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Sources of Financing to Address
Climate Change
TACC Training Module 7
1
Overview
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Section 1: Introduction to Financing a Green
Economy and Climate Change Action
Section 2: Mobilizing Finances to Address Climate
Change at the Sub-national Level
Section 3: International Sources and Support to Access
Climate Change Financing
Territorial Approach to Climate Change - Phase 1
Financing a Transition towards a
Green Economy
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A Green Economy can generate as much growth
and employment as a brown economy (more in the
medium and long term)
Need to combine smart public policy and innovative
financing mechanisms
Need to address the misallocation of capital in
public finance and spending by subsidy reforms
Territorial Approach to Climate Change - Phase 1
Challenges and Opportunities of
Climate Change Financing
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Addressing the global climate change challenge
requires major reorientation of investment flows
Required additional investment and financial flows by
2030 (UNFCCC)
 0.3-0.5
% of global domestic product
 1.1-1.7 % of global investments
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New and innovative financing opportunities are
emerging
Opportunities for countries to pursue low carbon and
climate resilient development paths
Territorial Approach to Climate Change - Phase 1
Estimates of Costs and Investment
Requirements: Adaptation
Study
Estimate
World Bank(CEIF), 2006
US$4-37 billion/annum
UNFCCC, 2007
US$28-67 billion in 2030
UNDP (HDR 2007-2008)
US$86 billion/annum by 2016
UNEP (AdapCost Study)
US$ 1-2 billion/annum for Africa
Territorial Approach to Climate Change - Phase 1
Estimates of Costs and Investment
Requirements: Mitigation
Study
Estimate
Stern Review, 2006
US$1,000 billion/annum
UNFCCC, 2007
US$ 200-210 billion/annum
IPCC, 2007
5.5% to 1%(gain) reduction in global
GDP
IEA Energy Technology Perspectives
2008
US$400-1,100 billion/annum for the
energy sector
Territorial Approach to Climate Change - Phase 1
No-regret Options in Climate Change
Adaptation and Mitigation

No-regret options are Negative-cost or No-cost
measures …
 ...that
reduce climate change risks…
 …and create conditions that enable net economic
benefits
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Examples of no-regret options include
 Disaster
risk management
 Improving emergency response system
 Improving efficiency standards
 Improving water and energy pricing to encourage more
efficient consumption
Territorial Approach to Climate Change - Phase 1
Overview of Sources to Finance
Climate Change Action
1.
2.
3.
4.
National and Sub-national
Budgets
Multilateral Funds and Official
Development Aid (ODA)
Market-Based
Mechanisms/Carbon Financing
Private Funds
Source: Fotolia
Territorial Approach to Climate Change - Phase 1
National and Sub-national Budgets
Funding of basic infrastructure development
(e.g. transport)
 Tax incentives to promote certain investments
 Support for research and development
(e.g. for new technology)
 Loan guarantees for private investment
 Etc.
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Territorial Approach to Climate Change - Phase 1
Multilateral Funding and Official
Development Aid
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Official Development Assistance encompasses all
government-contributed aid
Traditionally linked to specific projects
Recent trend to provide increasingly sector budget support
Important source for least developed countries (1-7% of
GDP)
Relevant sources to address climate change include
1.
2.
3.
4.
GEF Administered (UNFCCC and Kyoto Protocol)
Multi-lateral Development Banks (MDBs)
UN Funds and Programmes
Bilateral Development Aid
Territorial Approach to Climate Change - Phase 1
Relative Contribution of ODA in
Different Groups of Countries
Territorial Approach to Climate Change - Phase 1
Market Mechanisms and Carbon Markets
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Carbon Financing Schemes under the UNFCCC/Kyoto Protocol
 Clean Development Mechanism
 Joint Implementation & Emissions Trading
Gold Standard
 Community-focused Micro-scale Scheme Launched, May 2010
 streamlined procedures and lowered transaction costs for poor
community-focused micro-scale project activities; LDCs, LLDCs
and SIDS
Carbon Financing Schemes under the Voluntary Market
Territorial Approach to Climate Change - Phase 1
Reaping the Potential of the Clean
Development Mechanism (CDM)
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CDM allows emission-reduction projects in developing
countries to earn certified emission reductions (CERs)
More than 4880 registered CDM projects in 81
developing countries
CDM projects must lead to sustainable development in the
host developing country
Projects must be voluntary and approved by the National
CDM Authority
http://cdm.unfccc.int/
Territorial Approach to Climate Change - Phase 1
CDM Project Cycle
Territorial Approach to Climate Change - Phase 1
Private Funds
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Bank loans
Private equity funds
Venture capital
Insurance schemes
Etc.
Source: Flickr
Territorial Approach to Climate Change - Phase 1
Green Climate Fund (GCF)
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COP 18, endorsed decision of the GCF Board for
Songdo, Incheon, Korea to host GCF
GCF was established at COP 16 (2010) and its
governing instrument approved at COP 17 (2011)
A fully operational GCF to disburse up to US$100
billion per year by 2020 to support mitigation and
adaption efforts of developing countries
Territorial Approach to Climate Change - Phase 1
Possible Elements of a Future Financial
Framework under the UNFCCC
Territorial Approach to Climate Change - Phase 1
Questions and Challenges
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How can sub-national authorities generate revenue
to support climate change action?
