ilm 5 climate change finance 20140520
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Module 5
Introduction to Climate Change Finance
One UN Training Service Platform
on Climate Change: UN CC:Learn
One UN Training Service Platform
on Climate Change: UN CC:Learn
Learning Objectives
1. Describe the overall landscape of climate change finance sources
2. Identify main elements of national planning for climate finance
4. Analyze challenges and opportunities for developing
countries in terms of accessing and managing climate finance
3. Define key elements of the international climate change finance
architecture
By the end of the module
participants will be able to:
Module 5: Introduction to Climate Change Finance
2
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on Climate Change: UN CC:Learn
Overview
Module 5: Introduction to Climate Change Finance
OVERVIEW
Section 1
Introduction to Climate Change Finance
Section 2
National Climate Change Finance
Section 3
International Climate Change Finance
3
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on Climate Change: UN CC:Learn
Introduction to Climate
Change FinanceSection 1
Module 5: Introduction to Climate Change Finance
4
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What is Climate Finance?
Section 1: Introduction to Climate Change Finance
5
Source: CDKN. Further info: WRI
website
No internationally agreed
definition
Often understood as “new
and additional” public
financial assistance for
developing countries
Other financing sources,
such as foreign direct
investments and regular
budgetary expenditures,
are also included.
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Main Streams of Climate Finance
International public
International private
National public
National private
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Section 1: Introduction to Climate Change Finance
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The Need for International Climate Finance in Developing Countries
Developing countries are
the most vulnerable to
climate change
Areas of need: mitigation, adaptation, technology
transfer, capacity building
Developing countries have
limited resources to ensure an effective response
Climate finance is one of the key issues in the climate
change negotiations
Section 1: Introduction to Climate Change Finance
7
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360 billion USD
Estimates of Current Annual Climate Investments
Source: World Resources Institute
and Climate Policy Initiative 2013
8
Section 1: Introduction to Climate Change Finance
10-20
billion USD
(4%)
Climate finance provided by
developed country governments in
2011
Global public and private climate investments in 2011
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360 billion USD
Share of Public Finance in Overall Climate Investments
Source: Climate Policy Initiative 2013
9
Section 1: Introduction to Climate Change Finance
135 billion USD
(38%)Share of public climate finance
(including domestic investments)
Global public and private climate investments in 2011
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1 trillion USD
Estimates of Annual Investments Needed in Clean Energy Only
Source: IEA 2012
10
Section 1: Introduction to Climate Change Finance
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Growth of Private Investment in Clean Energy
Source: Pew Charitable Trusts (2011) in UNDP (2011), p19
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Section 1: Introduction to Climate Change Finance
Billion
USD
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Global Landscape of Climate Finance
12
Section 1: Introduction to Climate Change Finance
Video: The Climate Policy Initiatives provides some key
numbers about global private and public climate finance flows
URL: http://vimeo.com/78310362
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National Climate Change
FinanceSection 2
Module 5: Introduction to Climate Change Finance
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Capacities to plan for finance
Capacities to access different types of finance
Capacities to deliver
finance and implement activities
Capacities to monitor,
report and verify
financial expenditures
and associated
results
Climate Finance “Readiness”14
Section 2: National Climate Change Finance
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Many countries are already
spending considerable
amounts on climate change
through national budgets,
even though the
expenditures are not
labeled as such
Countries are looking for
more comprehensive
approaches to managing
climate finance taking into
account all sources
(domestic, external, public
and private)
National Climate Financial Frameworks
15
Section 2: National Climate Change Finance
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Government Income/Revenues
Government can raise revenues through various instruments
Inspired by the “polluter pays” principles
Objective: Incentivize climate responsible behaviours
A more in depth
discussion on carbon
taxes can be found on the
IPCC website
16
Section 2: National Climate Change Finance
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Government Spending: Schematic Budget Process
Definition of Government
Priorities
Allocation of Budget to Ministries
Budget ExecutionEvaluation and
Reporting
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Section 2: National Climate Change Finance
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Climate Public Expenditure and Institutional Review (CPEIR)
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Reviews climate change policy priorities and
strategies
Improves understanding
of role and responsibilities of institutions
