carbon finance, climate change mitigation and sustainable

Key Messages

Climate, finance

and development

are closely

linked

Economic

stimulus programs

can address

climate action

Climate

negotiations can

transform global and

national financial

landscapes

2

Response to financial crisis can facilitate or amplify climate

action. Consider provision of incentives to developing

countries for green recovery ahead of the negotiated post

2012 climate finance package.

Climate finance is a catalyst to leverage private and public

resources, open economic opportunities, and enhance

development policy and finance. Policy, market and

technology innovations are key to maximizing the impact.

Copenhagen is as much about finance and development as

about climate. Finance, Economic and Development

Ministers must be involved in key issues: How much additional finance is needed?

How will the money be raised for different needs?

How will resources be transferred to diverse recipients?

How will processes and outcomes be monitored?

How Will the World Finance Climate Change Action

3333

Catalytic

climate

finance

Climate Finance is a Catalyst

Climate finance can cover

additional cost to…

Facilitate enabling policies, regulatory

frameworks, institutions and markets

in support of adaptation and mitigation

Catalyze transformational private and

public investments and development

programs

• low-carbon technologies(renewable energies, energy efficiency in

industry, water use, transport,

buildings...)

• terrestrial carbon (agriculture and

forestry)

• climate resilience (change practices

and factor-in climate vulnerability in

infrastructure planning, in agriculture...)

Support research, development and

deployment of new technologies

What is climate finance?

Sources Uses

44

TODAY’S DISCUSSION

Connecting Climate, Finance and Development


Making Climate Finance Work at Home

Take Away Messages

Mobilizing International Climate Finance

Meeting the Diverse Needs Through a Portfolio of Instruments

5

The world is committed to 2oC

warming above the pre-

industrial level. Adaptation

efforts must be intensified to

cope with unavoidable

changes.

IPCC estimates that exceeding

2oC will undermine

development prospects.

“Business-as-Usual” is forecast

to lead to 6-7oC of warming, at

an unprecedentedly rapid pace.

Temperature change during the

last ice-age was 8oC over

millenniums.

Delaying action reduces

development options for

mitigation and adaptation and

raises their costs.

The 10-15 year window of opportunity is

closing fast…

Climate: Urgent Action Versus Heightened Risks

)


Year

666

Climate Finance: Additional Costs and Catalytic Impacts

… to

leverage

development

investments

Climate finance

covers additional

costs and serves

as a catalyst…

Total climate finance for developing countries

over 2010-20: US$ 180 bln to US$ 250 bln p.a.*

or 0.5 % of OECD GDP

Private Sector

Investments

National

Development

Budgets

International

Development

Assistance

Additional investment needs over 2010-20

(US$ bln p.a.)

Mitigation

Developing

countries

Adaptation

550 ppm 450 ppm

Global ~460~270

~150 ~220

~30

US$ 250bln p.a.

US$ 4,620bln p.a. (2008)


Developing

countries

* UNFCCC, IEA, McKinsey

~30

777

Comparative Costs, US$ bln. per annum, 2008

Current Dedicated Resources Cover less than 5% of the Needs


US$ bln

250

120

560

310

258

88


Connecting Climate Change, Finance and Development



Take Away Messages


Meeting Diverse Needs Through a Portfolio of Instruments

9

Developing Countries are Already Taking Action...

… drawing on a menu of instruments to match the diversity of needs

Brazil: Reducing

deforestation in the

Amazon by 70% by 2020;

expanding biofuel

programs, energy

efficiency

Caribbean Islands: Adaptation to

increasing hurricanes and storms,

catastrophic risk bond

Indonesia: Adaptation (coastal flooding),

forest conservation programs, scaling-up

renewable energy, low carbon development

fund

India: Adaptation

(drought, floods, cyclones,

glacier melting), energy

efficiency, hydro and new

renewable energy, solar

energy R&D, knowledge

China: Energy efficiency,

20% reduction in energy

intensity from 2005 to

2010; 15% renewable

energy target by 2020;

Clean technology R&D;

sustainable transport

Morocco: Integrated approach to

tackling climate change in water,

agriculture, and urban sectors,

Mediterranean Solar Plan Initiative

Ethiopia: Integrating

adaptation in sustainable

land management, social

protection, development of

hydropower, and building

capacity programs


10

Adaptation is Priority for Developing Countries

Strengthening Climate Resilience in Country-led Development Processes

Action Financing Examples

Core Development Domestic Budgets

plus ODA

Investments in education & health, income- generation

programs; etc.

Climate Resilient

Development

Increased ODA plus

Additional Climate

Finance

Accelerated agricultural diversification; climate resilient

road construction & irrigation systems, climate

forecasting; capacity building, etc.

