each Regional Development Bank will develop projects and submit i t s investment proposals to i t s Board in accordance with i ts practices.
30. Transaction costs will be minimized by following to the extent possible the MDB operational processes, as well as by simplifying and ensuring consistency with respect to the rules o f access for these funds. Investment plans agreed with countries for the use o f CIF resources will be submitted by the MDBs to the Trust Fund Committee to endorse further development o f activities for Trust Fund co-financing and to facilitate prioritization o f the pipeline o f projects. Subsequently, a proposed program or project developed pursuant to the investment plan will be submitted prior to appraisal to the Trust Fund Committee for approval o f t rust fund financing. A key feature o f the CIF will be joint programming with the relevant regional development bank and coordination with other development partners at the country level. The CIF will be supported by a small Administrative Unit located in the World Bank and by shared responsibilities o f the MDBs through an MDB Committee (Annex 3).
31. Bank’s Roles. The Bank will play a role in oversight and management o f the CIF. The IBRD will be a member o f the MDB Committee, will host the Administrative Unit, and be the Trustee o f the CIF. I t will co-Chair the SCF Trust Fund Committee and the IBRD’s Vice President for SDN will co-chair the Partnership Forum.
32. will be critical for optimizing impacts. Progress will be monitored in several ways:
Monitoring and Evaluation. Monitoring and evaluation and dissemination o f lessons
through the results framework (see paragraphs 47,48 and 64);
annual reports to the Trust Fund Committees that will be made publicly available;
as an element o f the SFCCD, reporting to the Board on the framework will include information on WBG’s use o f the Funds and will discuss linkages with the implementation o f the climate change and development strategy; and
(a)
(b)
(c)
11
(d) an independent evaluation o f the operations i s to be carried out jointly by the independent evaluation departments o f the MDBs after three years o f operations (see paragraph 33).
33. Each MDB will follow i t s procedures for monitoring and evaluation, based on criteria outlined below for each fund. There will be annual reporting by the MDBs on the activities financed by each Fund to the appropriate Trust Fund Committee. In addition, for the WBG, each project will follow standard WBG monitoring and evaluation procedures. An independent evaluation o f the operations o f each Trust Fund and the impacts o f i t s activities will be carried out jointly after three years o f operations by the independent evaluation departments o f the MDBs. Results achieved through the finds will be published and publicly available. The Trust Fund Committees will be responsible ensuring that annual reports and evaluations, including lessons learned, are transmitted to the UNFCCC. Full reporting criteria will be agreed by the Trust Fund Committees.
34. The CIF acknowledges in i t s design the principle o f “common but differentiated responsibilities” to addressing climate change. Consultations on the CIF design and the Bank’s successful experience with scaling up assistance through the CEIF give confidence that the new Funds can make a positive contribution in finding ways to address the climate change challenges and inform constructively the UNFCCC process. To prevent any potential undue effect on the UNFCCC negotiations, the advice o f Parties and other stakeholders, several o f which are expected to jo in the CIF, will continue to be sought and incorporated.
A. The Proposed Clean Technology Fund
35. Objectives and Scope. The CTF will provide scaled-up financing to contribute to demonstration, deployment and transfer o f low-carbon technologies with a significant potential for long-term greenhouse gas emissions savings. (Annex 1). In order to maximize impact, the CTF will work with the private sector as well as the public sector to bring sufficient technological know-how and capital to scale-up clean technology deployment, while remaining technology neutral. It will complement GEF through scaling up activities and mainstreaming into broader based sustainable development programs. GEF’s mandate in the climate change mitigation area provides financing: (a) to pilot and demonstrate innovative technologies, (b) to remove barriers to transform markets, particularly for renewable energy and energy efficiency and (c) for capacity building, in particular the creation o f an enabling environment, including establishment o f codes, norms and standards. To the extent GEF fimding i s available for capacity building, in particular for the creation o f an enabling environment, including establishment o f codes, norms and standards, efforts will be undertaken to maximize GEF financing, including through such partners and UNDP and UNEP .
36. Objectives. The CTF will aim to finance transformational actions by:
(a) providing positive incentives for the demonstration o f low-carbon development and mitigation o f greenhouse gas emissions through public and private sector investments;
12
promoting scaled-up deployment, diffusion and transfer o f clean technologies by funding low-carbon programs and projects that are embedded in national plans and strategies to accelerate their implementation;
promoting realization o f environmental and social co-benefits thus demonstrating the potential for low-carbon technologies to contribute to sustainable development and the achievement o f the MDGs;
promoting international cooperation on climate change and supporting agreement on the future o f the climate change regime;
utilizing sk i l ls and capabilities o f the MDBs to raise and deliver new and additional resources, including official and concessional funding, at significant scale; and providing experience and lessons in responding to the challenge o f climate change through learning-by-doing.
37. Governance Structure. The CTF will have representatives from eight donors and eight eligible recipient countries on i t s Trust Fund Committee. The World Bank and an MDB representative will also participate on the committee as non-voting members. Others, including the GEF and, on strategic agenda items, a UN representative, will be invited as observers. Decisions o f the Trust Fund Committee will be made by consensus.
38. Financing. The CTF will provide positive incentives through grant elements tailored to cover the identifiable additional costs o f low-carbon investments necessary to make a project viable. The financing plan will aim to maximize other available sources o f finance (e.g., CDM, GEF). In order to maximize impact, the CTF will work with the private sector as well as the public sector to bring sufficient technological know-how and capital to dramatically scale-up clean technology deployment, while remaining technology neutral. The CTF will utilize a range o f concessional financing instruments, such as grants and concessional loans, and risk mitigation instruments, such as guarantees and equity. Concessional loans for public sector operations will be provided on IDA-like terms. The Trust Fund Committee will approve loan terms. The pricing and terms o f the CIF funds offered to private sector clients will be tailored to address the specific risk, market, and structural aspects o f each investment. MDBs will seek to ensure that pricing and terms o f the subsidized financing do not distort the market.
39. I t i s proposed that the CTF provide the MDBs with a menu o f blending options to accommodate different needs o f client countries and program interventions. The CTF could co-finance MDB non-concessional loans or provide additional financing o f new components within on-going investments lending operations, on concessional terms. Resources from the CTF would thereby increase the concessionality o f the overall financing for the project.
13
40. The CTF will focus on high abatement opportunities at the country level (but could support sub-regional and regional initiatives) and will be technology-neutral. While there will be no a priori allocations to specific proven technologies or sectors, financing could support a range o f investments in the power and transport sectors as well as energy efficiency initiatives in multiple sectorsS6 (See BOX 3)
CTF Investments.
4 1. Private Sector. Private sector participation i s integral to the overall CTF strategy. The CTF presents a unique opportunity to build on public sector re fo rm and stimulate private sector action. Experience has shown that private sector initiatives, especially those where the market barriers are not regulatory, can successfully proceed and at times even be a trend setter for subsequent regulatory change. The CTF will provide an opportunity for private sector initiatives, developed and implemented through IFC and the private sector arms o f the other MDBs, to address two primary market challenges: a) a dichotomy between perceived risks and real risks; and b) the disincentive for private investors created by the high costs associated with being a f i rs t mover in a new market. In both cases, private investors are discouraged from entering a new sector on their own. CTF private sector initiatives will seek to achieve scale-up (a significant proliferation o f the types o f projects being supported - without a subsidy) by demonstrating, and creating a track record with a few initial investments. Once the private sector can observe the real market risks, and/or the costs o f the new technology decrease, replication i s expected and a subsequent scale-up in the market.
42. Private sector proposals will be submitted in the form o f programs which may consist o f individual “large-scale” projects or “envelopes” o f smaller thematically-linked projects. Proposals will explain how the underlying sub-projects in the proposal are expected to contribute towards the objective o f achieving transformational outcomes in a sector, sub- sector, country, or sub-national region while demonstrating that these outcomes would not be possible without support from the CTF.
In designing the CIF, it was recalled that wi th respect to enhanced technology development and transfer, the Ba l i Action Plan calls for cooperation on research and development o f current, new a n d innovative technology, including win-win solutions, and collaboration by institutions in developed and developing countries on technologies for mitigation. Recognizing that there i s a gap in national and international financing for research and development, it i s proposed that the World Bank collaborate with other relevant international institutions wi th a view to proposing innovative means to address the financing gap.
14
Box 3: Potential CTF Investments
Financing f i om the CTF could cover, among other low-carbon technologies, one or more o f the following proposed transformational investments’:
> Power Sector
’ m
Increase substantially the share o f renewable energy (including solar, wind, hydropower, biomass and bio-fuels, geothermal, and waste-to-energy), in the total electricity supply; Switch to highly efficient gas plants resulting in reduced carbon intensity o f power generation; Achieve significant greenhouse gas reductions by adopting best available coal technologies wi th substantial improvements in energy efficiency and readiness for implementation o f carbon capture and storage; Promote grid interconnection schemes that support lower carbon energy production andor significant transmission efficiency improvements; Large reductions in transmission and distribution losses (new T&D systems using energy- efficient technologies, or retrofitshpgrades); Adopt utility managed demand management programs for retail and wholesale customers.
m
> Transportation Modal shift to public transportation in major metropolitan areas, wi th a substantial change in the number o f passenger trips by public transport; mprove fuel economy standards and fuel switching; .
> Energy Efficiency in buildings, industry and agriculture Large-scale adoption o f energy efficient technologies that lowers energy consumption per unit o f output by a minimum o f 5% in: o o District heating; o
’
Building design, insulation, lighting and appliances;
Energy-intensive industries and equipment (motors and boilers).
43. The starting point in developing operations to be co- financed by the CTF will be a request from a country for a programming mission to be undertaken by the WBG and relevant regional development bank to begin a dialogue on how the CTF may contribute to scaled-up low-carbon activities. It i s envisaged that the government will play a central role in programming o f the CTF’s public sector related projects and in donor coordination. The investment plan will take into account the framework o f the MDBs’ Country Assistance/Partnership Strategies, other relevant national planning exercises, and activities o f other international programs, including the GEF. A key feature o f the programming missions will be engagement at the country level with UN and bilateral development and investment agencies, particularly with a view to mobilizing co- financing and ensuring harmonized policy support.
CTF Investment Plans.
44. The investment plan will be a clearly articulated proposal for the use o f the CTF’s resources in the country, including a potential project pipeline and notional resource envelopes.
~~
The Fund would not support technologies that are s t i l l in the research stage, but should be focused on 7
deployment which may include demonstration o f new low-carbon technologies.
15
45. Review Criteria for Investment Plans. The investment plan should highlight how it i s embedded in national development plans or programs that include low-carbon objectives. As country circumstances differ, investment programs will be developed on a country- specific basis to achieve nationally-defined objectives. The CTF will use criteria which will allow a generic assessment o f transformative potential, consistent with the objectives o f the CTF, and aim to maximize GHG reductions per dollar spent. Investment plans, and the proposed pipeline o f projects and programs, will be-assessed and prioritized on the basis o f the following four sets o f criteria:
Potential for Long-Term GHG Emissions Savings . (a) Cumulative emissions reductions', or avoided, from the investment and per unit cost;
Reductions in carbon intensity;
Scalability and replicability o f low-carbon investments, given carbon intensity o f GDP and electricity generation, economic growth rates and sector expansion plans;
Significant opportunity for reducing growth in GHG emissions.
(b) Demonstration Potential, Accelerate deployment, diffusion and transfer o f low- carbon technologies, consistent with the objectives o f the CTF, at the following scale: . . . sub-nationally, by focusing activity on a particular
.
.
. thematic programs and large-scale projects;
sector or sub-sector in a given country;
province/state/municipality ;
regionally, particularly where regional cooperation i s required;
through the private sector, or public-private partnerships.
Poverty alleviation, fuel savings, efficiency gains, air and water quality, energy security and access, economies o f scale, economy-wide impact, local industrial development potential, and environmental co-benefits.
. Technology development/commercialization status, and policies and capacity to support technology adoption are present or can be developed in the short term; . Minimum level o f macroeconomic stability and stable budget management;
(c) Development Impact . (d) Implementation Potential
A methodology wil l be developed to take into account direct emissions savings from the project itself, potential emissions savings from replication through demonstration, and the potential for wider emissions savings as a result o f policy and regulatory change.
16
. Commitment to an enabling policy and regulatory environment, including planning commitment and expenditure framework in the sector or sub- sector;
Incentives for leveraging private sector financing; . . Institutional arrangements for implementation of policies.
46. Target Size of the CTF. The World Bank will work with donor countries to mobilize new and additional funding for the CTF with a goal o f mobilizing US$5 billion. It i s expected that these new resources will leverage another $25-$30 bi l l ion in financing for low- carbon investments.
17
1 Case 1 : A financial analysis o f a scaled-up solar thermal energy generation investment program, wi th sponsor equity and MDB and other non-concessional loans, shows that the rate o f return on sponsor’s equity i s 3%, given the higher capital cost o f the technology. Anticipated revenues from emissions reductions would increase the IRR to 5%, s t i l l below the target rate o f return on equity investment for the sponsor. A concessional loan from the CTF could increase the IRR on sponsor’s equity to 12%, making the investment financially attractive compared to other power generation options.
Case 2: The cost o f the most efficient coal generation technologies i s 100-150% more than conventional advanced power plants. Two commercial-scale demonstration plants o f the high efficiency technology would have a projected cost o f $1 billion. After taking into account sponsor equity, MDB non-concessional financing, and carbon revenues, there remains a financing gap o f $400 million. A CTF concessional loan o f $200 million, co-financed with an equivalent amount f rom a bilateral development bank (factoring efficiency gains and local environmental benefits), would complete the financing package.
Case 3: A country plans to introduce bus rapid transport systems, wi th diesel bus technologies, in five cities over ten years in order to achieve significant efficiency gains in fuel use, improve air quality, and reduce congestion. The current investment program o f $2 bi l l ion over the ten years balances multiple budget demands on municipal and regional authorities. A program to accelerate adoption o f BRT systems in these five cities over the next five years, wi th the adoption o f more efficient, hybrid drive buses, would require financial incentives through concessional loans for local governments to deploy planned levels o f investment capital on infrastructure and rol l ing stock over five years, rather ten.
Case 4: The government pays wind power producers 5 cents per kilowatt hour, which i s equal to the cost o f conventional power generation, but too l ow to attract investment in wind power. Carbon finance could help increase the tar i f f to 8 cents and trigger some new investments. CTF funding that bridges the gap to bring the tar i f f to 10 cents per kilowatt hour could attract significant investor interest in the near-term, accelerating the adoption o f the technology.
Case 5: A consortium o f private lenders i s financing a large-scale geothermal power project. The lenders would l ike to have the benefit o f an MDB guarantee against certain non-commercial risks relating to the loan, such as those related to breach o f contract by government on power purchase agreements and feed-in tariffs. In addition, there are specific risk barriers that are characteristic o f geothermal technology that translate into higher financial costs and result in a financing gap. Such risks include construction delays, increase in O&M costs, performance degradation, and inadequate resource supply, and where the operator has refused to guarantee additional cost coverage because o f new technology. The MDB would deploy CTF resources to extend a partial risk guarantee to cover construction and operating risks, alongside the MDB guarantee from i t s own resources for conventional non-commercial risks.
47. Results Framework The CTF will assess operational quality and outcomes by tracking results. The purpose o f the CTF results measurement framework will be to: (a) monitor achievement o f results and enable funding or activities to be adjusted as necessary; (b) promote accountability for resource use; and (c) document, provide feedback on, and disseminate results and lessons learned. Proposals for funding by the CTF will include: (a) precisely defined indicators and targets; (b) implementation status reports with satisfactory baseline data for outcome monitoring; and (c) implementation completion reports with satisfactory data on project outcomes.
