Yuqing Ariel Yu Senior policy researcher, Climate and Energy Area

Institute for Global Environmental StrategiesClimate Finance

Climate finance trends in Asia and the implications of scalability of the Green Climate Fund on access modality

Yuqing Ariel YuSenior policy researcher, Climate and Energy Area

Institute for Global Environmental Strategies (IGES)

February 17th, 2014

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Yuqing Ariel Yu IGES | http://www.iges.or.jp Climate and Energy Area

Role of business for enabling sustainable lifestyles

IGES-Future climate regime

Outline

• Background knowledge about climate finance

• Climate finance trends in Asia

• The implications of scalability of the Green Climate Fund on access modality

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Scope, terminology, and data sources

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• Definition of climate finance– No globally agreed definition

– The Standing Committee on Finance is working on an operational definition (decision-/CP.19)

Multilateral climate funds

Bilateral climate funds

Development finance institutes

Government budgets

Private sector

$1.4b

$0.2b

$122b

$12b

$224b

$359b

Sources Global climate finance in 2012

Adaptation $22b

Mitigation (including

REDD+) $357b

Source: CPI, 2013




Principles and criteria of public climate finance

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• Fund mobilization– Equity: common but differentiated responsibilities and respective capabilities (UNFCCC, Art. 2)

• Who should pay the cost? The polluter pays• Define a legal obligation for compensatory finance, distinctly different from aid flows

– Adequacy and predictability in the flow of funds and the importance of appropriate burden sharing among the developed country Parties (UNFCCC, Art. 4.3)

– Funding must be adequate, predictable, sustainable as well as new and additional (Bali Action Plan, Art. 1(e)(i))

– Scaled-up, new and additional, predictable and adequate funding shall be provided to developing country Parties (the Cancun Agreements, Para. 97)

• Fund governance– Transparent and accountable

– Equitably represented • Traditional ODA gives donor countries a bigger voice in funding decisions• Climate finance is compensatory in nature and should be governed based equitable representation of

developed and developing Parties

• Fund disbursement– National ownership

• Meets sustainable development needs in developing countries




Institutional arrangements under UNFCCC and climate finance commitments

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• Institutional arrangements– The Standing Committee on Climate Finance– The Green Climate Fund– The Global Environment Facility (climate focal area)– The Adaption Fund (Kyoto Protocol)

• Climate finance commitments– The Fast-start Finance (FSF): Developed countries collectively provide approximately USD 30 billion during 2010 to 2012 (The Cancun Agreements).– The long-term finance: Developed countries collectively provide USD 100 billion annually by 2020 (The Cancun Agreements).– Provide resources of at least the average annual level of the FSF period for 2013-2015 (The Doha Gateway)




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Climate finance trends in Asia




Scope, terminology, and data sources

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• Scope of this study– Dedicated public climate finance (UNFCCC climate funds, multilateral

initiatives outside the UNFCCC, bilateral ODA)

– Other official flows (OOFs) excluded

– Time scale: 2006-2012

– Countries: East, South, and East South Asian countries• 8 countries are least developed countries (LDCs)• 10 countries are non-LDCs

• Data sources: – IGES FSF database and Climate Funds Update




Asia received a total of USD10,754.4 million in climate finance (2006-2012)

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• Climate finance according to thematic activities

37.5%

7.2%

47.4%

7.0%

0.9%

Adaptation

Mitigation

REDD+

Multi-foci

unknown

71.1%

4.5%

8.9%

15.4%

0.1%

Mitigation

Multi-foci

Adaptation

REDD+

unknown

LDCs Non-LDCs

67.2%4.8%

13.3%

14.4%

0.2%

Mitigation

Multi-foci

Adaptation

REDD+

unknown

Asia

LDCs:

Afghanistan

Bangladesh

Bhutan

Cambodia

Lao PDR

Maldives

Myanmar

Nepal

Non-LDCs:

China

India

Indonesia

Malaysia

Mongolia

Pakistan

Philippines

Sri Lanka

Thailand

Vietnam




The FSF period saw a ten-fold increase in climate finance to approximately USD3,500 million annually

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• Yearly distribution of climate finance

0.0

500.0

1000.0

1500.0

2000.0

2500.0

3000.0

3500.0

4000.0

USD

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ion

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Climate finance was not evenly distributed among the recipient countries

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• Country distribution of climate finance

