Enabling Adaptation Finance in Developing CountriesCatalyzing AdaptationFinance

Pradeep Kurukulasuriya, PhDHead- Climate Change Adaptation (Global)

UNDP-GEF (HQ)

Bonn, June 2014

Cambodia/LDCF Guatemala/SPA

Vanuatu/SCCF Laos/SCCF

Cambodia/LDCF

Scale of Finance for Adaptation

“Additional” Funding Needs $2.129 b (Urgent and Immediate Priorities -NAPAs) $30-100 b/year for period 2010-2050 (WDR 2010) $290 b/year (Parry et all 2009) $326 - $355 b/year for financing adaptation options on

natural ecosystems) (Source: Berry 2007)

Mainly infrastructureEstimates are likely an underestimate!

Catalyzing AdaptationFinance

Present Level of Assistance Approx. USD $140-175b & $70-100 b/year for 2010-2050 (mainly for mitigation) Vertical Funds (for adaptation; LDCF/SCCF/AF): less than $1.0b to-date cumulatively

Copenhagen Accord- $100b/year additional finance by 2020 (50% of this for adaptation)

Scale of Finance for Adaptation Catalyzing AdaptationFinance

Scale of Damage in Thailand (2011)Estimated Losses: $15-20 billion (Swiss Re/Munich Re)

$21 billion (prop. damage); $22 billion (opp. costs) (World Bank)

Catalyzing AdaptationFinance

Catalyzing Adaptation Finance: Key Drivers

Public finance alone is not currently sufficient; Public finance alone is not going to be sufficient

Most of the investment in adaptation expected by businesses and households (end-users)

Ensuring that money is well spent, and hence maximizing its impact and The main drivers of private sector investment will be:– Preserving existing infrastructure, businesses and livelihoods– Developing new businesses – (No-regret investments (adaptation is an ancillary benefit)

Ensuring that money is well spent, and hence maximizing its impact and effectiveness will be critical to maintaining support and realizing the transition to a low-carbon, climate-resilient future.

Catalyzing AdaptationFinance

Catalyzing AdaptationFinance

Catalyzing Climate Finance

Key Barriers to Adaptation FinanceCatalyzing AdaptationFinance

Need to get the enabling environment right!

Pay attention to lessons from energy…

CapitalMarket

Private Sector

Integrated Model ‘Blended Finance’

Source: UN-MPTF, 2014

Blend Funding Sources

Account For

Collect

Domestic Sources International Sources

Key Barriers to Adaptation FinanceCatalyzing AdaptationFinance

Adaptation Finance is unlikely to be at the scale required without an effort to remove a few key barriers

Need to create conditions that attract finance without compromising development goals and sharing cost burden on end-users.

Multiple stakeholders (investors, end-users, policy makers, supply chains, etc)

Broad spectrum of policies, incentives and support mechanisms to(a) reduce risks (i.e. lower cost of capital)(b) increase rewards (i.e. premium prices, credits, etc)

Key Barriers to Adaptation FinanceCatalyzing AdaptationFinance

The capacities of countries to plan for, attract, access, deliver, and monitor and report on climate finance, both international and domestic, in ways that are catalytic and fully integrated with national development priorities.

Climate Finance Readiness

Key Barriers to Adaptation FinanceCatalyzing AdaptationFinance

• Assess needs and priorities, and identify barriers to investment

• Identify policy mix and sources of financing

• Multiple access channels

• Blend and combine finance

• Formulate project, progamme, sector-wide approaches to access finance

• Implement and execute project, programme, sector-wide approaches

• Build local supply of expertise and skills

• Coordinate implementation

• Monitor, report, and verify flows of results and funding

• Performance-based payments

Financial Planning

Accessing Finance

Delivering Finance

Monitor, Report & Verify

National Planning and Budgeting Cycle: Country XEntry points and Tools for Addressing Climate Risk

National Plan and medium term budget or expenditure framework

Sectoral PlansMedium Term

AnnualImplementation (Priority sectors

for Climate Adaptation)

Annual Monitoring (Sectors)

Annual sectoral budgets

Mid Term Review of National Plan/

Sectoral Plan Reviews

Plan adjustments/course correction forImplementation

Final Evaluation

Climate risk assessment/Valuation of costs and benefits –

estimate of additional adaptation budget needs.

Prioritization based on climate risk analysis

Evidence based results on impact of adaptation expenditures

Value added of adaptation programmes reviewed –

Adjustments to sectoral plans and valuation estimates in adaptation priority sectors

Evaluation of economic and social benefits from additionality of adaptation

NAP Process

NAPs - A Defining Framework for Medium and Long-Term Climate Change Challenge

Key Barriers to Adaptation FinanceCatalyzing AdaptationFinance

NATIONAL DEVELOPMENT PLANNING PROCESS

Strengthening Country SystemsCatalyzing AdaptationFinance

Lessons from Cambodia– Focus on the process – Inclusive national dialogue and strong ownership from

multiple stakeholders– Establish institutional structures and mechanisms that are demand led and enable

innovation, accountability and transparency– Strengthen capacities of national institutions to plan, budget, track and monitor

climate finance– Build public capacity to design and implement national programmes and projects

that are results (benefit) based and sustainable– Establish robust M&E systems to track and measure climate finance effectiveness– Share lessons and knowledge both nationally and internationally to build capacity

and strengthen commitment to agreed climate responses.

• Country-driven processes subject to political changes/ sensitivities

• Priority setting is lengthy & complex due to competing agendas among sectoral ministries

• Technical capacities for iterative climate considerations in planning and budget required (to assess finance needs, first need to understand costs/benefits of adaptation over different time scales)

• Elements are not one-size-fits-all - Different configurations of these four components can exist within institutions, between institutions, or across national or sectoral systems.

• Not starting from scratch – Many countries have parts of these systems in place. The challenge is identifying them and organizing them to produce an effective system at the national level.

• Readiness is an ongoing process – tools and guidebooks are available to support countries as the climate finance landscape evolves

Some Early InsightsCatalyzing AdaptationFinance

Key Barriers to Adaptation FinanceCatalyzing AdaptationFinance

What does it take to get the enabling environment right?

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Focus of UNDP’s Work on Climate Finance ReadinessCatalyzing AdaptationFinance

ACTION ON THE GROUND

CAPACITY ENHANCEMENT

BARRIER REMOVAL

POLICY DIALOGUE

• Policy development: How is CC policy formulated? Are national CC strategies developed?

• Provide a framework for sector-wide approaches & to incentivise private investments

• Institutional structures: What are roles & responsibilities of institutions involved in managing CC response & their interaction?

• Public financial management: How to quantify & track CC-related expenditures in the budget?

• Developing bankable adaptation projects including training on the economics of adaptation

NAP-GSP, LECB, CPEIR

LDCF/SCCF/AF/Bilateral financed projects

NAP-GSP, LECB, CPEIR, LDCF/SCCF/Bilateral financed projects

CPEIR

Economics of Adaptation

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Key Barriers to Adaptation FinanceCatalyzing AdaptationFinance

ACTION ON THE GROUND

CAPACITY ENHANCEMENT

BARRIER REMOVAL

POLICY DIALOGUE

LDCF/SCCF/AF/Bilateral financed projects

NAP, Climate Readiness, Economics of Adaptation, Evidence Based Result Tracking

Cambodia/LDCF

Bhutan/LDCF

Zimbabwe/SCCF

Niger/LDCF

Samoa/SCCF

Rwanda/LDCF

Bangladesh/LDCF

www.undp-alm.org

Laos/LDCF