48. The results measurement system will be approved by the Trust Fund Committee. I t will measure results at three levels, including: (a) fund impact indicators, such as demonstrating and deploying low-carbon technologies aggregating electricity production per
18
year and representing a measured share o f electricity production in the recipient countries, measured reduction in average carbon intensity o f recipient countries, and GHG emission
, reduction per dollar o f CTF funding; (b) country outcome indicators, such as reduction in average carbon intensity in key sectors o f the country, share o f l ow carbon technologies in electricity production or installed capacity, increase in transmission and distribution efficiency, energy consumption per unit o f outputs in industrial and building sectors, and additional financing leveraged from private and public sectors; and (c) portfolio performance indicators such as development outcomes, risk to development outcomes, aggregate GHG emissions reductions, projects at risk, and elapsed time.
B. The Proposed Strategic Climate Fund
49. Objectives and Scope. The SCF will provide financing to pilot new development approaches or scale-up activities aimed at a specific climate change challenge or sectoral response (Annex 2). The SCF will aim to:
promote international cooperation on climate change and support progress towards the future o f the climate change regime;
provide experience and lessons in responding to the challenge o f climate change through learning-by-doing;
promote and channel new and additional financing for addressing climate change through targeted programs to be established as part o f the SCF or through separate funds like the CTF or other funds addressing climate change, such as the Forest Carbon Partnership Fund (FCPF);
utilize the sk i l ls and capabilities o f the MDBs to raise and deliver concessional climate financing at a significant scale to unleash the potential o f the public and private sectors to achieve meaningful reductions o f carbon emissions and greater climate resilience;
provide incentives for scaled-up action and transformational action (both mitigation and adaptation) and for solutions to the climate change challenge and poverty reduction in developing countries, consistent with poverty reduction and sustainable development strategies that are robust to climate change;
provide incentives to maintain, restore and enhance carbon-rich natural ecosystems to prevent these carbon s inks from becoming sources o f increased emissions, and to enhance all the services they provide, including climate resilience or adaptive capacity, and thereby support sustainable development;
complement other multilateral financial mechanisms, such as the GEF and the Adaptation Fund, and bilateral sources o f financing and seek co-financing where appropriate; and
19
(h) maximize co-benefits o f sustainable development, particularly in relation to the conservation o f biodiversity, natural resources ecosystem services and ecological processes.
50. Governance Structure. The SCF will have eight donors and eight recipients on i t s Trust Fund Committee, as well as non-voting representatives o f the World Bank, MDBs, the UN, and a CSO representative. The SCF differs from the CTF in that each SCF program will have i t s own sub-committee, again with balanced participation from donor and developing countries. For the Pilot Program for Climate Resilience, for example, it i s proposed that membership on the sub-committee include six recipient and six donor representatives and the developing country Chair or co-Chair o f the Board o f the Adaptation Fund. Other partners will be invited as observers o f the sub-committee, including all pilot countries under the program, MDBs, UNDP, UNEP and GEF, and c iv i l society. Decisions o f the Trust Fund Committee and the Sub-committees will be taken by consensus.
51. Pilot Program for Climate Resilience. The first program o f the SCF to be established will be the Pilot Program on Climate Resilience (PPCR). The proposed Pilot Program for Climate Resilience (PPCR) i s designed to provide programmatic finance for country-led national climate resil ient development plans. Such programmatic finance i s expected to add value recognizing that most o f the existing dedicated adaptation financing i s project specific. The PPCR aims to provide transformational and scaled-up support for both the development and implementation o f national climate resilient development plans. This experience will be gained through scaled-up interventions covering a full range o f sectors and sources o f financing, and with sufficient resources to move quickly from planning to action. This pilot program has been designed to support, rather than compete with, the Adaptation Fund.(see paragraphs 67 and 68). I t will provide lessons over the next few years that might be taken up by countries, the development community, and those negotiating the future o f the climate change regime, including the Adaptation Fund, as well as broad based development programs like those supported by IDA and i ts equivalents in other MDBs.
52. The PPCR will pilot and demonstrate ways to integrate climate risk and resilience into core development planning, complementing other on-going activities. The pilots will be country led, will build on National Adaptation Programs o f Action and other relevant country studies and strategies and will be strategically aligned with the Adaptation Fund and other donor funded activities to provide pilot finance in the short term so as to learn lessons that will be usefu l in designing scaled-up adaptation finance, including in the context o f international climate negotiations.
53. The PPCR will move quickly to provide about 5 to 10 countriesg with scaled-up support for integrating climate resilience into their development planning and financing. Pilot countries will be selected by the Sub-committee o f the PPCR on the basis o f recommendations from an expert group. In providing guidance on country selection, the expert group will consider: (a) transparent vulnerability criteria; (b) country preparedness and ability to move towards climate resi l ient development plans, taking into account efforts
The PPCR-SC wil l determine the number o f countries in the pilot program taking into account, among other things, the resources available for the program and the objective o f providing scaled-up resources in the pilot countries..
20
to date and willingness to move to a strategic approach to integrating climate resilience into development; and (c) country distribution across regions and types o f hazards (as appropriate to a pilot program). Where relevant, cooperation will be established with other on-going national adaptation programs.
54. Two types o f activities will be supported over the next three to five years in pilot countries:
(a) The first will provide support for technical assistance to enable developing countries to build upon existing national work, including the National Communications and NAPAs, to integrate climate resilience into core development plans and financing. This phase will provide support for technical assistance and capacity building needs as identified by the pilot country, to enable the government to plan for climate resil ient development, with input from national c iv i l society and the private sector. Pilot countries will identify preferred partners for this technical assistance and capacity building work. This may draw upon expertise from, for example, UNDP, UNEP, c iv i l society organizations, research institutes, private sector agencies and MDBs. It will include support to assess and reform institutional arrangements to facilitate the inclusion o f climate risk (and opportunities that may arise from climate change) in development planning and in decision making by civ i l society and the private sector. The bulk o f this work should be completed within about one year o f the recipient country being identified. There should be an emphasis on placing the strategic planning in a long-term context. Technical support to the planning process may continue throughout the l i f e o f the pilot.
The second type o f support will provide additional financial resources to help fund public and private sector investments identified in the climate resilient development plans. There will be an emphasis on budget support, sector-wide approaches, and coordinated investment programs across key sectors, and blending with national financing and/or existing international support mechanism. The level o f investment will vary according to country circumstances and will be provided in accordance with the Paris Declaration on Aid Effectiveness. This support can begin as soon as climate resilient development plans are in place, and it should begin within about a year o f the recipient country being identified.
(b)
55. The PPCR i s designed to be complementary to existing sources o f adaptation funding, such the three funds managed by the GEF, the Least Developed Countries Fund, the Special Climate Change Fund, the Adaptation Fund, and IDA. Given the multi-sectoral nature o f adaptation measures, MDBs are well positioned to mainstream adaptation efforts into country development programs. However, the full integration o f climate resilience in the development portfolio will require further progress in discussions on the future o f the climate change regime as well as a better understanding among donor and recipient countries on how to promote an integrated, as opposed to vertical, response to climate change impacts. In the interim, the PPCR will serve as a pilot to generate lessons for mainstreaming climate risk into
..
21
country programs, thus complementing the core functions o f MDB’s. Resources from the PPCR will be blended with other resources from the MDBs and other international support mechanisms and with national resources to promote institutional change, capacity building and learning through implementation o f climate resilient national development priorities. Lessons learned from the PPCR will be shared with other sources o f adaptation financing.
56. The Sub-committee for the PPCR (PPCR-SC) will have strong developing country participation and will work closely with the Board o f the Adaptation Fund to ensure that the PPCR pilot programs are complementary to the work o f the Adaptation Fund and strengthen the knowledge-base for future Adaptation Fund actions. The Board o f the Adaptation Fund will be invited to be an active participant in the design, governance and monitoring and evaluation o f the PPCR, through representation on the PPCR-SC, involvement in an expert group and through PPCR providing information to the Adaptation Fund Board on programs, achievements and lessons learned. The Sub-committee o f the PPCR will be responsible for ensuring complementary between activities foreseen for the PPCR and activities o f other development partners active in the field o f climate change adaptation, including the GEF and the UN, and ensuring effective cooperation between the PPCR and the GEF and UN country activities to maximize synergies and avoid overlap.
57. Other SCF Programs. The SCF anticipates creation o f two additional programs: one for sustainable forestry; another for greening the energy access agenda for the poorest. The scope and objectives o f these programs will be approved by the SCF Trust Fund Committee.
58. Sustainable Forestry. Deforestation and degradation account for about 18% o f total carbon emissions. The Bali Action Plan calls for consideration o f policy approaches and positive incentives on issues relating to reducing emissions from deforestation and forest degradation in developing countries, and the role o f conservation, sustainable management o f forests and enhancement o f forest carbon stocks in developing countries. Strategies for addressing climate change therefore need to include actions to reduce deforestation and forest degradation and to promote improved sustainable forest management.
59. A Forest Investment Fund/Program i s expected to be established by the end o f 2008 to mobilize significantly increased funds to reduce deforestation and forest degradation and to promote improved sustainable forest management, leading to emission reductions and the protection o f carbon reservoirs. This Forest Investment Fundprogram will be developed based on a broad and transparent consultative process, recognizing the need to harmonize the design o f the program with forestry activities o f GEF, UN agencies, and bilateral programs. The consultative process will reach out to, among others, interested recipient countries, potential donors, UNFCCC, UN agencies, the GEF, the Collaborative Partnership on Forests, civi l society, including indigenous /forest peoples’ organizations, local and international NGOs and the private sector. The design and implementation o f the program will take into account country led priority strategies for the containment o f deforestation and degradation, and it will build upon complementarities between existing forest initiatives.
60. Greening Energy Access. Energy access in developing countries, including both electrification and access to household fuels for heating and cooking, represents a long term
22
challenge o f international development. Climate change considerations are playing an increasingly important role in energy access decisions. Often, a low-carbon path towards achieving access targets has high immediate costs hindering their adoption by developing countries. Coupled with high investment needs for meeting regional energy access agendas, this presents a key challenge towards making low-carbon energy access, through renewable energy and energy efficiency technologies, cost comparable to carbon intensive sources o f energy. Therefore, work i s also on-going on a proposal for a program to support investments in low income countries for energy efficiency, renewable energy and access to modern sustainable energy.
61, above may be considered in accordance with the following criteria:
Criteria for Other Possible SCF Programs. Programs in addition to those listed
(a)
(b) (c)
(d)
(e)
multiple donor interest in establishing a program;
broad applicability o f lessons to be learned;
sufficient resources to finance activities at scale;
complementary to any other multilateral financial mechanism or initiative; and
link between climate change and development.
62. The scope and objectives for such new programs will be developed in consultation with key stakeholders, approved by the Trust Fund Committee o f the SCF and submitted to the Executive Directors o f the WB for information.
63. Target Size of the SCF. The World Bank will work with donor countries to mobilize new and additional funding for the SCF Programs. For the PPRC, the Bank anticipates mobilizing between $300 mi l l ion and $500 million. Funding targets for other programs will be agreed during design o f the programs based on an analysis o f the funding needs and donor interest.
64. Results Framework. Each SCF Program will have include as part o f i t s detailed design a system to assess operational quality and outcomes by tracking results. For example, the PPCR results measurement framework will be designed to focus on: (a) outcomes at the country-level in terms o f strengthening the NAPA and i t s impact on PRSP; the degree to which the Program Response Strategy Paper (PRSP) and sector development strategies are adjusted to account for near and medium-term climate impacts; the decisions and actions by government to strengthen the policy, regulatory, institutional, and budget systems to facilitate climate resilient development; and the adjustments made for immediate investments to reduce risk to climate impacts in highly vulnerable sectors; (b) extent to which lessons learned are utilize to strengthen MDB focus on climate resilience in MDBs, particularly IDA; and (c) degree to which the pilots are able to support the evolving development o f the program o f support by the Adaptation Fund. Each pilot will include precisely defined indicators and targets based on the recipient country’s particular circumstances.
23
v. MEETING CHALLENGES AND MANAGING R I S K S
65. Constructive Engagement with UNFCCC. The CIF may be viewed as impinging upon the functiondmandate o f the UNFCCC, the forum in which international agreements are negotiated on climate change, and the GEF, which i s the financing mechanism o f the UNFCCC. This risk i s managed through the CIF design and the steady engagement o f the Bank with the UNFCCC and GEF Secretariats. The design provides for the necessary interaction with various stakeholders to ensure that the operations are indeed supportive o f the UNFCCC negotiations and in particular, in the immediate-term, facilitate positive progress on the Bali Action Plan. Close consultations have been and will continue to be maintained with the UNFCCC Secretariat and GEF. GEF will be invited as an observer on the Trust Fund Committees. Finally, the funds incorporate clear sunset clauses that provide that the funds will take the necessary steps to conclude their operations once a new financial architecture i s effective so as to not pre-judge the outcome o f any future international climate agreement
66. On the other hand, a recognized purpose o f the CIF i s to demonstrate to negotiators what i s possible if significant new financing and innovative financing instruments are made available, in combination with existing resources, to address climate change challenges. To achieve maximum impact, it will be imperative for the funds to become operational and to make financing commitments commensurate with the level o f available funding as quickly as possible so as to contribute lessons to the UNFCCC process.
67. Supporting the Adaptation Fund. The PPCR under the SCF was designed to ensure that it does not risk undermining the Adaptation Fund. The Adaptation Fund, established under the Kyoto Protocol, i s to be financed with a share o f proceeds from C D M project activities and i s able to receive funds from other sources. The share o f proceeds amounts to 2% o f certified emission reductions (CERs). The Board and the management arrangements for the Adaptation Fund (AF) were agreed at the Bali Conference o f the Parties in late 2007. The Board has majority representation from developing countries, reflecting that the core source o f funding arises from C D M activities within those countries. The AF i s expected to become the largest financing vehicle for adaptation under the UNFCCC. I t s operating procedures and priorities are s t i l l in the early stages o f formulation, and resources for the AF are likely to build slowly as C D M activity builds though the first commitment period and CERs are converted to cash. The value o f the CERs currently held i s a few tens o f millions of dollars, and the initial focus o f the Board o f the AF i s likely to be establishing a working framework, identifying a set o f activities that will help establish priorities and developing l i n k s with other adaptation relevant actors. Estimates o f the size o f the AF vary according to estimates o f the scale o f the C D M and prices for CERs, but are expected to be several hundred millions o f dollars in the f i rs t commitment period and possibly significantly larger in the future o f the climate change regime.
68. It i s critical that the PPCR i s not seen as a competing “vertical fund” but instead i s properly positioned as a learning pilot that will help development partners learn together how climate resilience could be built into regular development processes, thus providing lessons for IDA and similar instruments. Importantly, a close working relationship between the
24
PPCR and the AF Board i s envisaged. The PPCR will build upon the NAPAs, will be implemented in a manner consistent with the Paris Declaration on Aid Effectiveness, and will complement the existing adaption funds and IDA, which continue to serve essential roles in tackling climate change. The PPCR will involve the AF Board in i t s governance, including through reporting to the AF Board and selection o f pilot countries. In this way it i s hoped that the pilot program will strengthen the ability o f the MDBs and the AF to provide accelerated support for climate resilient development in the most vulnerable countries.