Adaptation New & Additional

Climate Finance

Seawalls; dikes; additional shelters & water-storage


Adaptation requires additional finance to ensure development outcomes

Win-win opportunities can help enable most effective and efficient adaptation

Synergies in climate finance and development finance must be fully utilized

Public investment / subsidy, e.g. for new technology deployment

Policies and regulations; incentives for barrier removal; technical assistance

Carbon market

Support for R&D11

Abatement potential

COSTS

of

abatement

GAINS

from

abatement

Stylized Marginal Abatement Cost Curve

Lighting switch

Solar

Reforestation Wind

Industry: EE in cement

Power generation from landfill gas

Waste management

Coal CCS

Nuclear

Grassland management

A Range of Tools is Needed to Realize Different Mitigation Potentials


Tools:

12

Managing Terrestrial Carbon can Help Climate and Development


Land use change, forestry

and agriculture account for

almost 50% of emissions in

developing countries

Offer cost effective mitigation

with significant co-benefits:

improved livelihoods; reduced

soil erosion; biodiversity…

Financing the First Phase

Developed countries:

aggressive and integrated

cap & trade markets

Developing countries:

major role for carbon offsets

and international funds for

adaptation and mitigation

All countries: reflecting

climate externalities in

policies, taxes and incentives

13

Policies and Market-based Incentives

Will Over Time Catalyze Most of the Investment Flows

Financing the Second Phase

A global cap & trade market As incomes and living

standards rise, developing countries “migrate” from offset markets to cap & trade

Policies, taxes and incentives reflect climate externalities

International funds mostly for adaptation and capacity building

Collaborative R&D efforts, international support for adaptationand clean technology access to poorest countries


14

Evolution of Climate Finance Needs and Mechanisms

for Developing Countries

Market-based

Instruments

Multilateral,

mostly

developed

country

funding

Domestic

developing

country

fundingPost-2012 ~2050… to leverage

development

investments

Catalytic

climate

finance…


Post-2012

CDM

Carbon offsets & other

performance-based

schemes

Cap-and-trade

~2050

Fin

an

cin

g n

ee

ds

This is a stylized, illustrative picture, not intended to show the exact sizes of various mechanisms

International

climate funds

1515





Take Away Messages



16


Markets for carbon offsets can only achieve full potential provided:

Adequate developed countries targets and provisions for offsets: up to US$ 30 bln under currently proposed developed countries targets for 2020 while stricter targets can facilitate up to US$150 bln.

Progress with reforming CDM and introducing REDD, sector crediting and other performance-based mechanism

Expanding Carbon Markets

Scaled-up markets for carbon offsets can generate significant financial flows for developing countries

Could generate up to US$ 30 billion and close the adaptation financing gap for developing countries or be used for both adaptation and mitigation in developing countries

Auctioning emissions rights under cap & trade systems in developed countries can be a useful additional source

Potential of carbon markets

Leverage investment through multiplier effect; facilitate technology transfer; create global price signal for carbon; lower costs of compliance with targets

$150 bln

Offset

Market

$30 bln

Offset

Market


Carbon markets can reduce the financing gap significantly – yet need to be complemented by other instruments, particularly for a 450 ppm trajectory Adaptation, capacity building, new technology R&D and

transfer, and market barriers require a portfolio of tools

Other Financing Tools

Gap:

$ 70 bln

Gap:

$ 190 bln

US$250 bln p.a

450 ppm.

0.5-1% GDP contribution by developed countries – US$ 150-300 bln

(G-77 / China)

Contribution by all countries based on GDP, GHG and population

– US$ 10 bln initially, with potential scale-up (Mexico)

International tax on aviation and/or shipping – up to US$ 40 bln

(Various)

Levy on GHG emissions over 1.5 ton/capita – US$ 18 bln in net

transfer to developing countries, mainly for adaptation (Switzerland)

Tax on international financial transactions – US$ 15-20 bln. (Tobin tax)

Specific Financial Proposals Under Discussion Include:

17

plus $30 bln.

from auctioning

60

180

US$180 bln p.a

550 ppm.

1818





Take Away Messages



Efficiency standards; codes, zoning; climate screening/

proofing of investments

Improve investment climate; deepen financial and capital markets; new markets (cap & trade, CDM)

1919

Enabling Domestic Policy Environment is Key


Rationalize energy, water and agricultural price, tax incentives, fiscal and expenditure policies

Incentives

Education, raising awareness and promoting change in consumer behavior and preferences

Public Outreach

Capacity of public, private and financial sector institutions to assess and act on climate risks and new business opportunities

Institutions

Public Outreach

Regulations

Markets

2020





Take Away Messages



Decisions needed from climate negotiations

Emissions targets for developed countries

Criteria for recognizing and crediting mitigation action by developing countries

Finance

Governance

Targets and

actions

Take Away Messages

Arrangements for transfer and monitoring of funds, verification of results, evaluation of effectiveness

CDM reform

Expanded coverage and scale of offset markets Sector crediting, REDD, agriculture

Stable and predictable additional resourcesFinancing for adaptation must be provided as priority

Technology transfer and collaborative R&D

21

Negotiation outcomes will transform development cooperation and finance

Take Away Messages

22

Finance

Economic &

Development

Ministers

need to be

involved

Will significantly affect how market economies operate

Will require new policies, revenues and investments

Will create new global market mechanisms

To develop a portfolio of tools catalyzing sufficient

investment into adaptation, mitigation, technology

To establish effective and efficient international finance

transfer mechanisms

To maximize synergies with development finance and

leverage on private sector investment

Climate

Agreement…

Delay

increases

costs

Accelerating support to developing countries will help

make green investments at a critical and opportune time of

economic recovery

2323

What the World Bank Group can Offer

Economy-wide support to governments for sustainable development and policy reforms (e.g. energy pricing)

Major lender to renewable energy and energy efficiency

Climate risk management in water, agriculture and disaster risk reduction programs…

Extensive partnerships: UN agencies, other MDBs, private sector, NGOs, research community

Capacity and

experience in

development

finance

Take Away Messages

Expertise in

leveraging

climate finance

Leveraging GEF resources

Spearheading the carbon market and developing robustCarbon Finance business

Climate Investment Funds (CIF)

Financial innovations on the capital markets

carbon finance, climate change mitigation and sustainable

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