How can sub-national authorities access multilateral and ODA finances?
What strategies and capacities need to be put in
place to access external financing?
Territorial Approach to Climate Change - Phase 1
Overview
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Section 1: Introduction to Financing a Green Economy
and Climate Change Action
Section 2: Mobilizing Finances to Address Climate
Change at the Sub-national Level
Section 3: International Sources and Support to Access
Climate Change Financing
Territorial Approach to Climate Change - Phase 1
Examples of Adaptation Measures
Requiring Financing
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Addressing observed climate
change impacts (e.g. reconstructing
an area devastated by a storm)
Climate proofing of socio-economic
activities (e.g. elevating a road in an
area at risk of flooding)
Source: dfid.gov.uk)
Building adaptive capacity to deal with future risks (e.g.
research on resilient crops)
Etc.
Territorial Approach to Climate Change - Phase 1
Strategic Areas of Adaptation Funding
Territorial Approach to Climate Change - Phase 1
Financial Sources to Support Adaptation
Territorial Approach to Climate Change - Phase 1
Examples of Mitigation Measures
Requiring Financing
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Promotion of clean energy sources
(e.g. solar panels in villages)
Phasing out energy intensive
industrial production
Reforestation and avoidance of
forest degradation
Source: UNFCCC
Etc.
Territorial Approach to Climate Change - Phase 1
Financing Sources to Support Mitigation
Territorial Approach to Climate Change - Phase 1
The Role of Public-Private Funding in
Promoting New Technology
Territorial Approach to Climate Change - Phase 1
Financial Instruments: From Research to
Commercial Maturity
Territorial Approach to Climate Change - Phase 1
Overview
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Section 1: Introduction to Financing a Green Economy
and Climate Change Action
Section 2: Mobilizing Finances to Address Climate
Change at the Sub-national Level
Section 3: International Sources and Support to
Access Climate Change Financing
Territorial Approach to Climate Change - Phase 1
Sources of Multilateral and ODA
Funding
1.
2.
3.
4.
GEF Administered Funds
under the UNFCCC and
Kyoto Protocol
Multi-lateral Development
Banks
UN Funds and Programmes
Bilateral Funds
Source: Flickr
Territorial Approach to Climate Change - Phase 1
Global Environment Facility
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Established in October 1991 to assist in the protection of the global
environment and to promote environmental sustainable development
Provides grants for projects related to six focal areas: biodiversity,
climate change, international waters, land degradation, the ozone
layer, and persistent organic pollutants
Each GEF country member has designated an officer responsible
for GEF activities, known as GEF Operational Focal Point , who
plays a key role in assuring that GEF projects are aligned to meet
the needs and priorities of the respective country
http://thegef.org/gef/gef_projects_funding
Territorial Approach to Climate Change - Phase 1
Proposals for GEF Grants
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To be taken into consideration, a project proposal has to fulfil
the following criteria:
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It is consistent with national priorities and programmes
It addresses one or more of the GEF Focal Areas, improving the
global environment or advance the prospect of reducing risks to it
It involves the public in project design and implementation
It is endorsed by the government of the country in which it will be
implemented
Before drafting a project proposal, the applicant should contact the
Country Operational Focal Point and verify that the proposal complies
with the criteria mentioned above
Territorial Approach to Climate Change - Phase 1
GEF Administered UNFCCC/Kyoto
Protocol Funds
Fund
GEF Trust Fund: Climate Change Focal Area
Mitigation
Adaptation
X
(general)
X
UNFCCC Least Developed Countries Fund (LDCF)
UNFCCC Special Climate Change Fund (SCCF)
X
X
(technology)
X
UNFCCC Strategic Priority on Adaptation (SPA)
X
Kyoto Adaption Fund (AF)
X
Territorial Approach to Climate Change - Phase 1
Multilateral Development Banks
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Finance institution created by a group of countries
MDBs provide financing and professional advice to
support development
Memberships include developed donor countries and
developing borrower countries
Project financing in the form of long-term loans at
and below-market rates and through grants
Territorial Approach to Climate Change - Phase 1
Multilateral Development Banks (cont.)