69. Enhancing Coherence across Financing Windows. While the financing gap i s well recognized, and additional resources are needed, there will be a need to manage fragmentation and coordination risks associated with the increased number o f large funds supporting similar or linked activities in support o f mitigation and adaptation. For example, the World Bank has sought to progressively engage financiers o f various funds in joint dialogue to promote coordination and these efforts to promote a “sector-wide approach” will be continued. In addition, as a way o f improving coherence, climate change related funds administered by the World Bank will be systematically mainstreamed into Country Assistance Strategies and t rust fund management action plans as required by the Bank’s new Trust Fund Management Framework. As part o f this effort, opportunities for harmonizing and streamlining the allocation and access rules for these funds - both by client countries and implementing agencies - will be explored.
70. Achieving Appropriate Levels of Concessionality. Excessive concessionality in the CTF could lead to market distortions. CTF financing will provide a grant element tailored to cover the identifiable additional costs o f the investment necessary to make the project viable, thereby providing the appropriate incentive to facilitate deployment o f low-carbon technologies at scale. The CTF will utilize a range o f concessional financing instruments, such as grants and concessional loans, and risk mitigation instruments, such as guarantees and equity. The choice o f financing instruments should be flexible and differentiated among sectors. The specific application o f these principles to the CTF will be approved by the Trust Fund Committee, taking into account the project or program. Full economic and financial analysis will be conducted to understand the additional costs o f moving to low-carbon investments, and tailoring the grant element to cover only this. The program proposals would also need to describe how they would seek to minimize or avoid distorting markets, displacing private sector investment or reducing market competitiveness. Concessionality will be calibrated to the country, sector and project context, by taking into account the marginal abatement costs o f the technology and by adjusting the proportion o f CTF concessional financing in the overall financing plan o f an investment. Experience generated from GEF operations will inform CTF’ s approach to determining concessionality.
7 1. Avoiding or Managing Potential Conflicts of Interest. An analysis o f potential conflicts o f interest identified a few low- to medium-risk challenges, and the design has included risk mitigation and management measures as follows:
(a) The Bank’s role in hosting the Administrative Unit, acting as Trustee and serving as one o f the implementing agencies might be perceived as a conflict o f interest. To address this, the Administrative Unit will have no responsibility
25
for screening proposals for CIF funding. Each MDB will present proposals directly to the Trust Fund Committee and will assume responsibility for ensuring consistency with CIF criteria and priorities. Staffing for the Administrative Unit will be on a competitive basis (and could include staff from other MDBs), following WB procedures.
Furthermore, (i) for the CTF, a joint MDB programming approach will be followed, with the Trust Fund Committee approving use o f the CTF funds to co-finance programs and projects; (ii) there will be independent evaluation o f activities financed by the CIF; (iii) MDBs will be represented in the MDB Committee and will agree on one representative on the Trust Fund Committee; and (iv) the Trustee will enter into financial procedures agreements with all MDBs.
There i s a risk that the Bank’s role as an implementing agency may (i) influence country selection for the programs and (ii) conflict with monitoring and evaluation o f the programs. This risk i s mitigated by the proposal to follow the IBRD/IDA country-driven model. This will help ensure that CIF country programs are tailored to country needs and meet country development priorities. Project monitoring and evaluation will be the responsibility o f the borrower, as in IBRDADA operations, with the Bank reviewing the borrower’s M&E reporting. Independent evaluations o f CIF operations will be conducted by IEG, along-side the IBRD/IDA co-financed projects. In the case o f the PPCR, country selection and approval o f all programs will not led by the Bank. Countries will be recommended by an Expert Group (of which members will be nominated by the Board o f the Adaptation Fund), with final selection o f priority countries made by the Sub-committee.
VI. NEXT STEPS
72. Following Board approval o f the establishment o f the CIF, a Governance Framework document will be prepared for each fund based on the agreed terms included in the proposals annexed to this the Board paper. The Governance Framework will be a legal document, which will set out the overall framework o f the governance and operation o f each fund and will serve as a constituting document for the partnership among the participants in each fund. The Trustee will also agree with each MDB on a Financial Procedures Agreement to enable their participation in the CIF.
73. In parallel, the Bank will work with prospective donors to finalize agreement on amount and timing o f contributions to the CIF. Subsequently, the Trustee will enter into a Trust Fund Administration Agreement with each donor to the CTF or the SCF.
74. The f i r s t Partnership Forum will be convened in the third quarter 2008 so as to agree on representatives to serve on the Trust Fund Committee for each fund, and the first meeting o f each Trust Fund Committee will be convened in conjunction with the Partnership Forum.
26
ANNEX 1: PROPOSED CLEAN TECHNOLOGY FUND
Background
1. A consensus i s growing that moderating and managing climate change i s central to every aspect o f poverty reduction, economic growth and development, and that climate change disproportionately affects the urban and rural poor worldwide. Climate change can be addressed through multilateral action involving policy incentives and deployment on a global scale o f clean technologies in a number o f sectors.
2. The Fourth Assessment Report o f the IPCC found that warming o f the climate change system i s unequivocal, and that delay in reducing emissions significantly constrains opportunities to achieve lower stabilization levels and increases the risk o f more severe climate change impacts. Under the first principle o f the UNFCCC, it i s recognized that “Parties should protect the climate system for the benefit o f present and future generations o f humankind, on the basis o f equity and in accordance with their common but differentiated responsibilities and respective capabilities. Accordingly, the developed country Parties should take the lead in combating climate change and the adverse effects thereof.””
3. Arresting increases in GHG concentrations translates into significant emission reductions by developed countries and curbing growth in GHG emissions by developing countries, with eventual stabilization in the long term. Dynamic growth in demand for energy in power, transport, building and industrial sectors in developed and developing countries in the next 10-15 years provides a finite window o f opportunity for developing countries and development institutions to demonstrate and invest in ways that provide energy services and other infrastructure services, reduce emissions, and prevent irreversible climate change. However, there i s a gap in the international architecture for development finance for funding available at more concessional rates than standard MDB terms and at the scale necessary to help provide incentives to developing countries to integrate nationally appropriate mitigation actions into sustainable development plans and investment decisions.
4. The UNFCCC recognizes the need for financial resources to be provided to developing countries to assist them in meeting the costs o f mitigation and adaptation measures to respond to the challenge o f climate change. Pursuant to article 11 o f the UNFCCC, the GEF has been designated as the financial mechanism o f the Convention. GEF, under i t s mandate in the climate change area, provides new and additional financing:
(a)
(b)
to pilot and demonstrate innovative technologies;
to remove barriers to transform markets, particularly for renewable energy and energy efficiency; and
lo United Nations Framework Convention on Climate Change, Article 3( 1).
27
(c) for capacity building, in particular the creation o f an enabling environment, including establishment o f codes, norms and standards.
5. In addition to the financial mechanism defined under article 11 o f the UNFCCC, paragraph 1 l(5) stipulates that “developed country parties may also provide and developing country Parties avail themselves o f financial resources related to the implementation o f the Convention through bilateral, regional and other multilateral channels.”
6. Article 4(1) (c) o f the UNFCCC provides for all Parties to promote and cooperate in the development, application and diffusion, including transfer, o f technologies, practices and processes that control, reduce or prevent anthropogenic emissions o f greenhouse gases not controlled by the Montreal Protocol in all relevant sectors, including the energy, transport, industry, agriculture, forestry and waste management sectors.
7. Article 4(7) o f the UNFCCC recognizes that “the extent to which developing country Parties will effectively implement their commitments under the Convention will depend on the effective implementation by developed country Parties o f their commitments under the Convention related to financial resources and transfer to technology and will take fully into account that economic and social development and poverty eradication are the first and overriding priorities o f the developing country Parties.”
8. Consistent with the provisions o f the UNFCCC, the Clean Technology Fund has been developed to demonstrate new approaches and provide lessons to contribute to the negotiations under the Bali Action Plan, including the following that are to be addressed, inter alia, in the comprehensive process launched by the Conference o f the Parties:
A shared vision for long-term cooperative action, including a long-term global goal for emission reductions, to achieve the ultimate objective o f the Convention, in accordance with the provisions and principles o f the Convention, in particular the principle o f common but differentiated responsibilities and respective capabilities, and taking into account social and economic conditions and other relevant factors.
Enhanced nationalhternational action on mitigation o f climate change, including, inter alia, consideration of:
(i) Measurable, reportable and verifiable nationally appropriate mitigation commitments or actions, including quantified emission limitation and reduction objectives, by all developed country Parties, while ensuring the comparability o f efforts among them, taking into account differences in their national circumstances;
(ii) Nationally appropriate mitigation actions by developing country Parties in the context o f sustainable development, supported and enabled by technology, financing and capacity- building, in a measurable, reportable and verifiable manner;
28
Cooperative sectoral approaches and sector-specific actions, in order to enhance implementation o f Article 4, paragraph l(c), o f the Convention;
Various approaches, including opportunities for using markets, to enhance the cost-effectiveness of, and to promote, mitigation actions, bearing in mind different circumstances o f developed and developing countries;
Economic and social consequences o f response measures;
Ways to strengthen the catalytic role o f the Convention in encouraging multilateral bodies, the public and private sectors and civ i l society, building on synergies among activities and processes, as a means to support mitigation in a coherent and integrated manner.”
(c) Enhanced action on technology development and transfer to support action on mitigation and adaptation, including, inter alia, consideration of:
(0
(ii)
(iii)
(iv)
Effective mechanisms and enhanced means for the removal o f obstacles to, and provision o f financial and other incentives for, scaling up o f the development and transfer o f technology to developing country Parties in order to promote access to affordable environmentally sound technologies;
Ways to accelerate deployment, diffusion and transfer o f affordable environmentally sound technologies;
Cooperation on research and development o f current, new and innovative technology, including win-win solutions;
The effectiveness o f mechanisms and tools for technology cooperation in specific sectors.”
(d) Enhanced action on the provision o f financial resources and investment to support action on mitigation and adaptation and technology cooperation, including, inter alia, consideration of:
(0
(ii)
(iii)
Improved access to adequate, predictable and sustainable financial resources and financial and technical support, and the provision o f new and additional resources, including official and concessional funding for developing country Parties;
Positive incentives for developing country Parties for the enhanced implementation o f national mitigation strategies and adaptation action;
Innovative means o f funding to assist developing country Parties that are particularly vulnerable to the adverse impacts o f climate change in meeting the cost o f adaptation;
29
(iv) Mobilization o f public- and private-sector funding and investment, including facilitation o f climate-friendly investment choices.”
9. The need for mobilizing greater and more innovative financing for climate change actions i s a critical lesson o f the Clean Energy Investment Framework (CEIF)”. The CEIF has provided the basis for definition o f a range o f possible initiatives to be developed within each multilateral development bank with a set o f concrete results and impacts in terms o f scale-up. The scale o f action required points to the need to take the important lessons learned from pilot and prototype projects and programs and capacity building efforts, such as those supported by the Global Environment Facility (GEF), to broader programs that help reduce poverty, foster growth and increase energy access using new low-carbon approaches to development.
10. Consistent with the experience o f the CEIF, and recognizing that the Bal i Action Plan decides to launched a comprehensive process by addressing, among other things, ways to strengthen the catalytic role o f the UNFCCC regime in encouraging multilateral bodies to support adaptation and mitigation in a coherent and integrated way, the World Bank Group, the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, and the Inter-American Development Bank (hereinafter referred to as the MDBs), are actively pursuing ways to increase the availability o f innovative financing through existing and new instruments and to accelerate the access o f developing countries to carbon finance, building on comparative advantages o f the various institutions and their strong development policy dialogue with client countries.
11. Within this context, the World Bank Group, in consultation with the regional development banks and developed and developing countries, and other development partners i s seeking to establish a Clean Technology Fund as one o f two strategic Climate Investment Funds (CIF)’* and programs. Recognizing that UNFCCC deliberations on the future o f the climate change regime include discussions on a future financial architecture and funding strategy for climate change, this fund i s an interim measure for the MDBs to fill an immediate financing gap. The fund, therefore, includes a specific sunset clause linked to the agreement on the future o f the climate change regime (see paragraph 56-57) Pending final agreement on the future o f the climate change regime, the CTF will seek to demonstrate how financial and other incentives can be scaled-up to accelerate deployment, diffusion and transfer o f low-carbon technologies.
”
and accelerate support to developing countries relating to energy access and climate change through the Clean Energy Investment Framework (CEIF).
’’ It i s proposed that the portfolio of funds/programs initially include, if donor support warrants:
The 2005 Gleneagles G-8 Summit in July 2005 stimulated a concerted effort by the development community to broaden
a. the Clean Technology Fund, b. the Strategic Climate Fund, including programs for Climate Resilience, Greening Energy Access, and
Sustainable Forest Management.
30
Clean Technology Fund
Principles
12. principles have been taken into account:
In developing a proposal for a Clean Technology Fund (CTF), the following
The core mission o f the MDBs i s sustainable economic growth and poverty reduction. Climate change mitigation and adaptation considerations need to be integrated into the sustainable development process as addressing these issues contributes to the basic human needs o f the poorest who are disproportionately impacted by the negative effects o f climate change;
Multilateral development banks can and should play a role in ensuring access o f developing countries to adequate financial resources and appropriate technology for climate actions;
The MDBs should mobilize new and additional financing for adaptation and mitigation programs to address climate change that are country-led and designed to support sustainable development and poverty reduction. Activities financed by the fund should be based on a country-led approach and should be integrated into country-owned development strategies, consistent with the Paris Declaration;
Achieving sustainable outcomes will require sustaining the total wealth - produced, human, institutional and natural - on which development depends;
The UN i s the appropriate body for broad policy setting on climate change, and the MDBs should not preempt the results o f climate change negotiations. Actions to address climate change should be guided by the principles o f the UNFCCC;
The MDBs, in collaboration with other development partners, should assist developing countries to build country-level knowledge, capacity and development project experience;
I t i s appropriate for the MDBs to build partnerships with each other and a wide range o f institutions and stakeholders on climate change, including the private sector. In doing so, each MDB should remain accountable to i t s governing body; Complementarities between activities foreseen for the CTF and activities o f the GEF and the UN, especially at the country level, should be identified, and effective cooperation established, to maximize synergies and avoid overlap; and
The CTF should provide for transparency and openness in i t s governance and financing operations.
Objectives of the Clean Technology Fund
13. The Clean Technology Fund (CTF) will aim to finance transformational actions by:
31
providing positive incentives for the demonstration o f l ow carbon development and mitigation o f greenhouse gas emissions through public and private sector investments;
promoting scaled-up deployment, diffusion and transfer o f clean technologies by funding l ow carbon programs and projects that are embedded in national plans and strategies to accelerate their implementation;
promoting realization o f environmental and social co-benefits thus demonstrating the potential for low-carbon technologies to contribute to sustainable development and the achievement o f the Millennium Development Goals;
promoting international cooperation on climate change and supporting agreement on the future o f the climate change regime;
utilizing sk i l ls and capabilities o f the MDBs to raise and deliver new and additional resources, including official and concessional funding, at significant scale; and
providing experience and lessons in responding to the challenge o f climate change through learning-by-doing.
Types o f Investment
14. The Clean Technology Fund will invest in projects and programs that contribute to demonstration, deployment and transfer o f low carbon technologies with a significant potential for long term greenhouse gas emissions savings. As country circumstances differ, investment programs will be developed on a country-specific basis to achieve nationally- defined objectives. The range o f options include:
(a) programs and large-scaled project^'^; (b)
(c)
(d) (e)
at the sectoral or sub-sectoral level in a given country;
sub-nationally, by focusing activity on a particular province/state/municipality ;
regionally, particularly where regional cooperation i s required;
through the private sector, or public-private partnerships.
