Global Climate Change Alliance:Informing the International Climate Debate

Making climate finance effective: strengthening national public financial management and budgetary

systems

Neil BirdResearch Fellow

Climate and Environment ProgrammeOverseas Development Institute

Climate finance in the context of the UNFCCC

Climate finance: Accepted as being important, yet there is no internationally recognised definition of ‘climate finance’ or climate change expenditures

• Climate finance is a combination of national and international financial resources, drawn from public and private sources, mobilised for addressing climate change.

The GCCA is fully committed to aid effectiveness principles

Climate finance and its relationship to aid:

The Copenhagen Accord (2009) called for “scaled-up, new and additional, predictable and adequate funding” for developing countries.

Principles of aid effectiveness

Principles of climate finance

Ownership Ownership Alignment Polluter pays Harmonisation Additionality Managing for results Adequacy Accountability Accountability Predictability Predictability Transparency Transparency Conditionality Timeliness

Climate finance in the context of the UNFCCC

Global climate finance architecture

Current challenges associated with existing financial arrangements

Where can the GCCA add value?

Global climate finance architecture

• lack of coherence, complexity, fragmentation and lack of coordination

• the functioning of the GEF, in relation to its perceived lack of compliance with COP guidance, the absence of independent assessment of its performance, and the dominance of developed countries in its governance structures

• the lack of transparent and clear rules for the reporting of climate finance flows from bilateral and multilateral donors; and

• inequality of opportunity in access to CDM funding

GCCA knowledge sharing

Areas of GCCA experience

1.PFM systems: Strengthening of public financial management systems for improved management of climate finance

2.Tracking: Tracking of climate finance flows and climate-related public expenditures

3.Budget support: Delivery of climate change support through partner countries’ budgets

4.Climate funds: Support for the setting up of national/regional climate funds

5.Private finance: Strengthening of the enabling environment for catalysing private finance/investment

GCCA knowledge sharing – PFM systems

The national budget is seen as the key mechanism for prioritising public interventions across the whole of government, subject to technical, cultural and political influences

The budget cycle: planning, execution, reporting, and oversight applied at both central and local government levels

GCCA experience:•Budget classification reform (Cambodia)

Major area of national & development partner activity:•Lessons to be learned from development finance E.g. Public Expenditure and Financial Accountability Assessments (PEFA)

GCCA knowledge sharing – Tracking

• Budget classifications lack codes to identify climate finance

• International climate finance may be disbursed in the form of extra-budgetary projects.

• New diagnostic tool to identify relevant expenditures: the CPEIR

GCCA knowledge sharing – Tracking

Analyses of spending on climate-related activities will only be possible if a system to identify climate spending is put in place

GCCA knowledge sharing – Budget Support

Country ObjectivesBhutan Adaptation in the RNR sector Guyana Coastal zone managementRwanda Adaptation in the land sector Samoa Adaptation in the water sector

Country ObjectivesLesotho National policy and strategy development

Mauritius National strategy mainstreaming

Seychelles National strategy implementation

Solomon Islands National strategy implementation

GCCA is also providing climate-related sector budget support in four countries to assist adaptation planning

GCCA is providing climate-related general budget support in four countries to assist the mainstreaming of climate change

GCCA knowledge sharing – Budget Support

GCCA experience•GCCA budget support programmes build on pre-existing EU and partner country experience of implementing general and/or sector budget support. This aids the decision to use budget support for climate-related actions, because it implies that fiduciary and macroeconomic assessments have already been conducted, and activities are under way to strengthen PFM systems.

•‘Managing for results’ is important for budget support programmes, using indicators from national monitoring systems. However, selecting suitable disbursement criteria has proved to be an arduous task.

•Technical assistance can be a useful complement to budget support operations and therefore justifies closer attention.

GCCA knowledge sharing – Climate Funds

GCCA experience•GCCA has supported the establishment of the Bangladesh Climate Change Resilience Fund.•National climate funds tend to take a lot of time to operationalise, due to the complexity of setting up procedures that guarantee transparency, accountability and a fair distribution of resources. •They also often channel only a small share of the amounts needed to address climate change.

GCCA knowledge sharing – Private Finance

Known challenges•The leveraging of climate-related private investment requires a conducive ‘enabling environment’ in recipient countries. •Typical barriers to private investment that also affect investment in low-carbon, climate-resilient projects include: unclear and unstable public policies, regulatory barriers, poor infrastructure, ineffective public services, corrupt practices, poor education and training of the workforce, political instability, and economic risks.

GCCA knowledge sharing – Private Finance

GCCA experience

GCCA support for improvements in the investment climate has so far focused mainly on support for the development of clear national climate-related policies, strategies, legal and regulatory frameworks .•Mauritius: A clear legal framework for private investment in energy efficiency measures•Rwanda: Security of tenure to incentivise landholders to manage their land sustainably•Seychelles: enabling national participation in the CDM

GCCA knowledge sharing

Some issues to be considered to improve national climate finance delivery

• Greater clarity is urgently needed over the definition of climate change expenditure

• The expected rapid growth in climate finance and attendant governance and management issues need to be considered in the design and execution of climate change programs

• International support is now forthcoming, but this raises the issues of sustainability and how such support should be channelled

• Capacity of local government to handle large amounts of climate expenditure needs to be assessed for implementation programmes

GCCA knowledge sharing

Two questions to initiate discussions

• What is your experience of the results to-date with national climate finance delivery?

• what recommendation(s) would you make to climate change negotiators and the international development community to make climate finance delivery more effective?