INTRODUCTIONTO THE UNDP APPROACH

FORASSESSING INVESTMENT

AND FINANCIAL FLOWS TO ADDRESS CLIMATE CHANGE

Presented by Bill Dougherty, Stockholm Environment Institute, USA

at the Namibia National Climate Change Awareness Raising Workshop

Safari Hotel, Windhoek, Namibia

24 September 2008

UNDP Method packaged inUser’s Guidebook

CONTENTS PART I (Getting Started)

Overview of what is needed to start assessment Explanation of key concepts Overview of whole process

PART II (Conducting the Assessment) General methodology Mitigation and adaptation assessments in priority

sectors Follow-up to assessment, linking to policy

processes PART III: (Resources for assessments)

Case studies, references, glossary

UNDP Assessment Methodology

decision tree

Methodology - Mitigation

1. Scope out the effort Define the scope of the sector

Specify the time horizon for the analysis Select a suitable model for the sector where possible

2. Establish Reference Scenario Define the physical basis for reference scenario for the sector Estimate current investment and financial flows for the sector Project future investment and financial flows for the sector

3. Establish Mitigation Scenario Define the physical basis for mitigation scenario for the sector Project future investment and financial flows for the sector

4. Estimate incremental investment flows Compare projected investment and financial flows for the

reference and mitigation scenarios

5. Synthesize results Summarize investment and financial flows for the sector

Assess policy options Prepare report

Methodology - Adaptation

1. Scope out the effort Define the scope of the sector

Specify the time horizon for the analysis Select a suitable model for the sector where possible

2. Establish Reference Scenario Define the physical basis for reference scenario for the sector Estimate current investment and financial flows for the sector Project future investment and financial flows for the sector

3. Establish Adaptation Scenario Define the physical basis for adaptation scenario for the sector Project future investment and financial flows for the sector

4. Estimate incremental investment flows Compare projected investment and financial flows for the

reference and adapation scenarios

5. Synthesize results Summarize investment and financial flows for the sector

Assess policy options Prepare report

How to use the User’s Guidebook (UG)How can an I&FF assessment be undertaken in my country?”

The UG is a starting point to guide the national teams through both mitigation and adaptation I&FF assessments

The UG includes an overall methodology while focusing on supporting analysis for specific sectors, e.g. energy (mitigation) and LULCF (adaptation)

Can be used flexibly according to country’s needs resources, and modeling capability

“Checklists” throughout sectoral methodologies to help ensure team is on track

Role of National Assessment Teams Government coordination across ministries,

sectors, other stakeholders is key part of successful assessment

Team coordinates systematic data and information generation and collection activities

UNDP technical backstopping available to support national assessment team

Use participatory mechanisms to disseminate climate change demands and opportunities; ensures these are inputs to I&FF assessment

Q&A CLARIFICATIONS

Namibia National Climate Change Awareness Raising Workshop

Safari Hotel, Windhoek, Namibia, 23-25 September 2008

UNDP APPROACH FOR ASSESSING INVESTMENT &

FINANCIAL FLOWS FOR CLIMATE CHANGE :

THE USER’S GUIDEBOOK

Special sessions for national experts undertaking investment & financial flows assessments to address climate change

Presented by Bill Dougherty, Stockholm Environment Institute, USAat the Namibia National Climate Change Awareness Raising Workshop

Safari Hotel, Windhoek, Namibia

25 September 2008

Today’s agenda

1. Investment and Financial Flows – Key concepts2. UNDP Investment and Financial Flows Methodology3. Overview of Investment & Financial Flows Assessment Approach for

Mitigation, focusing on the energy sector4. Overview of Investment & Financial Flows Assessment Approach for

Adaptation, focusing on the LULUCF sector

UNDP Method packaged inUser’s Guidebook CONTENTS: PART I

Overview of what is needed to start assessment

Explanation of key concepts Overview of whole process

PART II Scoping issues Key steps in mitigation and adaptation

assessments Follow-up to assessment, and linking to

national policy processes PART III: Resources for assessments

AGENDA

1. Investment and Financial Flows – Key concepts2. UNDP Investment and Financial Flows Methodology3. Overview of Investment & Financial Flows Assessment Approach for

Mitigation, focusing on the energy sector4. Overview of Investment & Financial Flows Assessment Approach for

Adaptation, focusing on the LULUCF sector

Key Concepts

What are I&F flows? Goals and Objectives Intended outputs and outcomes

Investment Flows

Investment flows (I) include investments in new facilities or equipment e.g. renewable energy sources, expanded water supply systems, capital cost of a gas-fired generating unit Represents the initial (capital) cost of a

new physical asset with a life of more than one year

Focus is on investment decisions, new physical assets, but ignore operating costs.