15. Investment selection criteria will be developed to assess the potential for greenhouse gas reductions, demonstration potential, development impact and implementation potential. Investments may include, among others, low carbon actions addressing the power sector (renewable energy, as well as increased efficiency in generation, transmission and distribution); transportation (modal shifts to public transportation, improved fuel economy, and fuel switching); and large scale adoption o f energy efficient technologies and other
l3 Recognizing that pi lot projects are funded by the GEF and that the CTF would support scale-up.
32
demand management techniques in the industrial and commercial and residential building sectors.
16. It i s recognized that with respect to enhanced technology development and transfer, the Bal i Action Plan calls for cooperation on research and development o f current, new and innovative technology, including win-win solutions, and collaboration by institutions in developed and developing countries on technologies for mitigation. There i s a gap in national and international financing for research and development. I t i s proposed that the World Bank collaborate with other relevant international institutions with a view to proposing innovative means to address the financing gap.
Country Access
17. Country access will be based on:
(a) ODA-eligibility (according to O E C D D A C guidelines); and (b) an active MDB country program. 14
18. When a country expresses interest in accessing CTF financing, the MDBs concerned will conduct a jo int mission, involving other relevant development partners, to discuss with the government, private industry and other stakeholders how the fund may help finance scaled-up low carbon activities. The Trust Fund Committee will be kept informed o f country expressions o f interest and planned jo int missions. The outcome o f the jo int exercise will be an investment plan, developed under the leadership o f the recipient country, for the use o f CTF resources in major sectors o f the economy through a joint MDB program. The investment plan should build on existing country-owned strategies or action plans and demonstrate how it i s complementary to activities under other available programs, including those that are aimed at enhancing the enabling environment. Investment plans will be submitted to the Trust Fund Committee to endorse further development o f activities for Trust Fund co-financing and to facilitate prioritization o f the pipeline o f projects.
19. Subsequently, a proposed program or project, developed pursuant to the investment plan, will be submitted by the relevant MDBs, prior to i t s appraisal, to the Trust Fund Committee for approval o f t rust fund financing. The further processing o f a program or project will follow the MDB’s polices and procedures for appraisal, MDB Board approval and supervision.
20. The joint missions will build on activities, experience and knowledge gained by other agencies and organizations, like the GEF and the UN organizations, in planning and executing climate change programs, including enhancement o f enabling environments. The implementation o f programs at country level will be actively coordinated with other multilateral agencies, such as UNDP and UNEP. The MDB joint missions will also work closely with bilateral development banks that have significant climate financing programs to identify opportunities for co-financing o f CTF programs and projects. Where co-financing o f
l4 An “active” program i s where a MDB has a lending program andor an on-going policy dialogue with the country.
33
a project by two or more MDBs occurs, there will be coordination o f the applicable operational policies and procedures, with a general approach that the more stringent agency policy will apply.
Private Sector
21. As the foundation o f economic growth, the private sector has a significant role to play in climate change mitigation and adaptation. In pursuing a strategy that will combine public sector reform and private sector action, the CTF will seek to provide incentives necessary to engage private sector actions in achieving the objectives o f the Fund. It i s recognized that funding structures for engaging the private sector will need to be different to the structures applied for public sector proposal financing.
Financing
22. The CTF will seek, through the MDBs, to:
(a) finance at scale in the near-to-medium term to meet investment needs to support rapid deployment o f low carbon technologies and increase energy efficiency;
optimize blending with MDB financing, as well as with bilateral and other sources o f finance, to provide incentives for low carbon development;
provide a range o f financial products to leverage greater private sector investments; and
provide financial instruments integrated into mainstream development finance and policy dialogue.
(b)
(c)
(d)
23. CTF financing will provide a grant element tailored to cover the identifiable additional costs o f the investment necessary to make the project viable, thereby providing the appropriate incentive to facilitate deployment o f l ow carbon technologies at scale. The CTF will utilize a range o f concessional financing instruments, such as grants and concessional loans, and risk mitigation instruments, such as guarantees and equity. The choice o f financing instruments should be flexible and differentiated among sectors. CTF financing should avoid crowding out the private sector. In keeping with MDB practice, investment projects and programs may include complementary financing for policy and institutional reforms and regulatory frameworks. To the extent GEF funding i s available for capacity building, in particular for the creation o f an enabling environment, including establishment o f codes, norms and standards, efforts will be undertaken to maximize GEF financing through such partners as UNDP and UNEP.
Organization of the CTF
24. accordance with the following organizational principles:
Bearing in mind the goals o f the CTF, it i s proposed that the fund operate in
34
(a) maintain an efficient business model that does not duplicate existing procedures or lengthen the project development and approval process;
(b) respond effectively, consistent with investment plans, to country demand in both public and private sectors and facilitate rapid deployment o f fund resources in coordination with other available funding sources;
(c) operate through a close partnership with other relevant development partners at the national level;
(d) separate responsibilities for resource allocation, fiduciary responsibilities and administrative functions; and
(e) ensure full transparency and openness in governance, oversight and evaluation processes.
25. Committee and serviced by an MDB” Committee; an Administrative Unit; and a Trustee.
Based on these principles, it i s proposed that the CTF be governed by a Trust Fund
CTF Trust Fund Committee
26. A CTF Trust Fund Committee will be established to oversee the operations and activities o f the trust fund. Recognizing the need for efficient and business-like operations, it i s proposed that the Trust Fund Committee be limited in membership.
27. The Trust Fund Committee will consist of:
(a) eight representatives from donor countries or groups o f such countries to the CTF identified through a consultation among such donors’6, and eight representatives from eligible recipient countries or groups o f such countries identified through a consultation among interested recipient countries; provided; however, (i) if there are less than eight donor countries contributing to the CTF during the first year o f the CTF operations, potential donor countries, identified through a consultation among the donor and potential donor countries, may serve as representatives from donor countries, and (ii) if there are less than eight donor countries contributing to the CTF in the subsequent years, the number o f donor country representatives and recipient country representatives, respectively, shall be reduced to equal the number o f actual donors contributing to the CTF. Representatives will serve for two year terms, except that they may serve for a one year term for the first year o f the CTF operations and terms will be staggered so not all representatives are replaced each year. Representatives may be reappointed;
whenever the Trust Fund Committee considers an investment plan for a country or a program or project to be financed by the fund, the recipient
(b)
For purposes o f this note, MDBs include: the African Development Bank, the Asian Development Bank, the European Bark for Reconstruction and Development, the Inter-American Development Bank and the World Bank Group. l6 Selection o f donor country representatives i s to be primarily guided by total contributions to the CTF.
15
35
country concerned will be invited to participate in the Trust Fund Committee during i ts deliberations on the work program, program or project;
a senior representative o f the World Bank, recognizin the role o f the World Bank as the overall coordinator o f the CIF partnership;
a representative o f the MDB partners to be identified b the MDB Committee and chosen on the basis o f rotation among the MDBs .
(c)
(d)
8
l i
28. Committee as observers.
Members o f the MDB Committee and the Trustee may attend the Trust Fund
29. To ensure good linkages with key partners so as to promote the efficient use o f resources and complementarity with other sources o f financing, the Trust Fund Committee will invite to i t s meetings the GEF as an observer. A representative o f the UN will be invited as an observer at Trust Fund Committee meetings for which broad strategic discussions are included on the agenda. Representatives o f other institutions with a mandate to promote investments in clean technology to address climate change may also be invited as observers at Trust Fund Committee meetings. Recognizing the special areas o f competence o f the observers, the Trust Fund Committee will invite observers to engage in an active dialogue.
Chair of the Trust Fund Committee
30. The Trust Fund Committee will elect two co-chairs from among i t s members for the duration o f the meeting. One co-chair will be a representative o f a recipient country and the other co-chair will be a representative o f a donor country.
Decision Making
31. Decision-making will be by consensus o f the voting members o f the Trust Fund Committee. Consensus i s a procedure for adopting a decision when no participant in the decision-making process blocks a proposed decision. For the purposes o f the CTF, consensus does not necessarily imply unanimity. A dissenting decision maker, who does not wish to block a decision, may state an objection by attaching a statement or note to the decision. If consensus i s not possible, then a proposed decision will be postponed or withdrawn.
Functions of the Trust Fund Committee
32. The Trust Fund Committee will be responsible for:
The role o f representatives o f the World Bank and the MDB partners will be similar to that o f “non-voting” members
Same as above
17
o f other Boards.
36
(a) approving programming and pipeline priorities, operational criteria and financing
(b) ensuring that the strategic orientation o f the CTF i s guided by the principles o f the
(c) endorsing further development o f activities in investment plans for trust fund
(d) approving t rust fund financing for programs and projects;
(e) approving t rust fund financing for administrative budgets;
(0 providing guidance on the convening o f the Partnership Forum;
(g) ensuring monitoring and periodic independent evaluation o f performance and financial accountability o f MDBs;
(h) approving annual reports o f the fund;
(i) ensuring that annual reports and evaluations, including lessons learned, are
(i) reviewing reports from the Trustee on the financial status o f the fund; and
(k) exercising such other functions as they may deem appropriate to fulfill the
modalities;
UNFCCC;
financing;
transmitted to the UNFCCC;
purposes o f the fund.
Frequency of Meetings
33. The Trust Fund Committee will meet at such frequency as it may decide, but not less than once a year. The Trust Fund Committee may review and approve trust fund financing for programs and projects as needed, at a level and through means and procedures appropriate to project or program review.
Monitoring and Evaluation
34. Monitoring and evaluation o f results will be critical for the Trust Fund, and each MDB will follow i ts procedures for monitoring and evaluation. There will be annual reporting by the MDBs to the Trust Fund Committee, and an independent evaluation o f the operations o f the Trust Fund and the impacts o f i t s activities will be carried out jointly after three years o f operations by the independent evaluation departments o f the MDBs. Results achieved through the fund will be published and publicly available. Full reporting criteria will be agreed by the Trust Fund Committee.
Partnership Forum
35. A Partnership Forum, a broad-based meeting o f stakeholders, including donor and eligible recipient countries, MDBs, UN and UN agencies, GEF, UNFCCC, the Adaptation
37
Fund, bilateral development agencies, NGOs , private sector entities, and scientific and technical experts will be convened annually to provide a forum for dialogue on the strategic directions, results and impacts o f the CIF. The Partnership Forum will be co-chaired by the World Bank Vice President for the Sustainable Development Network and a country representative elected by countries participating in the Partnership Forum. At the Partnership Forum, donor and recipient countries will agree, within their respective caucuses, on their representation on the Trust Fund Committee.
36. The implementation o f the CTF may benefit f rom advisory inputs from qualified individuals invited from a wide cross-section o f expertise. The Partnership Forum will provide an opportunity for independent scientific, technical and other advice on major issues o f implementation in integrating climate change and development. UNEP will be invited to collaborate with the Administrative Unit in proposing to the Trust Fund Committees ways to ensure scientific and expert input, based on personal qualifications and experience o f experts and a balance o f developed and developing country expertise, into the Partnership Forum.
37. The Partnership Forum will be a meeting for dialogue and consultation and will not lead to written outcomes, such as agreed texts or declarations, which could be used as a basis for discussions in the UNFCCC.
Supporting Units Established Under the CIF
38. Bearing in mind the objectives of: minimizing transaction costs, and following to the extent possible the MDB processes rather than establishing separate institutional structures, it i s proposed that the following units will provide services to the hnds and programs to be established under the CIF, including the CTF:
(a) MDB Committee;
(b) Administrative Unit;
(c) Trustee.
MDB Committee
39. The aim o f the CIF i s to ensure speed and alignment with development programs by building on the structures and normal processes o f the MDBs. Therefore, it i s proposed that the MDBs have fair and equitable opportunity to propose programs and projects for financing from the funds and rely on their own policies and procedures in developing and managing activities that the funds will finance. The share o f funding allocated to an MDB will be based on country requests, the quality o f proposals, the comparative advantage o f the MDB and experience in a regiodcountry. The MDBs will report directly to the Trust Fund Committee on operational matters and will be invited to present their views on items under consideration by the Trust Fund Committee.
38
40. To facilitate collaboration, coordination and information exchange, a MDB Committee comprising representatives o f the MDBs will be established. The MDB Committee will meet with such other frequency as deemed necessary by the committee but not less than once a year. The MDB Committee will:
identify specific areas o f MDB cooperation to harmonize their climate change programs and actions, linking their initiatives with CTF programs and projects;
prior to each meeting o f the Trust Fund Committee, review a provisional agenda and documentation prepared by the Administrative Unit;
review recommendations proposed by the Administrative Unit on program criteria and priorities and the activity cycle for approval by the Trust Fund Committee;
monitor progress in implementing programs and report to the Trust Fund Committee on compliance with approved policies on the use o f t rust fund resources;
review a draft annual consolidated report on the CTF activities, performance, and lessons, including details o f the fund’s portfolio, status o f implementation, funding allocations for the previous period, pipeline o f projects and funding projections, administrative costs incurred, and other pertinent information;
serve as a forum to ensure effective operational coordination, exchange of information and experience among the MDBs; liaise with other development partners, including bilateral development agencies/banks, for purposes o f promoting co-financing o f activities through an annual consultation between the MDBs and development partners, including bilateral development banks;
advise the Administrative Unit on i t s work program, including the implementation o f a comprehensive knowledge management system, results measurement system and learning program, taking into account opportunities for synergies with the activities o f the MDBs; perform any other functions assigned to it by the Trust Fund Committee.
Administrative Unit
41, A CIF Administrative Unit will be established to assist the work o f the CIF, including the CTF, and to support Trust Fund and other committees. With respect to the CTF, the Administrative Unit will:
prepare, in consultation with the MDB Committee, all documentation required for review by the Trust Fund Committee, including developing an agenda for the Trust Fund Committee meeting;
(a)
39
make recommendations, in consultation with the MDB Committee, on program criteria and priorities and the activity cycle for approval by the Trust Fund Committee;
conduct background research and analyses as requested by the Trust Fund Committee;
prepare an annual consolidated report on the trust fund’s activities, performance, and lessons, including details o f the trust fund’s portfolio, status o f implementation, funding allocations for the previous period, pipeline o f projects and funding projections, administrative costs incurred, and other pertinent information;
manage a comprehensive database o f the trust fund activities, knowledge management system, result measurements system and learning program;
service the meetings o f the Trust Fund Committee;
manage partnerships and external relations, including convening meetings o f the MDB Committee and the CIF Partnership Forum;
collaborate with the Trustee to ensure that the Trustee receives all the information necessary to carry out i t s responsibilities; and perform any other functions assigned to it by the Trust Fund Committees.
42. The IBRD will serve as Trustee for the CTF. The Trustee will act as financial intermediary with respect to the CTF proceeds administered by other MDBs and, in that capacity, will have no responsibility to the CTF contributors for the use o f such proceeds over and above those responsibilities contained in the trust fund administration agreement, agreements with MDBs, and relevant World Bank policies and procedures. Each MDB will be responsible for the use o f funds transferred by the Trustee in accordance with i t s own fiduciary framework, policies, guidelines, and procedures. The Trustee will be accountable to the Trust Fund Committees for the performance o f i t s fiduciary responsibilities. The Trustee will submit regular reports to each Trust Fund Committee on the financial status o f the respective fund.
43. administer the funds, assets and receipts, which constitute the CTF trust fund.