involved
Quantifies climate change
related expenditures in
the national budget
Section 2: National Climate Change Finance
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Better Use of Climate Change Finance
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Section 2: National Climate Change Finance
Video by the UNDP Asia-Pacific Regional Centre
Better Use of Climate Finance
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Case Study: Thai Climate Financial Framework
Source: GIZ
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Section 2: National Climate Change Finance
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Leveraging Private Investments through Public Policy and Finance
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Section 2: National Climate Change Finance
Source: UNFCCC 2008, p8
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Instruments to Incentivize/Redirect Private Investment - Examples
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Section 2: National Climate Change Finance
Capacity and Information Based Instruments
• Building climate awareness of decision-makers in the private and public sectors
• Enhancing technical skills required for green and climate resilient technologies
• Changing consumption choices through awareness-raising campaigns
• …
Regulatory Instruments
• Standards (e.g. building codes/energy performance requirements)
• Mandatory labelling (e.g. energy labels for refrigerators)
• Zoning laws (e.g. land zoning to protect climatesensitive ecosystemservices)
• …
Financial and Market Based Instruments
• Fiscal incentives (e.g. carbon taxes or phase out of fossil fuel subsidies)
• Early market development mechanisms (e.g. project development grants)
• Environmental market trading mechanisms (e.g. carbon cap and trade markets).
• De-risking measures(e.g. partial riskguarantees)
• ...
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“We should invest like mad…”
23
Section 1: Introduction to Climate Change Finance
Video: Lord Nicolas Stern talking about opportunities
and obstacles for incentivising private investment.
URL: http://www.youtube.com/watch?v=0S-QcOsOoRs
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In Focus: UNEP ClimateChange Finance Page
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Section 2: National Climate Change Finance
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International Climate
Change FinanceSection 3
Module 5: Introduction to Climate Change Finance
25
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Internat. Financial Flows for Climate Action in Developing Countries
Source: Adapted from SEI 2009, p4
Section 3: International Climate Change Finance
26
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The Financial Mechanism of the UN Convention on Climate Change
Source: Adapted from SEI 2009, p4
Section 3: International Climate Change Finance
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Financial Mechanisms under the COP of the UNFCCC
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Section 3: International Climate Change Finance
Source: Adapted from UNDP 2011, p65
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GEF Administered Trust Funds
• Global Environmental Facility Trust Fund
GEF
• Special Climate Change FundSCCF
• Least Developed Countries FundLDCF
• Adaptation Trust FundAF
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Section 3: International Climate Change Finance
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Accessing Climate Funding
Directly
Via accredited national agencies
Example: UNFCCC
Adaptation Fund
Indirectly
Via implementing agencies
Example: GEFSource:
freedigitalphotos.net
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Section 3: International Climate Change Finance
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The Green Climate Fund
New multilateral fund agreed
upon at COP 16 (2010)
Expected to generate
climate finance of USD 100
billion per year by 2020
Board hosted by the Republic of
Korea
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Section 3: International Climate Change Finance
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In Focus: UNFCCC Finance Portal for Climate Change
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Section 3: International Climate Change Finance
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Multilateral and Bilateral Funding for Climate Action
Source: Adapted from SEI 2009, p4
Section 3: International Climate Change Finance
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Examples of Multilateral & Bilateral Sources
Examples of multilateral sources
Clean Technology Fund (CTF)
Strategic Climate Fund (SCF)
Examples of bilateral sources
EU: Global Climate Change Alliance (GCCA)
Germany: International Climate Initiative (ICI)
UK: International Climate Fund (ICF)
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Section 3: International Climate Change Finance
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Example: Pilot Program for Climate Resilience (PPCR)
Source: Pilot Programme For Climate Resilience
35
Section 3: International Climate Change Finance
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In Focus: Climate Finance Options
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Section 3: International Climate Change Finance
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Traditional Development Aid Versus “New and Additional” Finance
Source: Adapted from SEI 2009, p4
Section 3: International Climate Change Finance
37
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Climate Financing and Development – Friends or Foes?