For any given measure within a sector the investment or financial flows are estimated- but not both.

Financial Flows

Financial flows (F) include on-going expenditures e.g. forest management or illness treatment Represents the ongoing cost related to

mitigation or adaptation that does not involve physical assets

Expenditures incurred by national agencies to maintain the new investments for achieving mitigation and adaptation goals

Most useful for assessment in sectors that do not involve investment in new facilities or equipment

UG Goals

Better understand future I&FF that simultaneously address climate change and fit within the development priorities of a country for a specific sector

Provide guidance on how to conduct the actual assessment of investment and financial flows while being a flexible process that national teams can use to better understand the investment and financial implications of national climate change mitigation and adaptation strategies

UG Objectives

1.Estimate existing sector level I&FF (including in context over national I&FF) and, if possible, estimate current level I&F flows for climate change related activities.

2.Estimate the additional estimated amount of I&FF needed in the future to adequately address mitigation and adaptation in a specific sector.

3. Increase sectoral level understanding regarding strategic choices for mitigation and adaptation.

4.Evaluate the role that different sources of financing can play in shifting investment flows.

5. Improve public awareness about climate change implications for national development.

UG Intended outputs and outcomes

1. A synthesis of information on current I&FF for a sector2. Projection of I&FF by major sectors in the absence of

efforts to address mitigation and adaptation needs by some future year

3. Projection of I&FF by major sectors to address mitigation and adaptation needs by some future year;

4. An analysis of the potential role and sources of investment and financing and their potential relation to national circumstances

5. An identification of the set of mitigation and adaptation policy priorities aligned with the I&FF analysis;

6. A summary report that integrates all aspects of the assessment in a readily accessible and transparent manner.

Q&A CLARIFICATIONS

Namibia National Climate Change Awareness Raising Workshop

Safari Hotel, Windhoek, Namibia, 23-25 September 2008

AGENDA

1. Investment and Financial Flows – Key concepts2. UNDP Investment and Financial Flows Methodology3. Overview of Investment & Financial Flows Assessment Approach for

Mitigation, focusing on the energy sector4. Overview of Investment & Financial Flows Assessment Approach for

Adaptation, focusing on the LULUCF sector

Key Elements of I&FF Method

1. Identification and collection of pertinent national information

2. Assessing data sources, availability, quality and access

3. Defining methodological boundaries for the assessment

4. Defining mitigation and adaptation scenarios

5. Identifying and applying appropriate modeling tools

Project and analyze I&F

flows

Identify & collect pertinent data

Define mitigation

& adaptation scenarios

Establish agency roles

Policy formulation

Pre-requisites

Identify project team, assign roles and responsibilities Defined roles and responsibilities of different

institutions Clear understanding of assessment

methodology Define scope of each sector included in the

investment and financial flows analysis Identifying and applying appropriate modeling

tools Selection of a suitable model, if one is available. If

not, adopt a plan or projection for the sector. Development of the necessary scenarios

Sector selection and scope definition Is there adaptation/ mitigation options

assessed in national communications or other reports?

Where specific models used for adaptation / mitigation options selection? For which time frame?

What problems with data collection on adaptation/mitigation assessments were encountered?

What are the available sources of information on domestic sources of I&F for the sector? On international I&F?