IBRD, in i ts capacity as the Trustee, will hold in trust, as a legal owner, and
Contributions
44. Donors may make contributions in cash, or, with the agreement o f the Trustee, by the delivery o f promissory notes or similar obligations to the Trustee. Further, donors may make
40
contributions in one lump sum or in installments on the terms agreed with the Trustee. In the event that a part o f the donor’s contribution i s subject to legislative approval, the donor may enter into a trust fund administration agreement with the Trustee for the total amount o f the contribution, but qualify the portion o f the contribution, which i s subject to legislative approval.
45. In order to be selected as a representative from donor countries to the Trust Fund Committee pursuant to paragraph 28(a), a donor or group o f donors will be required to make a commitment, by way o f entering into a t rust fund administration agreement(s), to provide to the CTF a minimum contribution to be determined by the donors or such other amount, as may be determined by the Trust Fund Committee; provided, however, that if the donor that has not unqualified the portion o f i t s contribution in the amount o f no less than the minimum contribution within 18 months o f the effectiveness o f the trust fund administration agreement, the donor will not be eligible to apply for a seat at the Trust Fund Committee for the subsequent te rm until and unless the minimum contribution i s unqualified. In no case will a donor that has not unqualified a portion o f i t s contribution in an amount no less than the minimum contribution serve as a representative from donor countries to the Trust Fund Committee for the period exceeding two years.
46. If there are less than eight donor countries or group o f donor countries making commitments equal to, or greater than, the minimum contribution to the CTF during the first 18 months o f the CTF operations, potential donor countries, identified through a consultation among the donor and potential donor countries, may serve as representatives from donor countries, pursuant to paragraph 28(a).
47. Donor countries will ensure that the above contributions are new and additional resources supplementing existing ODA flows otherwise available for developing countries.
48. Bilateral development agencieshanks, are encouraged to contribute to the achievement o f the objectives o f the Trust Fund through bilateral projects or co-financing o f projects funded by the Trust Fund. Donors may report on this bilateral financing to the Trust Fund Committee for i t s review and confirmation that such bilateral financing conforms to the objectives o f the Trust Fund. Activities confirmed by the Trust Fund will be included in the annual report on the Fund.
Commitment of Trust Fund Resources
49. In approving financing for programs and projects, the Trust Fund Committee will seek to achieve an allocation o f resources so that no one country receives more than approximately 15% o f the Trust Fund resources.
50. The Trust Fund Committee may approve allocation o f CTF resources for programs, projects and other activities, subject to the amount o f resources available in the trust fund. The Trustee will make commitments to MDBs for transfer o f funds in accordance with
41
approval o f the Trust Fund Committee, but only to the extent that such resources are available in the trust fund.
Reflows
5 1. Donors will have beneficiary interests in any reflow o f funds returned to the CTF, together with other funds held in the CTF, on a pro-rata basis. Where a donor has made a contribution to the CTF through the SCF, the donor’s pro-rata share will be returned to the SCF in accordance with the terms o f the CTF.
52. Upon termination o f the CTF, the Trustee, on behalf o f donors, will endeavour to transfer donors’ pro-rata shares to another fund which has a similar objective as the CTF as determined by the Trust Fund Committee, unless a donor otherwise agrees with the Trustee.
53. In the event that a donor decides to withdraw i t s contribution to the CTF prior to the termination o f the CTF, the Trustee will return to the donor: (a) i t s pro-rata share o f the outstanding unallocated balance, including any reflow o f funds received, at the time o f the donor’s withdrawal, and (b) i ts pro-rata share o f any reflows o f funds received by the Trustee after the date o f withdrawal, to the extent that such reflow o f funds i s received from the financing made prior to the date o f the withdrawal.
Administrative Fees
54. The Trustee, the Administrative Unit, and the MDBs will perform specific administrative services and project related activities. Consistent with MDB policies on management o f trust funds, compensation for administrative services and project related activities will be on the basis o f full cost recovery for the entities but should be guided by the principles o f value for money, reasonableness, and transparency. The costs o f the Partnership Forum will be included in the administrative budget o f the Administrative Unit and will be shared between the CIF funds.
Sunset Clause
55. UNFCCC deliberations regarding the future o f the climate change regime, including i t s financial architecture, the CTF will take necessary steps to conclude i t s operations once a new financial architecture i s effective. Specifically, the Trustee will not enter into any new agreement with donors for contributions to the t rus t fund once the agreement i s effective. The Trust Fund Committee will decide the date on which it will cease making allocations from the outstanding balance o f the Trust Fund.
Recognizing that the establishment o f the trust fund i s not to prejudice the on-going
42
56. Notwithstanding the above paragraph, if the outcome o f the UNFCCC negotiations so indicates, the Trust Fund Committee, with the consent o f the Trustee, may take necessary steps to continue the operations o f the CTF, with modifications as appropriate.
Legal Document and Amendments
57. The terms o f the governance arrangements o f the CTF will be set out in the governance framework document. The Trust Fund Committee may recommend amendments to any terms o f the governance framework document which will become effective with the consent o f all donor countries to the CTF, all recipient countries that have been allocated funding from the CTF, and the Trustee.
58. In addition, the Trustee will enter into a trust fund administration agreement with each donor, which sets out the terms and conditions o f administration o f donors contributions.
59. The Trustee will enter into a Financial Procedures Agreement with each MDB, which will set out the terms and conditions o f commitment and transfer o f funds by the Trustee to the MDB as well as financial reporting from the MDB to the Trustee.
43
ANNEX 2: PROPOSED STRATEGIC CLIMATE FUND
The Challenge
1. A consensus i s growing that moderating and managing climate change i s central to every aspect o f poverty reduction, economic growth and development, and that climate change disproportionately affects the urban and rural poor worldwide. Continued greenhouse gas (GHG) emissions at or above current rates would cause further warming that would threaten the development gains hard-earned by developing countries over the past decades and progress towards achieving the Millennium Development Goals.
2. The Fourth Assessment Report o f the Intergovernmental Panel on Climate Change found that warming o f the climate change system i s unequivocal, and that delay in reducing emissions significantly constrains opportunities to achieve lower stabilization levels and increases the risk o f more severe climate change impacts. Under the f i rs t principle o f the United Nations Framework on Climate Change (UNFCCC), i t i s recognized that “Parties should protect the climate system for the benefit o f present and future generations o f humankind, on the basis o f equity and in accordance with their common but differentiated responsibilities and respective capabilities. Accordingly, the developed country Parties should take the lead in combating climate change and the adverse effects t h e r e ~ f . ” ’ ~
3. The impacts o f climate change include, among others: increased frequency and severity o f droughts, floods and storms, water stress, decline in agricultural productivity and food security, collapse o f ecosystems, and further spread o f invasive species and water- related diseases, particularly in tropical areas. The poorest countries and communities are already feeling the impact o f climate change and will suffer the hardest because o f their geographical location, l ow incomes, and low institutional capacity, as well as their greater reliance on climate-sensitive sectors l ike agriculture. Addressing climate change i s therefore central to the development and poverty reduction agenda.
4. Early mitigation o f GHG emissions causing changes in climate will significantly decrease future adaptation costs, and especially the burden on the poor. However, even if efforts to reduce GHGs are successful, some degree o f climate change impacts will continue to occur in the next decades. An effective response to climate change must combine both mitigation - to avoid the unmanageable - and adaptation - to manage the unavoidable.
5. The UNFCCC conference o f the Parties meeting in Bal i agreed to launch negotiations towards long-term cooperative action to transform the paths o f economic development. The key areas for negotiations include mitigation o f climate change, adaptation, technology development and transfer, and provision o f financial resources in support o f developing countries’ actions. The urgency to initiate transformation towards low carbon and climate resil ient development requires immediate financing and incentives that can act as a bridge
l9 United Nations Framework Convention on Climate Change, Article 3( 1).
44
while negotiations take place and until carbon markets, other financial mechanisms and policy signals have matured.
Background
6. The UNFCCC recognizes the need for financial resources to be provided to developing countries to assist them in meeting the costs o f mitigation and adaptation measures to respond to the challenge o f climate change. Pursuant to article 11 o f the UNFCCC, the GEF has been designated as the financial mechanism o f the Convention. The GEF also manages two funds established by the Conference o f the Parties to the UNFCCC and which provide financing for climate change activities: the Special Climate Change Fund and the Least Developed Countries Fund.
7. In addition, the Adaptation Fund has been established by the Parties to the Kyoto Protocol o f the UNFCCC to finance concrete adaptation projects and programs in developing countries that are Parties to the Kyoto Protocol. The Adaptation Fund i s to be financed with a share o f proceeds from Clean Development Mechanism (CDM) project activities and i s able to receive funds from other sources. The share o f proceeds amounts to 2% o f certified emission reductions.
8. In addition to the financial mechanism defined under article 11 o f the UNFCCC, paragraph 1 l (5) stipulates that “developed country Parties may also provide and developing country Parties avail themselves of, financial resources related to the implementation of the Convention through bilateral, regional and other multilateral channels”.
9. Article 4(1) o f the UNFCCC provides for all parties to:
develop, periodically update, publish and make available . . . national inventories o f anthropogenic emissions by sources and removals by s inks o f all greenhouse gases not controlled by the Montreal Protocol;
formulate, implement, publish and regularly update national and, where appropriate, regional programmes containing measures to mitigate climate change by addressing anthropogenic emissions by sources and removals by s inks o f all greenhouse gases not controlled by the Montreal Protocol, and measures to facilitate adequate adaptation to climate change;
promote and cooperate in the development, application and diffusion, including transfer, o f technologies, practices and processes that control, reduce or prevent anthropogenic emissions o f greenhouse gases not controlled by the Montreal Protocol in all relevant sectors, including the energy, transport, industry, agriculture, forestry and waste management sectors;
promote sustainable management, and promote and cooperate in the conservation and enhancement, as appropriate, o f sinks and reservoirs
4s
o f all greenhouse gases not controlled by the Montreal Protocol, including biomass, forests and oceans as well as other terrestrial, coastal and marine ecosystems;
cooperate in preparing for adaptation to the impacts o f climate change; develop and elaborate appropriate and integrated plans for coastal zone management, water resources and agriculture, and for the protection and rehabilitation o f areas, particularly in Africa, affected by drought and desertification, as well as floods;
take climate change considerations into account, to the extent feasible, in their relevant social, economic and environmental policies and actions;
promote and cooperate in scientific, technological, technical, socio- economic and other research, systematic observation and development o f data archives related to the climate system;
promote and cooperate in the full, open and prompt exchange of relevant scientific, technological, technical, socio-economic and legal information related to the climate system and climate change, and to the economic and social consequences o f various response strategies;
promote and cooperate in education, training and public awareness related to climate change and encourage the widest participation in this process, including that o f non- governmental organizations.
10. Article 4(7) o f the UNFCCC recognizes that “the extent to which developing country Parties will effectively implement their commitments under the Convention will depend on the effective implementation by developed country Parties o f their commitments under the Convention related to financial resources and transfer o f technology and will take fully into account that economic and social development and poverty eradication are the first and overriding priorities o f the developing country Parties.”
11. In addition to the provisions o f the UNFCCC, the SCF has been developed to demonstrate new approaches and provide lessons to contribute to the negotiations under the Bali Action Plan, including the following that are to be addressed, inter alia, in the comprehensive process launched by the Conference o f the Parties:
(a) A shared vision for long-term cooperative action, including a long-term global goal for emission reductions, to achieve the ultimate objective o f the Convention, in accordance with the provisions and principles o f the Convention, in particular the principle o f common but differentiated responsibilities and respective capabilities, and taking into account social and economic conditions and other relevant factors;
Enhanced nationalhternational action on mitigation o f climate change, including, inter alia, consideration of:
(b)
46
Measurable, reportable and verifiable nationally appropriate mitigation commitments or actions, including quantified emission limitation and reduction objectives, by all developed country Parties, while ensuring the comparability o f efforts among them, taking into account differences in their national circumstances;
Nationally appropriate mitigation actions by developing country Parties in the context o f sustainable development, supported and enabled by technology, financing and capacity- building, in a measurable, reportable and verifiable manner;
Policy approaches and positive incentives on issues relating to reducing emissions from deforestation and forest degradation in developing, countries; and the role o f conservation, sustainable management o f forests and enhancement o f forest carbon stocks in developing countries;
Cooperative sectoral approaches and sector-specific actions, in order to enhance implementation o f Article 4, paragraph l(c), o f the Convention;
Various approaches, including opportunities for using markets, to enhance the cost-effectiveness of, and to promote, mitigation actions, bearing in mind different circumstances o f developed and developing countries;
Economic and social consequences o f response measures;
Ways to strengthen the catalytic role o f the Convention in encouraging multilateral bodies, the public and private sectors and civ i l society, building on synergies among activities and processes, as a means to support mitigation in a coherent and integrated manner;
(c) Enhanced action on adaptation, including, inter alia, consideration of:
(i) International cooperation to support urgent implementation o f adaptation actions, including through vulnerability assessments, prioritization o f actions, financial needs assessments, capacity-building and response strategies, integration o f adaptation actions into sectoral and national planning, specific projects and programmes, means to incentivize the implementation o f adaptation actions, and other ways to enable climate-resilient development and reduce vulnerability o f all Parties, taking into account the urgent and immediate needs o f developing countries that are particularly vulnerable to the adverse effects o f climate change, especially the least developed countries and small island developing States, and further taking into account the needs o f countries in Africa affected by drought, desertification and floods;
47
Risk management and risk reduction strategies, including risk sharing and transfer mechanisms such as insurance;
Disaster reduction strategies and means to address loss and damage associated with climate change impacts in developing countries that are particularly vulnerable to the adverse effects o f climate change;
Economic diversification to build resilience;
Ways to strengthen the catalytic role o f the Convention in encouraging multilateral bodies, the public and private sectors and civ i l society, building on synergies among activities and processes, as a means to support adaptation in a coherent and integrated manner;
(0
(ii)
(iii)
(3
(d) Enhanced action on technology development and transfer to support action on mitigation and adaptation, including, inter alia, consideration of:
(i) Effective mechanisms and enhanced means for the removal o f obstacles to, and provision o f financial and other incentives for, scaling up o f the development and transfer o f technology to developing country Parties in order to promote access to affordable environmentally sound technologies;
(ii) Ways to accelerate deployment, diffusion and transfer o f affordable environmentally sound technologies;
(iii) Cooperation on research and development o f current, new and innovative technology, including win-win solutions;
(iv) The effectiveness o f mechanisms and tools for technology cooperation in specific sectors;
Enhanced action on the provision o f financial resources and investment to support action on mitigation and adaptation and technology cooperation, including, inter alia, consideration of:
(e)
Improved access to adequate, predictable and sustainable financial resources and financial and technical support, and the provision o f new and additional resources, including official and concessional funding for developing country Parties;
Positive incentives for developing country Parties for the enhanced implementation o f national mitigation strategies and adaptation action;
Innovative means o f funding to assist developing country Parties that are particularly vulnerable to the adverse impacts o f climate change in meeting the cost o f adaptation;
Means to incentivize the implementation o f adaptation actions on the basis o f sustainable development policies;
48
(v) Mobilization o f public- and private-sector funding and investment, including facilitation o f climate-friendly investment choices;
Financial and technical support for capacity-building in the assessment o f the costs o f adaptation in developing countries, in particular the most vulnerable ones, to aid in determining their financial needs.”
