Climate Finance: the international context Neil Bird Overseas Development Institute Topics of this presentation 1. What is climate finance? 2. Climate finance availability – Some current initiatives – East Africa’s engagement Defining ‘climate finance’ Preamble: There is no internationally agreed definition of ‘climate finance’ Climate finance (‘climate-specific finance’): – capital flows that target low-carbon or climate resilient development – where GHG mitigation or adaptation are explicitly stated objectives or outcomes – both international public or private financing flows, in practice also domestic and South-South flows – Focus is on international public finance (both N-S and S-S emerging donors important) Climate-relevant finance: – a much broader set of capital flows (public or private) from developed to developing countries that will influence (positively or negatively) emissions and/or vulnerability to climate change in developing countries – flows that support development and economic growth in key emitting sectors or to sectors affecting vulnerability to climate change Defining ‘climate finance’ Increasing difficulty in attributing climate change impact Increasing prominence of development objectives as the primary purpose for the expenditure Mitigation - energy Mitigation - forests Adaptation – narrowly defined Adaptation – broadly defined Climate finance: an uncertain trajectory ? 100 90 80 USD billion/ year 70 60 50 40 30 20 10 0 2010 2012 2014 2016 2018 2020 2022 2024 Climate finance: complexity of sources, agents and channels Sources – origin (country) Public finance Publicprivate Private finance Intermediaries Instruments NorthSouth bilateral climate and investment policies SouthSouth multilateral offset finance domestic … … grants concession al loans capital … Recipients adaptation / mitigation (or relevant sectors) specific uses (e.g. sector endpoint, project type) Climate finance: complexity of sources, agents and channels Climate change funds and developing countries: current initiatives • Over past 5 years there has been a proliferation of funding initiatives, both bilateral and multilateral • Funding initiatives appear for the most part uncoordinated; alignment is questionable • Vast majority of support comes from voluntary contributions, with support from government ODA budgets • Scale of international voluntary public contributions will not be enough for developing countries to adapt or mitigate • Less than half of the pledged funds have been committed, and a much, much smaller percentage actually disbursed. 22 international climate change financing initiatives International climate financing initiatives • Funds administered by the Global Environment facility (the GEF) • The Climate Investment Funds • Other climate financing initiatives • Forest sector initiatives GEF Funds - 1 The GEF Trust Fund The GEF Trust Fund is the common funding resource of the Global Environment Facility (GEF). Climate Change is one of the six focal areas supported by the GEF Trust Fund. The objective of this part of the fund is to help developing countries to contribute to the overall objective of the United Nations Framework Convention on Climate Change (UNFCCC). Regional presence USD 12.4 million grant finance to Tanzania in support of 5 projects implemented through several multilateral agencies USD 44.2 million grant finance to East Africa in support of 9 projects implemented through UNEP Project Name GEF Agency Project Type GEF Grant (USD) Cofinancing Total Project Status Enabling Activities for the Preparation of Initial UNEP Communication Related to the UNFCCC Enabling Activity 254,000 Transformation of the Rural UNDP Photovoltaic (PV) Market Full Size Project 2,250,000 Expedited Financing for (Interim) Measures for UNEP Capacity Building in Priority Areas (Phase II) Enabling Activity 100,000 Tanzania Energy Development and Access Project (TEDAP) IBRD Full Size Project Under 6,500,000 32,300,000 Implementa tion Mini-Grids Based on Small Hydropower Sources to Augment Rural Electrification UNIDO Full Size Project 3,350,000 50,000 Project Closure 4,734,071 IA Approved 0 7,200,000 IA Approved Council Approved 12,454,000 44,284,071 5 Projects GEF Funds - 2 The Special Climate Change Fund (SCCF) The SCCF was created in 2001 to address the needs of all developing countries under the UNFCCC. The overall objective of the fund is to implement long-term adaptation measures that increase the resilience of national development sectors to the impacts of climate change. Regional presence USD 1.0 million received by the government of Tanzania in 2007-2010 for implementation of the project ‘Mainstreaming climate change in integrated water resources management in the Pangani river basin’ USD 6.5 million received by the government of Kenya in 2009 for implementation of the project ‘Adaptation to climate change in arid lands’ GEF Funds - 3 Least Developed Countries Trust Fund (LDCF) The LDCF, created in 2002, aims to address the special needs of the Least Developed Countries (LDCs), which are especially vulnerable to the adverse impacts of climate change. This includes preparing and implementing National Adaptation Programmes of Action (NAPAs). Regional presence USD 200,000 grant for Tanzania’s NAPA preparation was made in 2003. USD 3.2 million project grant for the implementation of the project ‘Developing Core Capacity to Address Adaptation to Climate Change in Productive Coastal Zones approved in 2009 (implementation status unclear, not thought to be disbursed). CIF Funds - 1 The Clean Technology Fund (CTF) The Clean Technology Fund (CTF), which was operationalised in 2008, is one of the two (along with the Strategic Climate Fund) multi-donor Trust Funds within the Climate Investment Funds (CIFs). The CTF aims to support the rapid deployment of low-carbon technologies on a significant scale, with the objective of cost-effective reductions in the growth of greenhouse gas emissions. Regional presence None. CIF Funds - 2 The Pilot Program for Climate Resilience (PPCR) The Pilot