Choosing models, defining scenarios Models

computable general equilibrium (CGE) Macroeconomic and microeconomic

Scenarios “Reference Scenario”: absent major new investments to

address climate change in developing countries “Mitigation Scenario”: GHG emissions are decreasing

relative to population and economic output “Adaptation Scenario”: resilience to adverse physical

impacts of climate change is created and reinforced

(Selection of a suitable scenario, if one is available from national communications of NAPA. If not, adopt a plan or projection for the sector and develop the necessary scenarios)

Flexibility of UG methodology-depends on national data and model availability

Q&A CLARIFICATIONS

Namibia National Climate Change Awareness Raising Workshop

Safari Hotel, Windhoek, Namibia, 23-25 September 2008

AGENDA

1. Investment and Financial Flows – Key concepts2. UNDP Investment and Financial Flows Methodology3. Overview of Investment & Financial Flows Assessment Approach

for Mitigation, focusing on the energy sector4. Overview of Investment & Financial Flows Assessment Approach for

Adaptation, focusing on the LULUCF sector

User Guidebook Section 5

Key steps in mitigation assessment for the energy sector

Key Steps: Mitigation

Step 1: Scope out the effort Step 2: Establish Reference Scenario Step 3: Establish Mitigation Scenario

Approach #1: example - assume an end point for energy supply emissions

Approach #2: example - assume a set of technologies for energy supply

Step 4: Estimate incremental investment flows

Step 5: Synthesize results

Example: Energy Sector - Step 1 Step 1: Scope out the effort

Define scope of the sector

Specify time horizon for the assessment

Select a suitable model for the sector where possible

Example: Energy Sector - Step 1 Scope of the sector

Boundaries for the assessment (e.g., subsectors, reporting outputs, GHG reductions, etc)

National accounts data available

Government plans/policies

Time horizon: 2030 typically

Modeling: several options available

Example: Energy Sector - Step 1 Checklist for Step 1

Identified a suitably configured project team with the requisite range of skills and experience?

Defined key subsectors and boundaries for the assessment?

Established a plan for identifying and engaging key stakeholders?

Determined project objectives and desired outcomes?

Decided whether to develop a plan for communicating results to national and international decision makers?

Identified national and/or international sources for pertinent national accounts data?

Identified national sources for pertinent sector expansion plans?

Example: Energy Sector - Step 2 Step 2: Establish the Reference Scenario

Define the physical basis

Estimate current investment costs

Project future investments

Example: Energy Sector - Step 2 Define the physical basis

Establish (or develop) the national schedule of new capacity additions to meet future energy demand

Example: Energy Sector - Step 2 Estimate current investment costs

Assemble national accounts data for a minimum 10-year period prior to and including the Base Year (or longer data quality permitting) of the assessment in as great a level of detail as possible

Develop a breakdown of total investments into major categories (e.g., ODA, FDI, domestic funds)

Example: Energy Sector - Step 2 Project future investments

Estimate annual investment costs associated with the new capacity plan

Compute the total investment cost in real, unannualized terms over the planning period.

Develop a breakdown of total investments into major categories (e.g., ODA, FDI, domestic funds)

Example: Energy Sector - Step 2 Checklist for Step 2

Established (or developed) the national schedule of new capacity additions to meet future energy demand

Estimated annual investment costs associated with the new capacity plan

Computed the total investment cost in real, unannualized terms over the planning period.

Developed a breakdown of total investments into major categories (e.g., ODA, FDI, domestic funds)

Example: Energy Sector – Step 3 Step 3: Establish the Mitigation Scenario

Define physical basis

Project future investments

Example: Energy Sector - Step 3 Define the physical basis

Identify the renewable resource potential for a variety of sources.

Characterize the demand-side energy efficiency potential for new high efficiency equipment.

Identify changes needed to create an enabling environment for investments in carbon-reducing technologies

Develop a cost & performance database for all potential carbon-reducing technologies

Example: Energy Sector - Step 3 Define the physical basis (continued)

Establish (or develop) the national schedule of new capacity additions to meet future energy demand

Example: Energy Sector - Step 3 Project future investments

Estimate annual investment costs associated with the new capacity plan

Compute the total investment cost in real, unannualized terms over the planning period.

Develop a breakdown of total investments into major categories (e.g., ODA, FDI, domestic funds)

Example: Energy Sector - Step 3

Checklist for Step 3 Identified renewable resource potential for variety of sources. Characterized demand-side energy efficiency potential Identified changes needed to create an enabling environment for

investments in carbon-reducing technologies Developed a cost & performance database for all potential carbon-

reducing technologies Established (or developed) an alternative national schedule of new

capacity additions to meet future energy demand Estimated annual investment costs of alternative capacity plan Computed total investment cost in real, unannualized terms Developed breakdown of investments into major categories

Example: Energy Sector – Step 4 Step 4: Estimate incremental

investment flows Compare projected investment and financial

flows for the Reference and Mitigation Scenarios.