(vi)
Enhancing the Role o f the Multilateral Development Banks in Addressing Climate Change
12. Within this context, and recognizing that climate change i s central to the sustainable development and poverty reduction agenda, the World Bank Group, in consultation with the regional development banks, developed and developing countries and other development partners, i s seeking to establish the strategic Climate Investment Funds (CIF)20 to mobilize new and additional financing for activities and investments that demonstrate how financial and other incentives can be scaled-up to support adaptation and mitigation in a coherent and integrated manner. Recognizing that UNFCCC deliberations on the future o f the climate change regime include discussions on a future financial architecture and funding strategy for climate change, the CIF will be an interim measure designed for the MDBs to assist in fill ing immediate financing gaps. The funds, therefore, will include specific sunset clauses linked to the agreement on the future o f the climate change regime.
13, account:
In developing proposals for the funds, the following principles have been taken into
(a) The core mission o f the MDBs i s sustainable economic growth and poverty reduction. Climate change mitigation and adaptation considerations need to be integrated into the sustainable development process as addressing these issues contributes to the basic human needs o f the poorest who are disproportionately impacted by the negative effects o f climate change;
Multilateral development banks can and should play a role in ensuring access o f developing countries to adequate financial resources and appropriate technology for climate actions;
The MDBs should mobilize new and additional financing for adaptation and mitigation programs to address climate change that are country-led and designed to support sustainable development and poverty reduction. Activities financed by the fund should be based on a country-led approach and
(b)
(c)
2o I t i s proposed that the portfolio o f fundsiprograms initially include, if donor support warrants:
c. the Clean Technology Fund, d. the Strategic Climate Fund, including programs for Climate Resilience, Greening Energy Access, and
Sustainable Forest Management.
49
should be integrated into country-owned development strategies, consistent with the Paris Declaration;
Achieving sustainable outcomes will require sustaining the total wealth - produced, human, institutional and natural - on which development depends;
The UN i s the appropriate body for broad policy setting on climate change, and the MDBs should not preempt the results o f climate change negotiations. Actions to address climate change should be guided by the principles o f the UNFCCC;
The MDBs, in collaboration with other development partners, should assist developing countries to build country-level knowledge, capacity and development project experience;
I t i s appropriate for the MDBs to build partnerships with each other and a wide range o f institutions and stakeholders on climate change, including the private sector. In doing so, each MDB should remain accountable to i t s governing body;
Complementarities between activities foreseen for the CIF and activities o f the GEF and the UN, especially at the country level, should be identified, and effective cooperation established, to maximize synergies and avoid overlap;
The finds should provide for transparency and openness in their governance and financing operations.
14. The need for mobilizing greater and more innovative financing for climate change actions i s a critical lesson o f the Clean Energy Investment Framework (CEIF)21. The CEIF has provided the basis for definition o f a range o f possible initiatives to be developed within each multilateral development bank with a set o f concrete results and impacts in terms of scale-up. The scale o f action required points to the need to take the important lessons learned from pilot and prototype projects and programs and capacity building efforts, such as those supported by the Global Environment Facility (GEF), to broader programs that help reduce poverty, and foster growth while enhancing climate resilience and mitigating greenhouse gases.
15. Consistent with the experience o f the CEIF, and recognizing that the Bali Action Plan decides to launch a comprehensive proves by addressing, among other things, ways to strengthen the catalytic role o f the Convention in encouraging multilateral bodies to support adaptation and mitigation in a coherent and integrated way, the World Bank Group, the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, and the Inter-American Development Bank (hereinafter referred to as the MDBs), are actively pursuing ways to increase the availability o f
21
and accelerate support to developing countries relating to energy access and climate change through the Clean Energy Investment Framework (CEIF).
The 2005 Gleneagles G-8 Summit in July 2005 stimulated a concerted effort by the development community to broaden
50
innovative financing through existing and new instruments and to accelerate the access o f developing countries to carbon finance, building on comparative advantages o f the various institutions and their strong development policy dialogue with client countries.
Objectives of the Strategic Climate Fund
16. The Strategic Climate Fund (SCF) will aim to:
promote international cooperation on climate change and support progress towards the future o f the climate change regime;
provide experience and lessons in responding to the challenge o f climate change through learning-by-doing;
promote and channel new and additional financing for addressing climate change through targeted programs to be established as part o f the Strategic Climate Fund or through separate funds like the Clean Technology Fund or other funds addressing climate change, such as the Forest Carbon Partnership Fund;
utilize the ski l ls and capabilities o f the MDBs to raise and deliver concessional climate financing at a significant scale to unleash the potential o f the public and private sectors to achieve meaningful reductions o f carbon emissions and greater climate resilience;
provide incentives for scaled-up action and transformational action (both mitigation and adaptation) and for solutions to the climate change challenge and poverty reduction in developing countries, consistent with poverty reduction and sustainable development strategies that are robust to climate change;
provide incentives to maintain, restore and enhance carbon-rich natural ecosystems to prevent these carbon s inks from becoming sources o f increased emissions, and to enhance all the services they provide, including climate resilience or adaptive capacity, and thereby support sustainable development;
complement other multilateral financial mechanisms, such as the GEF and the Adaptation Fund, and bilateral sources o f financing and seek co-financing where appropriate; and maximize co-benefits o f sustainable development, particularly in relation to the conservation o f biodiversity, natural resources ecosystem services and ecological processes.
17. The SCF will make available a range o f financing, credit enhancement and risk management tools such as loans, credits, guarantees, grants and other support, targeted to the needs o f developing countries. This strategic response will be implemented by the MDBs and other partners and will focus on accelerating and scaling up transformational l ow carbon
51
and climate resil ient investments while at the same time promoting sustainable development and poverty reduction.
SCF Programs
18. I t i s proposed that within the framework o f the SCF, targeted programs with dedicated funding can be established to provide financing to pilot new development approaches or scaled-up activities aimed at a specific climate change challenge or sectoral response. In view o f the sunset o f the SCF as provided below, such programs should be established as soon as possible and before an agreement on the future o f the climate change regime. Resources will be mobilized and pledged to specific programs to be financed within the SCF. Arrangements to guide the program, ensure effective partnerships, and provide accountability will be defined for each program to ensure the effective operations o f the program.
19. scope and objectives o f this pilot program are described in Annex A to this document.
A Pilot Program for Climate Resilience will be the init ial program o f the SCF. The
20. It i s proposed that within the framework o f the SCF a Forest Investment Fund/Program should be established by the end o f 2008 to mobilize significantly increased funds to reduce deforestations and forest degradation and to promote improved sustainable forest management, leading to emission reductions and the protection o f carbon reservoirs. This Forest Investment Fund/Program will be developed based on a broad and transparent consultative process. That process will take into account country led priority strategies for the containment o f deforestation and degradation and build upon complementarities between existing forest initiatives.
21. Work i s also on-going on a proposal for a program to support investments in low income countries for energy efficiency, renewable energy and access to modern sustainable energy. The scope and objectives o f this program and the forest investment fund/program will be approved by the Trust Fund Committee.
22. accordance with the following criteria:
Programs in addition to those listed in paragraph 20 and 21 may be considered in
(a)
(b) (c)
(d)
(e)
Multiple donor interest in establishing a program;
Broad applicability o f lessons to be learned;
Sufficient resources to finance activities at scale;
Complementary to any other multilateral financial mechanism or initiative; and
Link between climate change and development.
23. The scope and objectives for such new programs will be developed in consultation with key stakeholders, approved by the Trust Fund Committee o f the SCF and submitted to the Executive Directors o f the World Bank for information.
52
Allocation of Contributions
24. The SCF will provide a means to transfer funds to other t rust funds for those donors that require such an account. A donor may choose to contribute to the Strategic Climate Fund and/or, through the Strategic Climate Fund, to the Clean Technology Fund or to other funds agreed with the Trustee in consultation with the Administrative Unit. In the trust fund administration agreement to be entered into with the Trustee, a donor will designate to which SCF programs or other funds i t s resources will be contributed.
Governance o f the SCF
Trust Fund Committee
25. o f the SCF. The Trust Fund Committee will consist of:
A Trust Fund Committee will be established to oversee the operations and activities
(a) eight representatives from donor countries to the SCF identified through a consultation among such donors, and eight representatives from eligible recipient countries identified through a consultation among interested recipient countries; provided; however, (i) if there are less than eight donor countries contributing to the SCF during the f i rs t year o f the SCF operations, potential donor countries, identified through a consultation among the donor and potential donor countries, may serve as representatives from donor countries, and (ii) if there are less than eight donor countries contributing to the SCF in the subsequent years, the number o f donor country representatives and recipient country representatives, respectively, shall be reduced to equal the number o f actual donors contributing to the SFC. Representatives will serve for two year terms, except that they will serve for one year te rm for the first year o f the SCF operations. Representatives may be reappointed;
a senior representative o f the World Bank, recognizin the role o f the World Bank as the overall coordinator o f the CIF partnership;
a representative o f the MDB partners to be identified b the MDB Committee and chosen on the basis o f rotation among the MDBs .
(b)
(c) 2 7
26. Members o f the MDB Committee and the Trustee may attend the Trust Fund Committee as observers. Any additional member o f any Sub-committee may be invited to attend the Trust Fund Committee as an observer.
27. To ensure good linkages with key partners so as to promote the efficient use o f resources and complementarity with other sources o f financing, the Trust Fund Committee will invite as observers representatives o f GEF, UNDP, UNEP, and the UNFCCC. The Trust
22 The role o f representatives o f the World Bank and the MDB partners will be similar to that o f “non-voting” members o f other Boards. 23 Same as above.
53
Fund Committee may also invite representatives o f other organizations with a mandate to address climate change. Civi l society will also be invited to identify a representative to observe the Trust Fund Committee. Recognizing the special 'areas o f competence o f the observers, the Trust Fund Committee will invite observers to engage in an active dialogue.
Chair of the Trust Fund Committee
28. The Trust Fund Committee will have two co-chairs. One co-chair will be elected from among the country members o f the Trust Fund Committee for the duration o f the meeting, alternating from one meeting to another between recipient and donor representatives. The other co-chair will be the World Bank Vice President for the Sustainable Development Network.
Decision Making
29. Decision-making will be by consensus o f the voting members o f the Trust Fund Committee. Consensus i s a procedure for adopting a decision when no participant in the decision-making process blocks a proposed decision. For the purposes o f the SCF, consensus does not necessarily imply unanimity. A dissenting decision maker, who does not wish to block a decision, may state an objection by attaching a statement or note to the decision. If consensus i s not possible, then a proposed decision will be postponed or withdrawn.
Functions of the Trust Fund Committee
30. The Trust Fund Committee will be responsible for:
approving establishment o f programs under the SCF and the scope and objectives governing the use o f these funds based on a consultative process and an analysis to determine the utility o f new fund programs;
ensuring that the strategic orientation o f the SCF i s guided by the principles of the UNFCCC;
establishing a Sub-committee for each program established under the SCF and designating who may participate in the Sub-committee;
approving t rust fund financing for administrative budgets;
providing guidance on the convening o f the Partnership Forum;
ensuring monitoring and periodic independent evaluation o f performance and financial accountability o f MDBs;
approving annual reports o f the fund; ensuring that lessons learned are transmitted to the UNFCCC and other relevant bodies;
54
(i) (i)
reviewing reports from the Trustee on the financial status o f the fund; and
exercising such other functions as they may deem appropriate to fulfill the purposes o f the fund.
3 1. than once a year.
The Trust Fund Committee will meet at such frequency as it may decide, but not less
Sub-committee
32. under the SCF. The Sub-committee will include:
The Trust Fund Committee will establish a Sub-committee for each o f the programs
(a) Up to six representatives from donor countries to the program identified through a consultation among such donors, at least one o f which should be a member o f the SCF Trust Fund Committee;
(b) A matching number o f representatives from recipient countries to the program, at least one o f which should be a member o f the SCF Trust Fund Committee;
In addition to the designated members o f the Trust Fund Committee, members o f the Sub-committee will include, as additional members, such other representatives designated by the Trust Fund Committee for this purpose.
(c)
33. The functions o f the sub-committee will include:
(a) approving programming priorities, operational criteria and financing modalities for the SCF program;
(b) approving SCF program financing for programs and projects;
(c) approving periodic reports to the Trust Fund Committee on the operations of the program;
(d) ensure complementary between activities foreseen for the SCF Program and activities o f other development partners active in the field o f climate change adaptation, includifig the GEF and the UN, and ensure effective cooperation between the Program and the GEF and UN country activities to maximize synergies and avoid overlap; and
exercising such other SCF functions as they may deem appropriate to fulfill the purposes o f the SFC program.
(e)
34. The Sub-committee will meet at such frequency as it may decide, but not less than once a year concurrently with the Trust Fund Committee. Further, the Sub-committee may review and approve trust fund financing for programs and projects without meeting, but through such other means and procedures appropriate for project or program review.
55
35. Each Sub-committee will elect i t s own Co-Chairs.
36. Committee will apply to the Sub-committee.
Except as otherwise specifically provided, the procedures applied to the Trust Fund
Commitment of Trust Fund Resources
37. The Sub-committee may approve allocation o f SCF program resources for programs, projects and other activities, subject to the amount o f resources available in the trust fund for the SCF program and within the allocation for the program agreed by the Trust Fund Committee. The Trustee will make commitments to MDBs for transfer o f funds in accordance with approval o f the Sub-Committee, but only to the extent that such resources are available in the trust fund for the relevant program.
Monitoring and Evaluation
38. Monitoring and evaluation o f results will be critical for the Trust Fund, and each MDB will follow i t s procedures for monitoring and evaluation. There will be annual reporting on the SCF Programs by the MDBs to the Trust Fund Committee through the appropriate Sub-Committees, and an independent evaluation o f the operations o f the Trust Fund and the impacts o f i t s activities will be carried out jointly after three years o f operations by the independent evaluation departments o f the MDBs, Results achieved through the fund will be published and publicly available. Full reporting criteria will be agreed by the Trust Fund Committee.
Partnership Forum
39. A Partnership Forum, a broad-based meeting o f stakeholders, including donor and eligible recipient countries, MDBs, UN and UN agencies, GEF, UNFCCC, the Adaptation Fund, bilateral development agencies, NGOs, private sector entities, and scientific and technical experts will be convened annually to provide a forum for dialogue on the strategic directions, results and impacts o f the CIF. The Partnership Forum will be co-chaired by the World Bank Vice President for the Sustainable Development Network and a country representative elected by countries participating in the Partnership Forum. At the Partnership Forum, donor and recipient countries will agree, within their respective caucuses, on their representation on the Trust Fund Committee.
40. The implementation o f the SCF may benefit from advisory inputs from qualified individuals invited from a wide cross-section o f expertise. The Partnership Forum will provide an opportunity for independent scientific, technical and other advice on major issues o f implementation in integrating climate change and development. UNEP will be invited to collaborate with the Administrative Unit in proposing to the Trust Fund Committees ways to
56
ensure scientific and expert input, based on personal qualifications and experience o f experts and a balance o f developed and developing country expertise, into the Partnership Forum.
41. The Partnership Forum will be a meeting for dialogue and consultation and will not lead to written outcomes, such as agreed texts or declarations, which could be used as a basis for discussions in the UNFCCC.
Supporting Units Established Under the CIF
42. Bearing in mind the objectives of: minimizing transaction costs, and following to the extent possible the MDB processes rather than establishing separate institutional structures, it i s proposed that the following units will provide services to the funds and programs:
(a) MDB Committee;
(b) Administrative Unit;
(c) Trustee.
