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Climate Funding Instruments and Strategies for SCP Projects. South-South Cooperation Conference. 10-Year Framework of Programmes on SCP, April 6-7, Brasilia, Brazil Dr. Timothy A. Koomson, African Development Bank (AfDB), Climate Finance Division. Outline CONTEXT What are the Financial Resources in the AfDB? What is Climate Finance? How is Climate Finance Positioned at the AfDB ? RELEVANCE OF SOME CLIMATE FUNDS FOR SCP PROJECTS Climate Investment Funds (CIFs) Global Environment Facility (GEF) Africa Climate Change Fund (ACCF) Adaptation Fund (AF) Green Climate Fund (GCF). FINANCING STRATEGIES FOR SCP PROJECTS Why Concessionality, Eligibility and Accessibility Criteria are Key? What are the Major Steps Defining financing strategies for SCP projects? What are the Major Expenditure Categories for the SCP projects? How do you design the SCP financing structure? What are the Financial Resources in the AfDB? AfDB-managed Donor Resources (TFs, programs, etc.) AfDB Statutory Resources Grants Nonconcessional Concessional Debt Equity Guarantees Other Initiatives: GCF, Africa50 Fund, FAPA, ACSP, NEPAD-IPPF, RWSSI, ICA, AFP, ClimDev Africa, several bi-lateral funds, Co-financing, etc. GEF CIFs AF SEFA Sovereign lending AWF CBFF Non-sovereign Operations Additional External Resources What is Climate Finance? • There is no internationally agreed definition of climate finance yet. • Article 4.3 of the UNFCC Convention defines climate finance as ‘new and additional financial resources’ for the ‘full incremental costs’ of addressing climate change. • Climate Finance includes 1. Carbon Finance, 2. Climate Funds, 3. Private Sector Climate targeted investments and 4. Public sector Climate Expenditure funding. • Climate funds has been used in a narrow sense to refer to transfers of public resources from developed to developing countries. • Climate funds can flow from developed to developing countries (North-South), from developing to developing countries (SouthSouth), from developed to developed countries (North-North) and domestic climate finance flows in developed and developing countries. How is Climate Finance Positioned at the AfDB ? The Climate Finance Team coordinates and leads the implementation of different Facilities that provide multiple instruments (grants, concessional debt, equity, etc.) which ultimately enhance project bankability, build resilience to climate change and support transition to green growth in Africa AfDB’s Bank’s Own Trust Fund Sustainable Energy Fund for Africa Africa Climate Change Fund role [Structuring is ongoing] Africa Renewable Energy Initiative External Funds (AfDB Implementing Entity) Green Climate Fund [Terms of Cooperation (AMA) not yet finalized] Climate Investment Funds The Global Environment Facility The Adaptation Fund How Relevant are Climate Investment Funds (CIFs) to SCPs ? The CIFs are a USD 8.3 billion pair of funds to help developing countries pilot low-emissions and climate-resilient development. Trustee Financial Procedures Agreement Other MDBs Strategic Climate Fund (SCF) Clean Technology Fund (CTF) Scaling-up Renewable Energy Program (SREP) Pilot Program for Climate Resilience (PPCR) Forest Investment Program (FIP) How Relevant is the GEF to SCP ? Accessing Funds The GEF Adaptation Funds LDCF GEF TF SCCF 1. Reduce vulnerability to the adverse impacts of climate change – e.g. reduced risks to economic losses through implementation of adaptation measures 2. Increase adaptive capacity to respond to the impacts of climate change – e.g. within relevant development sectors and natural resources; diversified and strengthened livelihoods and sources of income 3. Promote transfer and adoption of adaptation technologies – as defined under the Climate Convention Focal Areas 1. Biodiversity 2. Sustainable Forest Management (SFM) 3. International waters 4. Land degradation 5. Waste & Chemicals 6. Climate change mitigation How Relevant is the Climate Change Fund (ACCF) to SCP ? ACCF provides small grants to support RMCs in their transition to climate resilient and low carbon development, in line with their Nationally Determined Contributions (NDCs) and to enable the Bank to scale up its climate change activities. Integrating climate change into development strategies and policies and developing and co-financing projects and