0.0500.0

1000.01500.02000.02500.03000.03500.04000.04500.05000.0

Indi

a

Indo

nesi

a

Viet

nam

Phili

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es

Bang

lade

sh

Thai

land

Chin

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Paki

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tan

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Sri L

anka

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golia

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aysi

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USD

mill

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(cur

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Asia received 68% of funding in the form of concessional loans

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• Financial instruments LDCs:

Afghanistan

Bangladesh

Bhutan

Cambodia

Lao PDR

Maldives

Myanmar

Nepal

Non-LDCs:

China

India

Indonesia

Malaysia

Mongolia

Pakistan

Philippines

Sri Lanka

Thailand

Vietnam

68.7%

30.9%

0.5%

Grants

Concessional loans

Others

26.2%

72.9%

0.9%

Concessional loans

Grants

Others

LDCs Non-LDCs

31.1%

68.0%

0.9%

Concessional loanss

Grants

Others

Asia




Mitigation represented the largest share of funding during both periods and accounted for almost 70% of the money received in the respective periods

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• Comparisons of themes

69.4%

17.7%

7.1%5.9%

Mitigation

REDD+

Adaptation

Multi-foci

67.1%4.0%

13.7%

15.0%

0.2%

Mitigation

REDD+

Adaptation

Multi-foci

unknown

The Pre-FSF period (2006-2010)

The FSF period (2010-2012)




The composition of financial instruments changed dramatically before and during the FSF period

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• Comparisons of financial instruments

98.9%

1.1%

Grants

Others

26.9%

72.2%

0.9%

Concessional loans

Grants

Others






The order of recipient countries also changed

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• Comparisons of recipient countries

0.020.040.060.080.0

100.0120.0140.0160.0180.0200.0

Chin

a

Indi

a

Indo

nesi

a

Phili

ppin

es

Thai

land

Viet

nam

Bang

lade

sh

Sri L

anka

Mal

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Paki

stan

Cam

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Mon

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Bhut

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Nep

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Lao

PDR

Mya

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USD

mill

ion

(cur

rent

val

ue)


0500

100015002000250030003500400045005000

Indi

a

Indo

nesi

a

Viet

nam

Phili

ppin

es

Bang

lade

sh

Thai

land

Paki

stan

Afgh

anis

tan

Chin

a

Nep

al

Cam

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Sri L

anka

Lao

PDR

Mon

golia

Bhut

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The decline of the role of UNFCCC funding and the rise of multilateral and bilateral initiatives outside the UNFCCC was a notable feature during the FSF period

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• Comparisons of funding sources

57.7%

4.6%

29.9%

7.9%

GEF4

LDCF&SCCF

Bilateral

Multilateral

2.0%0.6%

0.3%

6.5%

89.8%

0.9%

Bilateral

CIFs

Multilateral AFLDCF&SCCFGEF5






Climate finance profile of Philippines

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2006-2012

Overview Themes Instruments

USD Million Project # Mitigation REDD+ Adaptation Multi-foci Unknown Grants Con loans Others

Thailand 396.6 59 363.4 10.4 22.6 0.2 0 226.6 170 0

The Pre-FSF Period (2006-2010) The FSF Period (2010-2012)

UNFCCC Outside UNFCCC Subtotal UNFCCC Outside UNFCCC Subtotal

GEF4 LDCF&SCCF

Bilateral Multilateral

GEF5 LDCF&SCCF

AF CIFs Bilateral Multilateral

Thailand 14.6 0.9 14.1 0 29.5 0 0 0 170.2 196.8 0 367

Sources: IGES et al. 2013; CFU, 2014

Sources: IGES et al. 2013; CFU, 2014

• Thailand has a strong focus on mitigation.• Thailand is the largest recipient country of CIFs’ funding in Asia.• Thailand saw a 12-fold increase in climate finance during the FSF

period.