MDB Committee
43. To facilitate collaboration, coordination and information exchange, a MDB Committee comprising representatives o f the MDBs will be established. The MDB Committee will meet with such other frequency as deemed necessary by the committee but not less than once a year. The MDB Committee will:
identify specific areas o f MDB cooperation to harmonize their climate change programs and actions, linking their initiatives with SCF programs and projects;
prior to each meeting o f the Trust Fund Committee or a Sub-committee, review a provisional agenda and documentation prepared by the Administrative Unit;
review recommendations proposed by the Administrative Unit on program criteria and priorities and the activity cycle for approval by the Trust Fund Committee;
monitor progress in implementing programs and report to the Trust Fund Committee on compliance with TFC approved criteria and priorities on the use o f t rust fund resources;
review a draft annual consolidated report on the SCF activities, performance, and lessons, including details o f the fund’s portfolio, status o f implementation, funding allocations for the previous period, pipeline o f projects and funding projections, administrative costs incurred, and other pertinent information;
(a)
(b)
(c)
(d)
(e)
57
serve as a forum to ensure effective operational coordination, exchange o f information and experience among the MDBs;
liaise with other development partners, including bilateral development agencieshanks, for purposes o f promoting co-financing o f activities through an annual consultation between the MDBs and development partners, including bilateral development banks; support the Administrative Unit on i ts work program, including the implementation o f a comprehensive knowledge management system, results measurement system and learning program, taking into account opportunities for synergies with the activities o f the MDBs; and
perform any other functions assigned to it by the Trust Fund Committee or Sub-Committees.
Administrative Unit
44. A CIF Administrative Unit will be established to assist the work o f the Climate Investment Funds, including the SCF, and to support the trust fund committees and sub- committees. With respect to the SCF, the Administrative Unit will:
prepare all documentation required for review by the Trust Fund Committee and Sub-Committees which will f i rs t be reviewed by the MDB Committee;
make recommendations, in consultation with the MDB Committee, on program criteria and priorities and the activity cycle for approval by the Sub- Committees;
conduct background research and analyses as requested by the Trust Fund Committee and Sub-Committees;
prepare an annual consolidated report on the trust fund’s activities, performance, and lessons, including details o f the trust fund’s portfolio, status o f implementation, funding allocations for the previous period, pipeline o f projects and funding projections, administrative costs incurred, and other pertinent information;
manage a comprehensive database o f the trust fund activities, knowledge management system, result measurements system and learning program;
service the meetings o f the Trust Fund Committee and Sub-Committees;
manage partnerships and external relations, including convening meetings o f the MDB Committee and the Partnership Forum;
collaborate with the Trustee to ensure that the Trustee receives all the information necessary to carry out i t s responsibilities; and
perform any other functions assigned to it by the Trust Fund Committees.
58
Trustee
45. intermediary with respect to the SCF proceeds administered by other MDBs and, in that capacity, will have no responsibility to the SCF contributors for the use o f such proceeds over and above those responsibilities contained in the trust fund administration agreement, agreements with MDBs, and relevant World Bank policies and procedures. Each MDB will be responsible for the use o f funds transferred by the Trustee in accordance with i t s own fiduciary framework, policies, guidelines, and procedures. The Trustee will be accountable to the Trust Fund Committees for the performance o f i t s fiduciary responsibilities. The Trustee will submit regular reports to each Trust Fund Committee on the financial status o f the respective fund.
The IBRD will serve as Trustee for the SCF. The Trustee will act as financial
46. the funds, assets and receipts, which constitute the SCF trust fund.
IBRD in i t s capacity as the Trustee will hold in trust, as a legal owner, and administer
Contributions
47. Donors may make contributions in cash, or, with the agreement o f the Trustee, by the delivery o f promissory notes or similar obligations to the Trustee. Further, donors may make contributions in one lump sum or in installments on the terms agreed with the Trustee. In the event that a part o f the donor’s contribution i s subject to legislative approval, the donor may enter into a t rust fund administration agreement with the Trustee for the total amount o f the contribution, but qualify the portion o f the contribution, which i s subject to legislative approval.
48. In order to be selected as a representative from donor countries to the Trust Fund Committee pursuant to paragraph 25(a), a donor or group o f donors will be required to make a commitment, by way o f entering into a t rust fund administration agreement(s), to provide to the SCF a minimum contribution to be determined by the donors or such other amount, as may be determined by the Trust Fund Committee; provided, however, that if the donor that has not unqualified the portion o f i t s contribution in the amount o f no less than the minimum contribution within 18 months o f the effectiveness o f the trust fund administration agreement, the donor will not be eligible to apply for a seat at the Trust Fund Committee for the subsequent term until and unless the minimum contribution i s unqualified. In no case will a donor that has not unqualified a portion o f its contribution in an amount no less than the minimum contribution serve as a representative from donor countries to the Trust Fund Committee for the period exceeding two years.
49. If there are less than eight donor countries or group o f donor countries making commitments equal to, or greater than, the minimum contribution to the SCF during the f i rs t 18 months o f the SCF operations, potential donor countries, identified through a consultation among the donor and potential donor countries, may serve as representatives from donor countries, pursuant to paragraph 25(a).
59
50. resources supplementing existing ODA flows otherwise available for developing countries.
Donor countries will ensure that the above contributions are new and additional
5 1. Bilateral development agenciedbanks, are encouraged to contribute to the achievement o f the objectives o f the Trust Fund through bilateral projects or co-financing o f projects funded by the Trust Fund. Donors may report on this bilateral financing to the Trust Fund Committee for i t s review and confirmation that such bilateral financing conforms to the objectives o f the Trust Fund. Activities confirmed by the Trust Fund will be included in the annual report on the Fund.
Reflows
52. Donors will have beneficiary interests in any reflow o f funds returned to the SCF, together with other funds held in the SCF, on a pro-rata basis. Where a donor has made a contribution through the SCF to the CTF or other funds which may be established under CIF (Other CIF Funds), the donor’s pro-rata share in the Other CIF Funds will be returned to the SCF in accordance with the terms o f the relevant trust fund.
53. Program established under the SCF or Other CIF Funds.
Donors’ pro-rata shares will be calculated based on donors’ contributions to each
54. Upon termination o f the SCF, the Trustee, on behalf o f donors, will endeavor to transfer donors’ pro-rata shares to another fund which has a similar objective as the SCF as determined by the Trust Fund Committee, unless a donor otherwise agrees with the Trustee.
55. In the event that a donor decides to withdraw i ts contribution to the SCF prior to the termination o f the SCF, the Trustee will return to the donor: (a) i t s pro-rata share o f the outstanding unallocated balance, including any reflow o f funds received, at the time o f the donor’s withdrawal, and (b) i t s pro-rata share o f any reflow o f funds received by the Trustee after the date o f withdrawal, to the extent that such reflow o f funds i s received from the financing made prior to the date o f the withdrawal.
Administrative fees
56. The Trustee, the Administrative Unit, and the MDBs will perform specific administrative services and project related activities. Consistent with MDB policies on management o f trust funds, compensation for administrative services and project related activities will be on the basis o f full cost recovery for the entities but should be guided by the principles o f value for money, reasonableness, and transparency. The costs o f the Partnership Forum will be included in the administrative budget o f the Administrative Unit and will be shared between the CIF funds.
60
Sunset Clause
57. Recognizing that the establishment o f the trust fund i s not to prejudice the on-going UNFCCC deliberations regarding the future o f the climate change regime, including i t s financial architecture, the SCF will take necessary steps to conclude i t s operations once a new financial architecture i s effective. Specifically, the Trustee will not enter into any new agreement with donors for contributions to the trust fund once the agreement i s effective. The Trust Fund Committee will decide the date on which it will cease making allocations from the outstanding balance o f the Trust Fund.
58. Notwithstanding the above paragraph, if the outcome o f the UNFCCC negotiations so indicates, the Trust Fund Committee, with the consent o f the Trustee, may take necessary steps to continue the operations o f the SCF, with modifications as appropriate.
Legal Document and Amendments
59. The terms o f the governance arrangements o f the SCF will be set out in the governance framework document. The Trust Fund Committee may recommend amendments to any terms o f the governance framework document which will become effective with the consent o f all donor countries to the SCF, all recipient countries that have been allocated funding from the SCF, and the Trustee.
60. In addition, the Trustee will enter into a trust fund administration agreement with each donor, which sets out the terms and conditions o f administration o f donors contributions.
61, The Trustee will enter into a Financial Procedures Agreement with each MDB, which will set out the terms and conditions o f commitment and transfer for funds by the Trustee to the MDB as well as financial reporting from the MDB to the Trustee.
61
ANNEX 2 - ATTACHMENT A: PILOT PROGRAM FOR CLIMATE RESILIENCE
Background
1. There i s increasing consensus that managing the effects o f climate change i s central to poverty reduction, economic growth and sustainable development. Actions that increase resilience to climate change need to become an integral part o f national and sectoral development plans and financing to manage the adverse impacts, and opportunities, o f projected climate change and variability, regardless o f the scale o f mitigation undertaken over the next decades.
2. The proposed Pilot Program for Climate Resilience (PPCR) i s designed to provide programmatic finance for country-led national climate resilient national development plans. The PPCR aims to provide transformational and scaled-up support for both the development and implementation o f such plans. Furthermore, i t s purpose i s to provide lessons over the next few years that might be taken up by countries, the development community, and the future climate change regime, including the Adaptation Fund. This experience will be gained through scaled-up interventions covering the full range o f sectors and sources o f financing, and with sufficient resources to move quickly from planning to action, The PPCR will build upon National Adaptation Programs o f Action (NAPAs), will be implemented in a manner consistent with the Paris Declaration o f Aid Effectiveness, and will complement the existing adaptation funds which continue to serve essential roles in tackling climate change.
3. been emphasized in many venues, reviews and declarations:
The need for the integration o f climate risks into national development planning has
(a) The Delhi Ministerial Declaration on Climate Change and Development in 2002 states “national sustainable development strategies should integrate more fully climate change objectives in key areas such as water, energy, health, agriculture and biodiversity, and build on the outcomes o f the World Summit on Sustainable Development; . , . Adaptation to the adverse effects o f climate change i s o f high priority for al l countries. Developing countries are particularly vulnerable, especially the least developed countries and small island developing States.”
The Bal i Action Plan in 2007 calls for “international cooperation to support . . . integration o f adaptation actions into sectoral and national planning, specific projects and programs, means to incentivize the implementation o f adaptation actions, and other ways to enable climate-resilient development and reduce vulnerability o f all Parties, . , ,” Working Group I1 o f the IPCC Fourth Assessment Report (Chapter 17) recognized the importance o f “mainstreaming” climate change into national planning but pointed out five constraints to achieving this including “compartmentalization within governments; segmentation and other barriers
(b)
(c)
62
within development-cooperation agencies; and trade-offs between climate and development objectives”.
4. Developing countries need technical and financial support to routinely consider climate information, impacts, r isks and cost effective adaptation options in their normal planning, financing and regulatory processes. This needs to be done across the economy and society so governments can make choices about the most cost effective mix o f responses, ranging from fpolicy measures to shifting incentives to investment adjustments, extension o f services and improved contingency planning. Development pathways need to be designed from the beginning to be robust to climate risks. Polices relating to climate resilience can improve the local environment, increase resilience to natural disasters, support natural ecosystems to enhance the adaptive services they provide, and facilitate the dissemination o f innovative technologies and autonomous adaptation by individuals and the private sector.
5. There are already several sources o f funding for adaptation, each o f which has a unique and continuing role, but none integrates financing for climate resilience into programmatic support and sector-wide approaches at scale as i s sought in this Pilot Program. Existing sources o f funding include:
(a) Most Least Developed Countries have completed, or near completed, National Adaptation Programs o f Action (NAPA). Preparation and implementation o f the NAPAs i s supported through the multi-donor Least Developed Countries Fund (LDCF) managed by the GEF and through other bilateral and multilateral donors. NAPAs identify priority activities that respond to urgent and immediate needs with regard to adaptation to climate change. According to the UNFCCC, “they take into account existing coping strategies at the grassroots level, and build upon them to identify priority activities.. .” although some countries also developed strategic plans during the preparation o f their NAPAs. Countries are now moving to the implementation phase of the NAPAs with support to carry out the highest priority projects. Grants have ranged between $1.5M to $3.5M. There i s a need to build upon and complement the NAPAs with comprehensive and strategic incorporation o f climate resilience into regular development planning and financing.
(b) The Special Climate Change Fund (SCCF) i s accessible by al l non-Annex I countries. It finances activities, programs and measures for: (a) adaptation; (b) transfer o f technologies; (c) energy, transport, industry, agriculture, forestry and waste management; and (d) activities to assist developing countries whose economies are highly dependent on income generated from the production, processing and export, and/or on consumption o f fossil fuels and associated energy-intensive products in diversifying their economies. The SCCF has funded nine projects ranging in size from about $ l M to $13.5M. While the SCCF seeks to integrate climate change considerations into national development planning, there i s a high demand for support from this fund.
63
(c) Several multilateral development agencies and bilateral donors are supporting countries in mainstreaming adaptation into their development plan, building climate resilience and identifying new and innovative funding sources to address climate change issues.
6. The Adaptation Fund was established under the Kyoto Protocol and i s to be financed with a share o f proceeds from Clean Development Mechanism project activities and i s able to receive funds from other sources. The share o f proceeds amounts to 2% o f certified emission reductions (CERs). The Board and the management arrangements for the Adaptation Fund (AF) were agreed at the Bal i Conference o f the Parties in late 2007. The Board has majority representation from developing countries, reflecting that the core source o f funding arises from C D M activities within those countries. The AF i s expected to become the largest financing vehicle for adaptation under the UNFCCC. I t s operating procedures and priorities are s t i l l in the early stages o f formulation, and resources for the AF are likely to build slowly as C D M activity builds though the first commitment period and CERs are converted to cash. The value o f the CERs currently held i s a few tens o f millions o f dollars, and the initial focus o f the Board o f the AF i s likely to be establishing a working framework, identifying a set o f activities that will help establish priorities and developing l i n k s with other adaptation relevant actors. Estimates o f the size o f the AF vary according to estimates o f the scale o f the C D M and prices for CERs, but are expected to be several hundred millions o f dollars in the first commitment period and possibly significantly larger in the future o f the climate change regime.
7. The Hyogo Framework for Action on disaster reduction calls upon countries to “promote the integration o f risk reduction associated with existing climate variability and future climate change into strategies for the reduction o f disaster risk and adaptation to climate change...”. The Global Facility for Disaster Risk Reduction (GFDRR) i s a partnership under the UN International Strategy for Disaster Risk Reduction (UNISDR) with the mission to mainstream disaster reduction and climate change adaptation in country development strategies, such as poverty reduction strategies (PRS), country assistance strategies (CAS), United Nations Development Assistance Frameworks (UNDAF), and the National Adaptation Programs o f Action (NAPA), to reduce vulnerabilities to natural hazards. The PPCR will work closely with the UNISDR and the GRDRR to ensure synergy between the strategic work programs o f the programs.
8. The PPCR i s designed to be complementary to existing sources o f adaptation funding and supportive o f the evolving operation o f the Adaptation Fund. I t s core feature i s that i s designed to deliver a package o f funding at scale to help transform national development planning to make it more climate resilient. Resources from the PPCR will be blended with other resources from the MDBs, the UNFCCC and other international support mechanisms and with national resources to promote institutional change, capacity building and learning through implementation o f climate resilient national development priorities. These goals can best be achieved through a partnership between the recipient country, donors, the MDBs and UN agencies.
