Veerle Vandeweerd, Director, Environment

and Energy Group, UNDP

Catalyzing climate change finance for sustainable human development

Climate change and development – nexus between UN Conventions and EU Accession, Roundtable, Ljubljana, Slovenia, 25-26 May 2011

We have a global problem for which we need global solutions

We are 6.92 billion people today and the World population is predicted to reach 9 billion by 2050 …..

2.6 billion lack basic sanitation

1.3 billion no access to

clean water

1.1 billion lack

adequate housing

900 million no access to modern health care

The Richest 20% consume 83% of the resources

The Poorest 20% consume 1.3% of the resources

1.6 billion lack access

to electricity

925 million undernourished

Carrying Capacity of the Earth is 1.5 – 18 billion people –pending on consumption levels (food, water, energy)

0

5

10

15

20

India Rwanda UK USA

Hu

man

Po

pu

lati

on

(b

illio

ns)

Source: BBC (2010), “How many people can live on planet Earth?”

Unsustainable levels of consumption threatening progress in human development

Charting a course away dangerous climate change: A shrinking window of opportunity

To keep within 2C

threshold CO2e

concentration should

stabilize at 450 ppm

The UNDP 2007/2008

HDR estimated that

the 21st Century

carbon budget is set

at 1,456 Gt CO2

A sustainable

emissions pathway

will require the world

to cut emissions by at

least 50 percent by

2050

Source: Stern (2006)

Source: United Nations Human Development Index

A new development model is needed…

UN Panel on Global Sustainability

50-50-50 challenge: How can we reduce GHG emissions by 50% while feeding and nurturing a human population that in 2050 could be 50% larger than today?

Will the 9 billion people expected in 2050 have the opportunity to thrive?

Transition to GREEN, LOW CARBON and CLIMATE RESILIENT SOCIETY

It can be done

But it requires business unusual and global monitoring and assessment to stay within the 2 degrees Celsius limit

Global GHG Abatement Cost Curve

Source: Global GHG Abatement Cost Curve v2, McKinsey (2009)

Finance Needs to achieve transition are huge, but possible to achieve

1. 10.5 trillion for low emission energy infrastructure by 2030; 4 – 109 billion/year for adaptation; 60 billion/year in incremental cost funding by 2020 for mitigation actions needed for 20 C pathways; Less than fossil fuel subsidies: 312 billion in 2009

2. Substantial upfront costs, but attractive commercial returns – energy bills reduced by over 8.6 trillion; savings from air pollution 100 billion

3. IEA: the global additional investment needed in 2020 will come from:

4. Global capital markets 178 trillion in financial assets

5. 200 billion /year for ecosystem and climate finance committed

40%households

40%businesses 20%

governments

Key Challenge in Financing the Transition

Traditional High Carbon

Low emission and climate resilient

Address barriers to redirect existing and planned capital flows

CRITICAL:

Aligning development and climate management goals

Global Environment Trust Funds

• GEF Trust Fund

•Montreal Protocol Multilateral Fund

•SCCF, Adaptation Fund

Multi/bilateral funds

•WB: CIF

•Germany ICI

Market based & Innovative Sources of Financing

•Carbon Finance (CDM/JI, VC, sectoral credit + financing)

•Insurance + other risk financing

New UNFCC Related Funds

•Fast Start Funds (s)

•Green Climate Fund

•Technology mechanisms

$6 - 9 billion

By 2010, global

$15 billion

$280 billion

$75-150 billion

Proliferation of sources of Environmental Finance

GEF

Standing Committee on Finance

UNFCCC COP

Mitigation

Green Climate Fund AF

Adaptation

BilateralsMultilaterals

(Individual donor-funded programmes)

MIEs NIEs

Programme Countries

GEF Agencies

A Possible CC Financial Architecture

Modalities for Accessing Resources of the Adaptation Fund

Climate Change Finance: Sources, Agents and Channels

Source: Adapted by Yannick Glemarec from Atteridge and others (2009)

The name of the game is…

... few developing countries can access the new sources

Access new and innovative sources for climate and ecosystem finance

Promote synergies between development, climate and ecosystem finance

Use limited sources of public finance to catalyze much larger private flows

Key Environmental Finance Challenges faced by developing countries

Comparative Scarcity of Funding Sources

Potential Sources of Innovative Climate Finance

1. Public finance from climate sources

Phase out of regressive fossil fuel subsidies

Fossil fuel extraction royalties/licenses

AAU auction proceeds

Emission Trading Schemes (ETS) auction proceeds

Carbon taxes/Carbon export optimization taxes

Marine and aviation/bunker fuel levies

Offset levies

Wires charge on electricity production

2. Public finance from non-climate sources

‘Tobin’ tax, taxing revenues from financial

transactions

Leveraging of IMF Special Drawing Rights

20

GET FiT incentive structure

Source: DBCCA, 2010

Independent

Power

Producer*

National

GovernmentUtility*

Debt

Providers

Risk

Insurance

(private &

public)

Ratepayers

Equity

Investors

Pays avoided cost rate

Pays portion of premiumPays portion of

premium

Guarantees payments to

IPP, if required, and provides concessional

financing

International

Sponsor

Guarantees

Pay electricity bills

Guarantees total payment, if

possible

Insures against political risks

Provide financing

Passes through premium payment

Premium payment

Legend:

Market price payments

Guarantees

Financing

GET FiT

Program

GET FiT Plus Focus

Four-step process for selecting the appropriate combination of policy and financial instruments

Methodology for selecting an optimal financing mix

Policy and financing mix to promote wind power in developing countries

UNDP Response: Low-Emission and Climate Resilient Development

National planning --LECRD Strategies/

Investment Roadmaps

Establish Enabling Environment to catalyze capital

(barrier removal, blending of different sources of funds)

Implementation and Reporting Support

Services to enhance national programme

management capacity

Learn & Apply New Knowledge

Poverty, gender, capacit

y

development, democrati

c governance

KM networks

National Climate Funds

• Indonesian Climate Change Trust Fund

• Guyana REDD Investment Fund

• Costa Rica Green Bond Fund

• Philippines National Survival Fund

• India Clean Energy Fund

• Nigeria National Strategic Climate Change Trust Fund

• Thailand Energy Efficiency Revolving Fund

• Maldives Climate Change Trust Fund

• Ecuador Yasuni Trust Fund

• China Funds for the Environment

• China CDM Fund

• Bangladesh Climate Change Resilience Fund

• Brazil National Fund on Climate Change

• Amazon Fund of Brazil

• Cambodia Climate Change Alliance Fund

What did work well? What did not?

1. Objectives and functions: financial mechanisms vs. coordination mechanism/clearing house/NIE/PDF/capacity development mechanism/development bank/national climate agency.

2. Ambition vs. Capitalization

3. Partnership organization vs. new vertical institution

4. Streamlined project cycle-avoiding a « double » project cycle

5. Stakeholder engagement to identify needs and requirements, best and poor practices

6. Unambiguous appraisal and performance criteria and public information systems

7. Tailored fiduciary standards vs. « one size fits all » approach

8. Stability vs flexibility (two-phase approach)

9. Multiple implementing partners and investment in capacity development

10. Unbundling and interdependencies

11. Delivery multiple development benefits vs. Sectoral benefits

12. Private sector incentives: direct subsidies vs. enabling environment

Developing a Term Sheet

Key Decisions Descriptions Key Questions Examples

Objectives

Capitalization

Governance

FiduciaryManagement

ImplementationArrangements

Monitoring, Reporting and Verification

Thank you!