Implications

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• Different nature of UNFCCC funding and bilateral funding– UNFCCC funding: GHG emissions level and reduction potential

– Bilateral funding: existing programs and relationships

• Disbursement rate was low in Asia

– Who have supported for preparation have not further committed to financing implementation

– The dichotomy of readiness support and implementation support calls for further coherence and coordination at the UNFCCC level

• Urgent need for a working definition of climate finance– Defining mobilized private finance in the context of long term finance




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The Green Climate Fund (GCF)




Multilateral and bilateral climate funds

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Bila

tera

l

UNFCCC

GCF $$$$$

GEF

GEF Trust FundGEF4(2006-2010) $$$GEF5(2011-2014) $$$$

LDCF $

SCCF $

AF $

UN REDD $UN-agencies

World Bank

CIFs

CTF(2009-2012) $$$$

SCF(2009-2012) $$$$

PPCR $$

FIP $$

SREP $

CarbonFinance Unit

FCPF $

PMR $

The EU

Kyoto Protocol

GCCA $

GEEREF $

CBFF $

Fund size<$500M $

$500M-$1B $$

$1B-$2B $$$

$2B-$10B $$$$

$10B- $100B $$$$$

AF: Adaptation Fund (69)CBFF: Congo Basin Forest Fund (21)CIFs: Climate Investment Funds CTF: Clean Technology Fund (413)FCPF: Forest Carbon Partnership Facility (7)FIP: Forest Investment Program (18)GCCA: Global Climate Change Alliance (48)GCF: Green Climate FundGEEREF: Global Energy Efficiency and Renewable Energy Fund (13)GEF: Global Environment Facility (238)LDCF: Least Developed Countries Fund (167)PMR: Partnership for Market ReadinessPPCR: Pilot Program on Climate Resilience (192)SCCF: Special Climate Change Fund (41) SCF: Strategic Climate FundSREP: Scaling Up Renewable Energy Program (28)UN REDD: United Nations Collective Program on Reducing Emissions from Deforestration and Forest Degradation (12)

General

Mitigation

Adaptation

REDD+

Fund type

European Investment Bank

African Development Bank

Mul

tilat

eral

Australia IFCIAusAID

ICIBMUGermany

Brazil BNDESMAI

FA

Guyana GRIFMultiple donors

Japan FSFJICA

Norway ICFINORAD

UK

IFCI

ICFDFID DECC

General

REDD+

Fund type

BFI Fund AusAID: Australian Agency for International DevelopmentBNDES: Brazilian Development BankBMU: Federal Ministry for Environment, Natural Conservation and Nuclear SafetyJICA: Japan International Cooperation AgencyNORAD: Norwegian Agency for Development CooperationDFID: Department for International DevelopmentDECC: Department of Energy and Climate Change USAID: US Agency for International Development

US GCCIUSAID

Funding approval in 2012 (USD million)

BFI

Fund IFCI: International Forest Carbon InitiativeMAI: Mata Atlantica InitiativeFA: Amazon Fund (Fundo Amazonia) (89)ICI: International Climate InitiativeGRIF: Guyana REDD+ Investment Fund (12)FSF: Fast-Start FinanceICFI: International Climate and Forest InitiativeICF: International Climate FundGCCI: Global Climate Change Initiative




The Green Climate Fund

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• The GCF is expected to deliver the lion’s share of the USD 100 billion annual goal.

• There is no commensurate increase of knowledge and experience with regard to delivering the scaled-up finance in a way that can reflect the needs and challenges of developing countries.

• What are the implications of the scalability of the GCF?– The GCF has to employ a devolved managerial structure for fund

disbursement in order to live up to its envisaged scale.

– The GCF needs enhanced access mode partly because it has to meet the mandate of operating in a cost-effective way whilst initiating operation soonest possible.




Proper fund management requires people and the location of staff members matters

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Fund Net disbursements in 2011 (USD million)

Administrative expenses (USD million)

Approximate numbers of personnel employed

AF 40 5.4 6

GEF* 739 47 94

CIFs 1082 24 8

Source: GCF, 2013a

*GCF (2013a) does not specify whether the numbers in the table counts the size of GEF climate focal area only or the size of GEF as a whole that includes other focal areas as well. However, the context of the paper implies that the numbers include GEF climate focal area only, because the paper has no mention of GEF other focal areas.

• The difference of staffing density is not necessarily an indication of inefficiency or a suggestion of comparison.




The GCF needs to operate in a devolved way and outsource certain management functions to accredited intermediaries

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Fund Functions

Management

Strategic management

Country coordination

Financial intermediation

Implementation

Execution

GEF

GEF Council

The Secretariat

MIEs/RIEs NIEs

EEs

Multilateral access[GEF4/5]

CIFs

The Trustee Committees

MDBs

EEs

Multilateral access

The Trustee

Legends: Financial flow

Proposal submission and contract

Proposal elaboration and oversight

Financial flow

Proposal elaboration, oversight and submission

Direct access[GEF direct access pilot]




The enhanced direct access modality

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• The experience of the Adaptation Fund shows that the administrative fee for national entities is significantly less than the fees quoted by multilateral entities.