programs to advance climate resilient and low carbon development Supporting African countries to effectively engage in the UNFCCC process Contributing to the implementation of the Bank’s climate change and green growth priorities, including the Bank’s Climate Change Action Plan Eligible activities include: o Consultants o Trainings, workshops, meetings o Communication, outreach, advocacy, translation o Studies, strategies, analytical work o Office equipment and transport o Administrative costs How Relevant is the Adaptation Fund (AF) to SCP ? • Set up under the Kyoto Protocol of the UNFCCC and launched in 2007 • AfDB accredited by AF in September 2011 • Financed from a 2% share of the Credit Emission Reduction(CER) proceeds on the Clean Development Mechanism (CDM) project activities and other sources of funding • Secretariat: GEF on an interim basis; Trustee: World Bank on an interim basis • Direct access to AF resources for eligible countries • NIE and MIE shall meet the fiduciary standards established by the AF Board • AF funding provided on full adaptation costs basis of projects and programmes which aim to adapt and increase climate resilience How Relevant is the GCF to SCP ? • Support development and submission of funding proposals for projects and programmes (including for Project Preparation). • Support Readiness Activities in RMCs – through ACCF. • Implement and manage funded Activities (projects and programmes with funded incremental climate costs) • Deploy, on-lend, blend a wide range of financial instruments (grants, concessional loans, equity and guarantees). • Catalyze private sector investments. • Scale up access to climate finance Why is Concessionality Important ? Climate Finance is about blending financial instruments at terms below market rates and beyond. 6% TENOR LOAN SENIORITY INTEREST RATE Senior 20y 7y Climate Finance AfDB AfDB GRACE PERIOD 15y Climate Finance 5y Junior 3% Climate Finance AfDB AfDB Climate Finance 0% 0y 0y The Principle of Minimum Concessionality needs to be applied to avoid market distortions and crowding-out other financiers. Why Eligibility and Accessibility Criteria are Important ? • Country Eligibility: LDCF, CIFs- pilot countries • Project Focus Eligibility: AF, CIFs, SCCF, . • Compliance with GCF Investment Criteria Impacts Potential – low carbon and climate-resilient development Paradigm shifts – innovative/transformative, trickle down, scalable, replicable programme/project investment, Sustainable Development- environmental, social (including gendersensitive) and economic development impacts Country Ownership and capacity – Consistency with country development policies, climate strategies and institutional capacity, No Objection Letter Efficiency and Effectiveness- technical feasibility, financial viability, operational efficiency including disbursement and procurement, cofinancing and private sector participation. Needs of the RMCs – impacts on vulnerable groups, barriers to financing What are the Major Steps Defining financing strategies for SCP projects? What are the Major Expenditure Categories for the SCP projects? Operational Expenditure Construction Expenditure Maintenance Expenditure Costs Components: real assets, engineering, physical infrastructure, equipment and facilities, labor, management Investment Expenditure Costs Components: application fees, interests, insurance, equity shares. Expenditure Financing Prefeasibility Feasibility Design Construction Operation/ Maintanance How do you design the SCP financing structure? Risk Return Low risks and uncertainty Medium risks and uncertainty High returns Medium returns High risks and uncertainty Low returns Surety bonds and other Swaps- interest rate, real options, guarantees Currency, index etc Equity and Quasi Equity, Market debt, Soft debt Equity debt And Quasi Equity/mezz anine finance Soft Equity and market-based debt, guarantees Climate risks insurance Grants, subsidies Incentives, Grants Soft interest Loans subsidies, other incentives Project Preparation and Enabling Environment Grants Concessional Debt Quasi-Equity and Junior Equity Project Development Phase Project Finance Phase Thank you for your attention Contacts: ACCF : Louise BROWN AF/GEF : Mahamat ASSOUYOUTI CIF : Leandro AZEVEDO GCF : Timothy AFFUL-KOOMSON – Ext.4258 – Ext.2753 – Ext.1125 – Ext.4622 Ouarzazate CSP Project, Morocco