64
9. The Trust Fund Committee o f the Strategic Climate Fund and the Sub-committee for the PPCR (PPCR-SC) will have strong developing country participation and will work closely with the Board o f the AF to ensure that the PPCR pilot programs are complementary to the work o f the AF and strengthen the knowledge-base for future AF actions. The Board o f the Adaptation Fund will be invited to be an active participant in the design, governance and monitoring and evaluation o f the PPCR, through representation on the PPCR-SC, involvement in an expert group and through PPCR reporting to the AF Board on programs, achievements and lessons learned.
Principles
10. apply to the Pilot Program for Climate Resilience with particular emphasis on the following:
The principles set out in paragraph 13 o f the Strategic Climate Fund (SCF) will also
(a) The UN i s the appropriate body for broad policy setting on climate change and the multilateral development banks should not pre-empt the results o f climate change negotiations. Actions to address climate change should be guided by the principles o f the UNFCCC;
(b) While recognizing that the GEF and the Board o f the Adaptation Fund are the delivery mechanisms for support provided under the UNFCCC , under Article 11.5 resources may also be provided through “bilateral, regional and other multilateral channels”.
11. The PPCR will pilot and demonstrate ways to integrate climate risk and resilience iato core development planning, complementing other ongoing activities. The pilots will be country led, will build on National Adaptation Programs o f Action and other relevant country studies and strategies and will be strategically aligned with the Adaptation Fund and other donor funded activities to provide pilot finance in the short term so as to learn lessons that will be useful in designing scaled up adaptation finance, including in the context of international climate negotiations.
12. environmental and social safeguards.
Each MDB will follow i t s own policies and procedures, including appropriate
Objectives of the PPCR
13. The PPCR will contribute to achieving the objectives o f the SCF and, in particular paragraph 16(e), by seeking to provide incentives for scaled-up action and transformational change in integrating consideration o f climate resilience in national development planning consistent with poverty reduction and sustainable development goals. This will
(a) improve climate resilience in pilot countries;
65
(b) provide experience and knowledge on how to integrate resilience to climate change into core development planning and financing, including to the Adaptation Fund Board; and
provide experience and knowledge on how to best support such integration through international financed in manner consistent with Paris Declaration on Aid Effectiveness, including to the Adaptation Fund Board.
(c)
Types of Investments
14. The PPCR will move quickly to provide about 5 to 10 countries24 with scaled-up support for integrating climate resilience into their development planning and financing. Where relevant, cooperation will be established with other ongoing national adaptation programs. Two types o f activities will be supported over the next three to five years in recipient countries:
(a) The f i rs t will provide support for technical assistance to enable developing countries to build upon existing national work, including the National Communications and NAPAs, to integrate climate resilience into core development plans and financing. This phase will provide support for technical assistance and capacity building needs as identified by the pilot country, to enable the government to plan for climate resil ient development, with input from national c iv i l society and the private sector. Pilot countries will identify preferred partners for this technical assistance and capacity building work. This may draw upon expertise from, for example, UNDP, UNEP, c iv i l society organizations; research institutes private sector agencies and MDBs. It will include support to assess and reform institutional arrangements to facilitate the inclusion o f climate risk (and opportunities that may arise from climate change) in development planning and in decision making by c iv i l society and the private sector. The bulk o f this work should be completed within about one year o f the recipient country being identified. There should be an emphasis on placing the strategic planning in a long-term context. Technical support to the planning process may continue throughout the l i f e o f the pilot.
The second type o f support will provide additional financial resources to help fund public and private sector investments identified in the climate resil ient development plans. There will be an emphasis on budget support, sector-wide approaches, and coordinated investment programs across key sectors, and blending with national financing and/or existing international support mechanism. The level o f investment will vary according to country circumstances and will be provided in accordance with the Paris Declaration on Aid Effectiveness. This support can begin as soon as climate resil ient development plans are in place, and it should begin within about a year o f the recipient country being identified.
(b)
24 The PPCR-SC will determine the number o f countries in the pilot program taking into account, among other things, the resources available for the program and the objective o f providing scaled-up resources in the pilot countries..
66
15. A key objective o f the PPCR i s to integrate climate resilience into development financing, including the blending 9 f grant and concessional finance with domestic public and private financing. Additional costs directly associated with technical assistance and institutional adjustment should be through grants. Significant investment resources will be available through the PPCR in the form o f grants with the option o f additional highly concessional lending that can be blended with existing sources o f concessional funding and national resources to increase the climate resilience o f existing development priorities. This i s a core learning component to be derived from the practical piloting o f climate resilient development at the national scale.
16. Financing under the work program will be processed through the MDBs selected by the country. Each operation would follow the investment policies and procedures o f the MDB, including i t s fiduciary standards and environmental and social safeguards.
The Pilot Program for Climate Resilience Sub-committee
17. A Pilot Program for Climate Resilience Sub-committee (PPCR-SC) will be established to oversee the operations and activities o f the Pilot Program.
18. The PPCR-SC will consist of:
(a) up to six representatives from donor countries to the PPCR identified through a consultation among such donors and at least one o f which should be a member o f the SCF Trust Fund Committee;
(b) a matching number o f representatives from recipient countries selected from among recipient countries approved as pilots under the program and recipient country members o f the SCF Trust Fund Committee and identified through a consultation among such recipients. At least one representative should be a member o f the Trust Fund Committee. Prior to the approval o f the f irst recipient countries to receive funding from the PPCR, eligible recipient countries identified as having priority for country eligibility (see paragraph 26 o f this attachment) and recipient country members o f the SCF Trust Fund Committee will nominate a matching number o f countries to serve on the Sub- Committee. These representatives will be reappointed or replaced as members o f the PPCR-SC following the selection o f recipient countries for the Pilot Program;
(c) the developing country Chair or vice-Chair o f the Board o f the Adaptation Fund (or nominee).
67
(d) all pilot countries under the program, members o f the MDB Committee and the Trustee may attend the PPCR-SC as observers.
19. To ensure good linkages and effective cooperation with key partners so as to promote the efficient use o f resources and complementarity with other sources o f financing, the PPCR-SC will invite as observers representatives o f other organizations with a mandate to promote investments in climate resilience to address climate change, including the Global Environment Facility, UNDP, UNEP and the UNFCCC. The Expert Group (see paragraph 27 and 28) will be invited to identify a member o f the group to observe the Sub-committee. Civ i l society will also be invited to identify a representative to observe the Sub-Committee. Recognizing the special areas o f competence o f the observers, the PPCR-SC will invite observers to engage in an active dialogue.
20. A country being considered as a candidate to receive financial support from the Pilot Program will be invited to attend meetings o f the PPCR-SC as observers during deliberations on the country’s proposal.
21. The PPCR-SC will elect two co-Chairs from among i ts members for the duration o f a meeting. One co-Chair will be a representative o f a recipient country and the other co-Chair will be a representative o f a donor country.
22. Decision-making will be by consensus o f the “voting” members o f the Trust Fund Committee. Consensus i s a procedure for adopting a decision when no participant in the decision-making process blocks a proposed decision. For the purposes o f the SCF, consensus does not necessarily imply unanimity. A dissenting decision maker, who does not wish to block a decision, may state an objection by attaching a statement or note to the decision. If consensus i s not possible, then a proposed decision will be postponed or withdrawn.
Functions of the PPCR-SC
23. The PPCR-SC will be responsible for:
(a) approving programming priorities, operational criteria and financing modalities for the PPCR;
(b) approving PPCR financing for programs;
(c) ensuring complementary between activities foreseen for the PPCR and activities o f other development partners active in the field o f climate change adaptation, including the GEF and the UN, and ensure effective cooperation between the PPCR and the GEF and UN country activities to maximize synergies and avoid overlap;
68
(d) ensuring that lessons learned are transmitted through the Trust Fund Committee to the Board o f the Adaptation Fund, the UNFCCC and other stakeholders; and
(e) exercising such other functions as they may deem appropriate to fulfill the purposes o f the PPCR.
Frequency of Meetings
24. The PPCR-SC will meet at such frequency as it may decide, but not less than once a year. The PPCR-SC may review and approve trust fund financing for programs as needed, at a level and through means and procedures appropriate to program review.
Country Eligibility
25. described in Article 4.8 and 4.9 o f the UNFCCC, country eligibility will be based on:
Acknowledging the special needs in relation to funding and technology transfer
(a)
(b)
ODA-eligibility (according to OECD/DAC guidelines); and an active MDB country program.25
26. Priority will be given to highly vulnerable Least Developed Countries eligible for MDB concessional funds, including the Small Island Developing States among them. Final selection o f pilot countries will be the decision o f the PPCR-SC, based on advice o f an Expert Group (see paragraphs 27 and 28 o f this attachment).
Expert Group
27. PPCR-SC to make recommendations on country selection based on:
An Expert Group will be established and provided with appropriate guidance by the
(a) transparent vulnerability criteria;
(b) country preparedness and ability to move towards climate resil ient development plans taking into account efforts to date and willingness to move to a strategic approach to integrating climate resilience into development; and
country distribution across regions and types o f hazards (as appropriate to a pilot program).
(c)
25 An “active” program i s where a MDB has a lending program and/or an on-going policy dialogue with the country.
69
28. The Expert Group should be up to eight in number and include a range o f expertise covering scientific, economic, environmental and social aspects o f climate change, governance and institutional and development planning. The Expert Group members should be selected in accordance with clear and transparent criteria to be approved by the Sub- Committee, taking into account professional qualifications o f the experts. The group should include experts from both developed and developing countries. The Chair and co-Chair o f the Board o f the Adaptation Fund, or their nominees, will be invited to participate on the nomination and selection process o f the Expert Group.
PPCR Programming
29. Taking into account the recommendations o f the Expert Group, the PPCR-SC will draw up a short l i s t o f countries to be considered for the Pilot Program, and these countries will be invited to submit an expression o f interest in a common format to be agreed by the PPCR-SC. Based on the expressions o f interest, the PPCR-SC will select a group o f pilot countries. In each o f these countries, the MDBs and any UN agencies concerned will conduct a joint programming mission to engage with the government, appropriate UN offices in the country, private sector, national civi l society and other stakeholders on how the pilot program may assist the government to enhance the climate resilience o f their national development plans and financing. The outcome o f the joint exercise will be a proposal to the PPCR-SC, developed under the leadership o f the recipient country, for the use o f the Pilot Program’s technical assistance resources for the integration o f climate resilience into national development planning and financing processes.
30. The resultant climate resil ient development plans, which draw upon the technical assistance, will be submitted to the PPCR-SC, together with a proposal for their approval, for the use if PPCR financial resources through a country-MDB program. The further processing o f components o f approved programs will follow the MDB’s policies and procedures for appraisal, approval and supervision.
31. A group o f countries may propose to the PPCR-SC a regional or sub-regional program that brings together a number o f country programs. A regional or sub-regional program will be considered one pilot in the program.
Sunset Clause
32. The PPCR will provide financing in the short-term. Recipient countries will be identified, and the first phase o f funding to prepare climate resil ient development plans will occur, primarily during 2008-2009. The Sub-committee will not approve any new PPCR financing for activities after calendar year 20 12.
70
Monitoring and Evaluation
33. Based on the monitoring results by the MDBs, the PPCR will report regularly to the Trust Fund Committee, and an independent evaluation o f the operations o f the PPCR and i t s activities will be carried out jointly after three years o f operations by the independent evaluation departments o f the MDBs. Results achieved through the PPCR should be published, transmitted to the Board o f the Adaptation Fund, and made publicly available. Full reporting criteria, including results measurement at the programmatic, country and institutional levels, will be agreed by the Trust Fund Committee o f the SCF.
Learning from the PPCR
34. Many o f the main learning objectives should be achieved within the first one to two years o f operation o f the Pilot Program. Other development partners, active in the field o f climate change adaptation, will be invited to share their experiences so that a consolidated and coherent body o f knowledge can be developed, bringing together major lessons learned for application in relevant development frameworks. Priority research needs that are expected to increase the effectiveness o f climate resilience planning and implementation should be identified. The effectiveness and lessons learned from the pilots will be assessed before December 3 1 , 2012, and widely disseminated. The Board o f the Adaptation Fund will be invited to play a leading role in the design o f the learning process.
71
ANNEX 3: OTHER PROPOSED ARRANGEMENTS
MDB Committee
1. The MDB Committee, consisting o f representatives from African Development Bank, Asian Development Bank, European Bank for Reconstruction and Development, Inter- American Development Bank, IBRD, and IFC, will:
(a) identify specific areas o f MDB cooperation to harmonize their climate change programs and actions, linking their initiatives with CIF programs and projects;
(b) prior to each meeting o f a Trust Fund Committee or a Sub-committee, review a provisional agenda and documentation prepared by the Administrative Unit;
(c) review recommendations proposed by the Administrative Unit on program criteria and priorities and the activity cycle for approval by a Trust Fund Committee;
(d) monitor progress in implementing programs and report to the Trust Fund Committees on compliance with TFC approved criteria and priorities on the use o f trust fund resources;
(e) review a draft annual consolidated report on the trust funds’ activities, performance, and lessons, including details o f the trust funds’ portfolios, status o f implementation, funding allocations for the previous period, pipelines of projects and funding projections, administrative costs incurred, and other pertinent information;
(f) serve as a forum to ensure effective operational coordination, exchange o f information and experience among the MDBs;
(g) liaise with other development partners, including bilateral development agencies/banks, for purposes o f promoting co-financing o f activities through an annual consultation between the MDBs and development partners, including bilateral development banks;
(h) support the Administrative Unit on i t s work program, including the implementation o f a comprehensive knowledge management system, results measurement system and learning program, taking into account opportunities for synergies with the activities o f the MDBs; and
(i) perform any other functions, assigned to it by a Trust Fund Committee or Sub- committees.
72
Administrative Unit
2. Investment Funds and to support the t rust fund committees and sub-committees. Administrative Unit will:
A CIF Administrative Unit will be established to assist the work o f the Climate The
prepare all documentation required for review by the Trust Fund Committees and Sub-Committees which will first be reviewed by the MDB Committee;
make recommendations, in consultation with the MDB Committee, on program criteria and priorities and the activity cycle for approval by the Trust Fund Committees or the Sub-Committees;
conduct background research and analyses as requested by the Trust Fund Committees or the Sub-Committees;
prepare an annual consolidated report on the trust funds’ activities, performance, and lessons, including details o f the trust funds’ portfolios, status o f implementation, funding allocations for the previous period, pipelines o f projects and funding projections, administrative costs incurred, and other pertinent information;
*
manage a comprehensive database o f the trust funds’ activities, knowledge management systems, result measurements systems and learning programs;
service the meetings o f the Trust Fund Committees and Sub-Committees;
manage partnerships and external relations, including convening meetings of the MDB Committee and the Partnership Forum;
collaborate with the Trustee to ensure that the Trustee receives all the information necessary to carry out i t s responsibilities; and
perform any other functions assigned to it by the Trust Fund Committees.
3. The IBRD will serve as Trustee for the CIF (Clean Technology Fund and Strategic Climate Fund). The Trustee will act as financial intermediary with respect to the trust fund proceeds administered by other MDBs and, in that capacity, will have no responsibility to the
73
trust fund contributors for the use o f such proceeds over and above thcpe responsibilities contained in the trust fund administration agreement, agreements with MDBs, and relevant World Bank policies and procedures. Each MDB will be responsible for the use o f funds transferred by the Trustee in accordance with i t s own fiduciary framework, policies, guidelines, and procedures. The Trustee will be accountable to the Trust Fund Committees for the performance o f i t s fiduciary responsibilities. The Trustee will submit regular reports to each Trust Fund Committee on the financial status o f the respective fund.
74