• The administration of funding should be delegated as much to national financial entities in developing countries to ensure the GCF to operate in a cost-effective and streamlined way.

• To operate as soon as possible, the GCF could start with an enhanced access mode by devolving funding decisions, at least at the outset, to the existing climate funds under the UNFCCC (i.e., the GEF and the AF).




Asia has only two NIEs accredited by the Adaptation Fund

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• All multilateral climate finance to Asia was channelled through multilateral organizations and Asian countries have had zero experience of directly accessing multilateral climate finance.

• Asia has only two NIEs accredited—the National Bank for Agriculture and Rural Development in India and the Ministry of Planning and International Cooperation in Jordan. – Latin America and Africa have 7 and 6 NIEs accredited by the AF




Barriers faced by Asian countries in accrediting NIEs

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• Direct access is not an obligation or perquisite to obtain funding from multilateral climate funds, it offers desirable opportunities to improve financial integrity and management and consequently better attract resources from other donor agencies.

• First, the countries that have a strong need for adaptation in general have had very limited experience of handling international funding and are lack of proved record of financial integrity.

• Second, the long-standing relationship with multilateral implementing entities (MIEs) may result in a path dependency that precludes the role of NIEs.

• Finally, developing countries have difficulties in identifying the best suited institution as the NIE.




National climate funds are NFEs that might be allowed for enhanced direct access by the GCF and can offer many opportunities for Asian countries.

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Country Fund name Establishment year Objectives

Bangladesh Bangladesh Climate Change Resilience Fund

2010 A coordinated financing mechanism by the Government of Bangladesh, development partners and the World Bank to address the impacts of climate change

Bhutan Bhutan Trust Fund for Environmental Conservation

1991 Supporting environmental conservation in Bhutan by providing grants for government agencies, local non-governmental organizations, grassroots communities and qualified Bhutanese individuals for conservation projects.

Cambodia Cambodia Climate Change Alliance Trust Fund

2010 Securing external funding for priority interventions to develop technical and institutional capacity at national and sub-national levels to address current and future climate related challenges

China Clean Development Mechanism Fund

2007 Managing government revenue from CDM projects to provide immediate supports for line ministries to conduct policy studies, international negotiation, capacity building and public awareness

India The Umbrella Programme on National Resources Management

2008 A programme based approach wherein different channel partners (agencies) are being supported for implementing various types of sustainable projects.

Indonesia Indonesia Climate Change Trust Fund

2009 Developing innovative ways to link international finance sources with national investment strategies

Lao PDR Environmental Protection Fund

2005 Strengthening environmental protection, sustainable natural resources management, biodiversity conservation and community development.

Philippines People’s Survival Fund 2012 Providing long-term finance streams to enable the government to effectively address the problem of Climate Change

Thailand Energy Conservation Promotion Fund

1992 Managing government levies collected on petroleum products to finance the promotion of renewable energy and energy efficiency




Policy recommendations

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• The GCF has to employ a devolved managerial structure to live up to its envisaged scale. The GCF should allow accredited institutions to make funding decisions and outsource certain management functions to developing countries for the sake of cost effectiveness and country ownership. The GCF should allow for enhanced direct access to meet the mandates of scalability, urgent operation, and cost effectiveness stipulated in its Governing Instrument.

• The GCF should avoid making decisions at the project level and devolve certain funding decisions to the existing institutional arrangements under the UNFCCC for the purpose of urgent operation. For the interim period that the GCF acquires its in-house capacity and rationalizes its financial mechanism, it should avoid getting involved in project- and program-level decision making. Rather, it can accredit the GEF and the AF as the funding entities for mitigation and adaptation activities, respectively; and channel funding according to investment plans of the GEF and the AF.

• The GCF should include capacity building of NFEs as one of the priorities in its readiness program. The GCF should support building capacity of NFEs at the outset, in particular by providing sustained funding in its readiness program.




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Thank you for your attention

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Documents

Yuqing Ariel Yu Senior policy researcher, Climate and Energy Area