Example: Energy Sector – Step 4

Capacity type Reference MitigationCoal steam $750 $375 -$375Oil steam $0 $0 $0NG combined cycle $0 $0 $0NG combustion turbine $375 $188 -$188Hydro $0 $20 $20Other renewables $0 $965 $965Demand side $0 $350 $350

Total $1,125 $1,898 $773

ScenarioAdditional

Investment through 2030 (million US$)

Example: Energy Sector – Step 5

Step 5: Synthesize results Summarize investment and financial flows

for the sector

Assess policy options

Prepare report

Working Group Discussions

Data sources and gaps Issues related to sector-specific scenarios

and models Nationally appropriate approaches to

conducting an I&F assessment for the energy sector

Report Back after ~60 minutes

AGENDA

1. Investment and Financial Flows – Key concepts2. UNDP Investment and Financial Flows Methodology3. Overview of Investment & Financial Flows Assessment Approach for

Mitigation, focusing on the energy sector4. Overview of Investment & Financial Flows Assessment Approach

for Adaptation, focusing on the LULUCF sector

User Guidebook Section 6

Key steps in adaptation assessment for LULUCF sector

Key Steps: Adaptation

Step 1: Scope out the effort

Step 2: Establish Reference Scenario

Step 3: Establish Adaptation Scenario

Step 4: Estimate incremental investment flows

Step 5: Synthesize results

Example: Forestry Sector - Step 1 Step 1: Scope out the effort

Define scope of the sector

Specify time horizon for the assessment

Select a suitable model for the sector where possible

Example: Forestry Sector - Step 1 Scope of the sector

Boundaries for the assessment (e.g., managed forests, unmanaged forests)

National accounts data available

Government plans/policies

Time horizon: 2030 typically but preferable to 2050

Modeling: several forest management options available

Example: Forestry Sector - Step 1 Checklist for Step 1

Identified a suitably configured project team with the requisite range of skills and experience?

Defined key subsectors and boundaries for the assessment?

Established a plan for identifying and engaging key stakeholders?

Determined project objectives and desired outcomes?

Decided whether to develop a plan for communicating results to national and international decision makers?

Identified national and/or international sources for pertinent national accounts data?

Identified national sources for pertinent forestry management plans?

Example: Forestry Sector - Step 2 Step 2: Establish the Reference Scenario

Define the physical basis

Estimate current investment costs

Project future investments

Example: Forestry Sector - Step 2 Define the physical basis

Establish (or develop) the national schedule of new forestry infrastructure improvements

Investment type 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Totalnew tree saplings (000) 0.00 5.00 5.00 5.00 2.50 2.50 2.50 1.00 1.00 1.00 1.00 26.50Protective fencing (km) 0.00 10.00 10.00 10.00 5.00 5.00 5.00 2.00 2.00 2.00 2.00 53.00Access roads (km) 0.00 1.00 1.00 1.00 0.50 0.50 0.50 0.20 0.20 0.20 0.20 5.30harvesting equipment (#) 0.00 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 1.00Research & development 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Annu

al inf

rastr

uctu

re

(unit

s as

note

d)

Example: Forestry Sector - Step 2 Estimate current investment costs

Assemble national accounts data for a minimum 10-year period prior to and including the Base Year (or longer data quality permitting) of the assessment in as great a level of detail as possible

Develop a breakdown of total investments into major categories (e.g., ODA, FDI, domestic funds)

Example: Forestry Sector - Step 2 Project future investments

Estimate annual investment costs associated with the new capacity plan

Compute the total investment cost in real, unannualized terms over the planning period.

Develop a breakdown of total investments into major categories (e.g., ODA, FDI, domestic funds)

Investment type $/unit 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Totalnew tree saplings $10,000 $0.00 $0.05 $0.05 $0.05 $0.03 $0.03 $0.03 $0.01 $0.01 $0.01 $0.01 0.27Protective fencing $3,500 $0.00 $0.04 $0.04 $0.04 $0.02 $0.02 $0.02 $0.01 $0.01 $0.01 $0.01 0.19Access roads $75,000 $0.00 $0.08 $0.08 $0.08 $0.04 $0.04 $0.04 $0.02 $0.02 $0.02 $0.02 0.40harvesting equipment $5,500 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 0.01Research & development NA $0.00 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 $0.02 0.15

Total invesment $0.0 $0.2 $0.2 $0.2 $0.1 $0.1 $0.1 $0.0 $0.0 $0.0 $0.0 1.00

Annu

al inv

estm

ent

(milli

on U

S$)

Example: Forestry Sector - Step 2 Checklist for Step 2

Established (or developed) the national schedule of new forest resources to meet future demand for forest products

Estimated annual investment costs associated with the new plan

Computed the total investment cost in real, unannualized terms over the planning period.