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MDBs include
 World
Bank
 Regional Development Banks
 African Development Bank
 Asian Development Bank
 European Bank for Reconstruction
and Development
 Inter-American Development
Bank Group
Territorial Approach to Climate Change - Phase 1
MDB Funds to Support Action on
Climate Change
Fund
Mitigation Adaptation
World Bank
Clean Technology Fund
World Bank
Forest Carbon Partnership Facility
X
(REDD)
World Bank
Strategic Climate Fund:
Forest Investment Programme
X
(REDD)
World Bank
Strategic Climate Fund:
Pilot Programme for Climate Resilience
World Bank
Strategic Climate Fund: Scaling Up Renewable
Energy Program in Low Income Countries
African
Congo Basin Forest Fund
Development
Bank
X
(general)
X
X
X
(REDD)
Territorial Approach to Climate Change - Phase 1
The Pilot Programme for Climate
Resilience (World Bank)
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First targeted program under the Strategic Climate Fund (SCF), a
multi-donor Trust Fund within the World Bank’s Climate Investment
Funds
The objective of the PPCR is to pilot and demonstrate ways to
integrate climate risk and resilience into core development planning
Pilot programs implemented under the PPCR:
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are country led
build on National Adaptation Programs of Action and other relevant
country strategies
are strategically aligned with the Adaptation Fund and other donor
funded activities
take into account poverty reduction and sustainable development goals
Pilot countries include Bangladesh, Bolivia, Niger, Saint Lucia,
Tajikistan, Tonga, and Zambia
Territorial Approach to Climate Change - Phase 1
UN Funds and Programmes
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Most UN agencies are engaged in providing support to
address climate change
UN Chief Executive Board for Coordination (CEB)
provides coordinating framework
Some agencies have established dedicated funds and
support initiatives, e.g.
UNDP/Japan Adaptation Programme in Africa
 UNEP Green Economy Advisory Services
 UN REDD
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At the national level, United Nations Country Teams
(UNCT’s) provide coordination
Territorial Approach to Climate Change - Phase 1
UN Funds and Programmes (cont.)
Organization
Fund
Mitigation
Adaptation
UNDP (on behalf of
the UN)
MDG Achievement
Fund – Environment
and Climate Change
Thematic Window
X
(general)
X
UNDP (on behalf of
REDD partners)
UN-REDD
Programme
X
(REDD)
Territorial Approach to Climate Change - Phase 1
The Case of the UNDP MDG Carbon
Facility
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Launched in 2007 with the goal to offer an
innovative means of harnessing resources of the
carbon market for developing countries
Offers technical assistance and a comprehensive
package of project development services to
develop emission reduction projects
Operates within the framework of the Clean
Development Mechanism and Joint Implementation
of the Kyoto Protocol
Territorial Approach to Climate Change - Phase 1
Main Objective of the UNDP MDG
Carbon Facility
Territorial Approach to Climate Change - Phase 1
Bi-lateral Development Aid
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Aid provided from one country directly to another
country
Supports the economic, social and political
development in partner countries
Different from short-term humanitarian aid by
focusing on alleviating poverty in the long term
Usually bi-lateral agreements are negotiated
between the two partners
Paris Declaration provides overarching guiding
principle for effective development aid
Territorial Approach to Climate Change - Phase 1
Bilateral Climate Change Funds
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Dedicated funds established by
a country/group of countries to
support Non-Annex 1 countries
in implementing the global
climate change regime
Usually managed directly by the
country which provided the
financing
Territorial Approach to Climate Change - Phase 1
Overview of Bi-lateral Climate Change
Funds
Country
Fund
Mitigation
Australia
International Forest Carbon
Initiative
Brazilian
Development Bank
Amazon Fund
European
Commission
Global Energy Efficiency and
Renewable Energy Fund
European
Commission
Global Climate Change
Alliance
Germany
Adaptation
X
(REDD)
X
(REDD, general)
X
X
(general)
X
(REDD, general)
X
International Climate Initiative
X
(general)
X
Japan
Cool Earth Partnership
X
(general)
X
United Kingdom
Environmental Transformation
Fund – International Window
X
(general)
X
Territorial Approach to Climate Change - Phase 1
The Global Climate Change Alliance GCCA (EU)
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Aims at supporting the poorest and most vulnerable
countries with respect to their capacity to adapt to
the effects of climate change
Platform for dialogue and regular exchange between
the EU and these countries
Regional level dialogues (e.g. with African,
Caribbean and Pacific States, the African Union and
SIDS
Territorial Approach to Climate Change - Phase 1
The Global Climate Change Alliance GCCA (EU) (cont.)
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Five priority areas:
Implementation of measures to adapt to climate change
 Reducing emissions from deforestation in developing
countries
 Enhancement of participation in the Clean Development
Mechanism (CDM)
 Promotion of disaster risk reduction (DRR)
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Integration of climate change into poverty reduction
strategies and programmes
More resources of about €200 million under the intraACP programme in the area of climate change, the
environment and disaster risk prevention, will be made
available
Territorial Approach to Climate Change - Phase 1
The Cool Earth Partnership (Japan)
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Initiative of the Government of Japan which commenced in 2008
Provides assistance to developing countries to achieve climate
compatible growth
Up to US$ 10 billion for mitigation in the form of loans with
preferential interest rates
Supporting institutions include
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Japan Bank for International Cooperation (JBIC Asia and Environment
Facility)
Nippon Export Investment and Insurance
New Energy and Industrial Technology Development Organization
Up to US$ 2 billion for adaptation in the form of grant aid,
technical assistance and aid
Adaptation component implemented through international
organizations
Territorial Approach to Climate Change - Phase 1