Climate finance supposed to be additional to
the official development assistance (ODA)
target of 0.7% of gross national income (GNI)
ODAClimateFinance ?
38
Section 3: International Climate Change Finance
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Carbon Markets
Source: Adapted from SEI 2009, p4
Section 3: International Climate Change Finance
39
Further info:
Renewable Energy
World Website
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The Kyoto Protocol Flexibility Mechanisms
International Emissions Trading
Clean Development Mechanism (CDM)
Joint Implementation (JI)
Source:
freedigitalphotos.net
40
Section 3: International Climate Change Finance
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Example of a CDM Project41
Section 3: International Climate Change Finance
Case of a power utility in a developing
country:
Needs to decide whether to invest in
coal-fired power plant or a wind power
plant.
The costs of wind power is higher than
the cost of coal-fired power.
However, wind power produces less
carbon than coal-fired power.
Power utility chooses to invest in wind
power because it is compensated for
emission reduction with carbon credits.
Can sell credits on the carbon market.
Source: UNFCCC
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Challenges for Carbon Finance42
Section 3: International Climate Change Finance
Low price for carbon credits and allowances
Uneven regional distribution of CDM projects
(only 2.9% of projects located in African region)
CDM and JI focus on projects rather than
sectors
Concerns with regards to non-additionality and
double-counting of emission reductionsFurther info: CDM Pipeline website
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International Private Finance for Climate Action
Source: Adapted from SEI 2009, p4
Section 3: International Climate Change Finance
43
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Estimate of North-South Private Climate Investments
44
Source: OECD 2012 p9
Section 3: International Climate Change Finance
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Additional ResourcesAnnex
Module 5: Introduction to Climate Change Finance
45
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Module Summary
Additional Resources
There is a need for additional funding for climate related
activities.
Actually, private investments account for most of climate
finance.
National institutions already spend a lot of money on climate
related activities, even though it is not usually recorded as
such. Procceding to a Climate Public Expenditure and
Institutional Review (CPEIR) can help get a better view of
climate-related expenses.
A national government can provide incentives to channel
private investments into climate related activities.
Climate finance readiness is important to attract international
climate related funding.
There are multiple streams of international climate finance
that channel either public or private funding.
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Useful Links
UNEP Finance Initiative
UNDP MDG Carbon
UNFCCC Focus: Finance
Climate Investment Funds
(CIF)
Climate Policy Initiative:
Landscape of Climate Finance
Climate Finance Options
Climate Funds Update – Climate
Finance Fundamentals
UNEP Risoe CDM/JI Pipeline
Analysis and Database
Multilateral and Bilateral Funding
Sources
Additional Resources
One UN Training Service Platform
on Climate Change: UN CC:Learn
Recommended Readings
Additional Resources
UNDP (2011). Catalysing Climate Finance
UNDP (2012). Readiness for Climate Finance
CDDE and UNDP (2012). Making Sense of Climate
Finance
UNDP UNFCCC (s.d.). Fact Sheet: Financing Climate
Change Action Investment and Financial Flows for a
Strengthened Response to Climate Change
UNFCCC (2007). Report on the Analysis of Existing and
Potential Investment and Financial Flows Relevant to the
Development of an Effective and Appropriate International
Response to Climate Change
48
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Main References
Additional Resources
49
Stockholm Environment Institute (SEI) (2009). Bilateral
Finance Institutions and Climate Change: A Mapping of
Climate Portfolios
UNDP (2011). Catalysing Climate Finance
Climate Policy Initiative website
World Resources Institute website
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