Program for Climate Resilience (PPCR) is part of the Strategic Climate Fund, a multi-donor Trust Fund within the Climate Investment Funds (CIFs) established in 2008. The overall objective of the program is to provide incentives for scaled-up action and transformational change in integrating consideration of climate resilience in national development planning consistent with poverty reduction and sustainable development goals. Regional presence None. CIF Funds - 3 The Forest Investment Program (FIP) The Forest Investment Program (FIP) is a program established in 2009 within the Strategic Climate Fund, a multi-donor Trust Fund within the Climate Investment Funds. The FIP's overall objective is to mobilize significantly increased funds to reduce deforestation and forest degradation and to promote sustainable forest management, leading to emission reductions and the protection of carbon terrestrial sinks. Regional presence None. CIF Funds - 4 The Scaling-Up Renewable Energy Program for Low Income Countries (SREP) The Scaling-Up Renewable Energy Program for Low Income Countries (SREP) is a third program established in 2009 under the Strategic Climate Fund. Its overall objective, which is under development, is to support investments in a small number of low income countries for energy efficiency, renewable energy and access to modern sustainable energy. Regional presence The first investment plan has been endorsed for Kenya in September 2011. No funds have yet been disbursed. Other climate financing initiatives - 1 The Adaptation Fund (AF) The Adaptation Fund is a financial instrument under the UNFCCC and its Kyoto Protocol (KP) and was established to finance concrete adaptation projects and programs in developing countries that are Parties to the KP in an effort to reduce the adverse effects of climate change facing communities, countries and sectors. It became functional in 2009 (although was first proposed in 2001). Regional presence One UNEP project proposal for Tanzania has been submitted to the AF Board in August 2011 on the implementation of adaptation measures to ‘reduce vulnerability of livelihood and economy of coastal communities of Tanzania’. Other climate financing initiatives - 2 Global Climate Change Alliance (GCCA) The Global Climate Change Alliance (GCCA) was proposed in 2007 as an initiative of the European Union. Its overall objective is to build a new alliance on climate change between the European Union and developing countries that are most affected and that have the least capacity to deal with climate change. Regional presence USD 120,000 has been disbursed (out of an approved project budget of USD 3 million) to a project aimed at increasing the capacity of the most vulnerable communities in Tanzania to engage in sustainable use of their natural resources. Other climate financing initiatives - 3 The International Climate Initiative (ICI) of Germany The International Climate Initiative (ICI) is an innovative, international mechanism for financing climate protection projects. It receives funding from the sale of tradable emission certificates. The overall objective of the fund is to provide financial support to international projects supporting climate change mitigation, adaptation and biodiversity projects with climate relevance. Regional presence USD 3 million of grant aid for the project ‘Conserving mountain forests’ was provided to the Government of Tanzania in 2008. Other climate financing initiatives - 4 The Global Energy Efficiency and Renewable Energy Fund (GEEREF) GEEREF was proposed in 2006 by the European Commission and became operation in 2008. It is a Public-Private Partnership (PPP) designed to maximise the leverage of public funds. Structured as a Fund-of-Funds, GEEREF invests in private equity funds (sub-funds) that specialise in providing equity finance to small and medium-sized project developers and enterprises (SMEs). Regional presence USD 13.4 million has been invested in DI Frontier Market Energy and Carbon Fund in December 2010. DI is a private equity fund focusing on investments in infrastructure projects in Eastern Africa. It invests in renewable energy and energy efficiency infrastructure projects. Forest Sector initiatives - 1 UN-REDD Three UN Agencies – UNEP, UNDP and the FAO – collaborated to establish the UN-REDD programme in 2008. This is a multi-donor trust fund that allows donors to pool resources and provide funding with the aim of significantly reducing global emissions from deforestation and forest degradation in developing countries. Through its initial country programme activities, the UN-REDD Programme supports the capacity of national governments to prepare and implement national REDD strategies with the involvement of all stakeholders. Regional presence USD 4.3 million was disbursed to Tanzania in 2010 to support a National REDD Programme. Forest Sector initiatives - 2 The Forest Carbon Partnership Facility (FCPF) The Forest Carbon Partnership Facility (FCPF) is a World Bank programme created in 2008 to assist developing countries in their efforts to reduce emissions from deforestation and land degradation (REDD). It has the dual objectives of building capacity for REDD in developing countries, and testing a program of performance-based incentive payments in some pilot countries. Regional presence Tanzania submitted its Readiness Preparation Proposal (R-PP) for Formal Assessment in November 2010. No request for grant funding has been made by Tanzania. Estimate of international support to Tanzania’s efforts to address climate change Fund Approximate amount received to-date (USD million) GEF-4 12.4 SCCF 1.0 LDCF 0.2 CIFs (CTF, PPCR, FIP & SREP) 0.0 Adaptation Fund 0.0 GCCA 0.1 ICI 3.0 GEEREF 0.0 UN-REDD 4.3 FCPF 0.0 Total 21.0 (3.2?) Some issues for East Africa • Prioritise funding needs at national level • Focus on increased access to funds • Need to enhance response capacity to international funds • Equitable distribution of funds • What is the most appropriate national mechanism to manage international climate finance?