Developed a breakdown of total investments into major categories (e.g., ODA, FDI, domestic funds)

Example: Forestry Sector – Step 3 Step 3: Establish the Mitigation Scenario

Define physical basis

Project future investments

Example: Forestry Sector - Step 3 Define the physical basis

Identify the range of adaptation strategies for the forestry sector

Characterize the expected performance of forestry adaptation options relative to local climate change projections

Identify changes needed to create an enabling environment for adaptation investments in forestry sector

Develop a cost & performance database for all potential forestry adaptation options, technologies, and practices

Example: Forestry Sector - Step 3 Define the physical basis (continued)

Establish (or develop) the schedule of new forestry infrastructure improvements

Investment type 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Totalnew tree saplings (000) 0.0 50.0 50.0 50.0 25.0 25.0 25.0 10.0 10.0 10.0 10.0 265.0Protective fencing (km) 0.0 100.0 100.0 100.0 50.0 50.0 50.0 20.0 20.0 20.0 20.0 530.0Access roads (km) 0.0 10.0 10.0 10.0 5.0 5.0 5.0 2.0 2.0 2.0 2.0 53.0harvesting equipment (#) 0.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 10.0Research & development 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Annu

al inf

rastr

uctu

re

(unit

s as

note

d)

Example: Forestry Sector - Step 3 Project future investments

Estimate annual investment costs associated with the new capacity plan

Compute the total investment cost in real, unannualized terms over the planning period.

Develop a breakdown of total investments into major categories (e.g., ODA, FDI, domestic funds)

Investment type $/unit 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Totalnew tree saplings $10,000 0.0 0.5 0.5 0.5 0.3 0.3 0.3 0.1 0.1 0.1 0.1 2.7Protective fencing $3,500 0.0 0.4 0.4 0.4 0.2 0.2 0.2 0.1 0.1 0.1 0.1 1.9Access roads $75,000 0.0 0.8 0.8 0.8 0.4 0.4 0.4 0.2 0.2 0.2 0.2 4.0harvesting equipment $5,500 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1Research & development NA 0.0 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 1.5

Total invesment 0.0 1.8 1.8 1.8 1.0 1.0 1.0 0.5 0.5 0.5 0.5 10.0

Annu

al in

vest

men

t (m

illion

US$

)

Example: Forestry Sector - Step 3

Checklist for Step 3 Identified set of alternative tree species/resources Characterized potential for new forest management/protection Identified changes needed to create an enabling environment for

investments in sustainable forest management Developed database for forest adaptation options Established alternative schedule of new practices, technologies,

and/or tree species to meet future demand for forest products Estimated annual investment costs of alternative plan Computed total investment cost in real, unannualized terms Developed breakdown of total investments into major categories

(e.g., ODA, FDI, domestic funds)

Example: Forestry Sector – Step 4 Step 4: Estimate incremental

investment flows Compare projected investment and financial

flows for the Reference and Mitigation Scenarios.

Example: Forestry Sector – Step 4

Investment type Reference Adaptationnew tree saplings $0.3 $2.7 $2.4Protective fencing $0.2 $1.9 $1.7Access roads $0.4 $4.0 $3.6harvesting equipment $0.0 $0.1 $0.0Research & development $0.2 $1.5 $1.4

Total $1.0 $10.0 $9.0

ScenarioAdditional

Investment through 2030 (million US$)

Example: Forestry Sector – Step 5

Step 5: Synthesize results Summarize investment and financial flows

for the sector

Assess policy options

Prepare report

Working Group Discussions

Data sources and gaps Issues related to sector-specific scenarios

and models Nationally appropriate approaches to

conducting an I&F assessment for the energy sector

Report Back after ~60 minutes

PLENARY

DISCUSSION:

•Institutional collaboration•Workplan and timeline