Financing for Climate Change

By

Sothini C. Nyirenda

A presentation made at the 3rd LEAD Pan African Session, and 17th International Session , Sogecoa Golden Peacock

Hotel, Lilongwe, Malawi, 15th November 2012

Presentation Outline

• Background

• Trajectory of Climate Change Financing within the UNFCCC.

• Why Climate Change Financing?

• Existing International Climate change financing windows.

• Experiences with UNFCCC funds.

• A case study of projects funded under the LDCF-GEF 5.

• Conclusion.

Background

• Objective of the UNFCCC is to stabilize GHG emissions, at levels that prevent dangerous anthropogenic interference with the climate system.

• To date 17 sessions of the CoP have been held since 1994 when the UNFCCC came into force, and in 2 weeks time delegates will be meeting in Doha for the 18th Session.

• GHG concentrations are increasing continuously, (IPCC AR4, WGI, 2001) and Carbon Dioxide concentration has reached 395ppm as of June 2012 from 383 in 2006 .

• Financing has been key in all sessions, and is on the agenda.

Trajectory of Climate Financing within UNFCCC

• 1995, Berlin (CoP 1)-Article 11 of the UNFCCC established the financing mechanism, and the CoP in response to Article 21 provision, the GEF was named as the interim operating entity of UNFCCC finances.

• 1998, Buenos Aires (CoP 4)-the status of GEF was formalized.

• NB-at this time the Kyoto Protocol had just been agreed the previous year, and focus was on how to make it operational, and the concepts of CDM & JI were born.

Trajectory of Climate Financing within UNFCCC

• July 2001, Bonn (CoP 6bis)-an agreement was made to establish 3 new funds for Climate Change.

• November 2001,Marrakesh (CoP 7)-LDCF, SCCF and AF were established, and GEF asked to manage LDCF and SCCF.

• 2009, Copenhagen (CoP 15)-developed countries pledged to provide US30billion between 2012 and 2012.

• 2010, Cancun (CoP 16)-the GCF was established and is still under development.

Why Climate Change Financing?

• Article 4(3) of the UNFCCC commits developed country parties and other developed country Parties in Annex II to provide new and additional financial resources to meet the agreed full costs incurred by developing country Parties .

• Article 4(4) commits developed country parties to assist developing country Parties that are particularly vulnerable to the adverse effects of climate change in meeting costs of adaptation.

Existing international climate change financing windows

The UNFCCC

• The GEF serves as the operating entity of the UNFCCC, and it administers the following funds:

LDCF-supports urgent adaptation needs of LDCs, and has disbursed $108million to date.

SCCF-supports long-term adaptation measures, and has disbursed $80million to date

Adaptation fund (Administered by the World Bank)- finances adaptation measures in developing countries, financed through a 2% levy on the sale of emission credits from CDM and became operational in 2009.

Multilateral Financing Initiatives

• The UNFCCC through article 11.5 allows developed countries to provide financial support to developing countries through multilateral, bilateral and regional channels. Funds in these channels are not subject to the guidance and authority of the CoP, but they are consistent with the convention.

• Multilateral institutions are institutions which have a financial (banking) basis and to which multiple countries contribute funds and share ownership.

• Existing institutions include the World Bank, regional development banks like ADB, AfDB, IADB, European Investment Bank, Nordic Finance Corporation, etc.

Multilateral Financing Initiatives cont’d

• Climate Investment Funds- established in 2008, administered by the World Bank in partnership with regional development banks

• They consist Clean Technology Fund (receives majority, $4.1billion to date), Strategic Climate Fund, Forest investment Programme and Scaling up Renewable Energy Programme for Low Income Countries.

Multilateral Financing Initiatives cont’d

• UN-REDD program-became operational in 2008 with support of Norway and Denmark.

• Helps forest rich countries reduce emissions from avoided deforestation and degradation.

• Multilateral Development Banks-Most MDBs administer climate finance initiatives with regional or thematic focus.

• WB established the Forest Carbon partnership Facility (FCPF) to explore how carbon market revenues could be harnessed to reduce emissions from deforestation and degradation.

Multilateral Financing Initiatives cont’d

• AfDB administers the Forest Fund

• European Investment Bank administers the EU Global Energy Efficiency and Renewable Energy Fund (GEEREF).

Bilateral Financing Initiatives

• This is financing arrangement between one county and another.

• It is estimated that $24.6billion is directed through bilateral channels per year (Buchner et al, 2011).

• More details in the written paper.

Carbon Trading

Performance of the Carbon Markets

Some things to note on the Carbon Markets

• Parties that emit more than 70% of the aggregate GHGs are not obliged by the Protocol to reduce their emission.

• Supply of credits has far outstripped demand.

• Demand only left in Europe, and with the Eurozone crisis, industrial activity has dropped and the price of carbon has dropped from $20 per tonne in 2008 to $5 currently.

• What is the future of carbon markets?

CoP 16 Being Concluded

What do these statistics indicate?

• Funding through the UNFCCC is slowly shrinking.

• Multilateral and bilateral institutions are dominating and have managed to generate significant amounts of funds within a short period of time.

• It is worth noting that some of these initiatives outside the UNFCCC are providing loans and not grants, which is contrary to UNFCCC Article 4.

Experiences with the UNFCCC Funds

• UNFCCC funds have operated for the longest period, but have attracted the least amount of global funding windows;

• Focus in CoP has been on the process; how money should be raised, how it should be spent, governed and monitored, and not on results;

• Access has been a problem due to bureaucracy;

• TRUST has been central to climate finance negotiations, between Annex I and Non Annex I Parties.

Experiences with the UNFCCC Funds

• Funding is voluntary, as such it is not predictable;

• The UNFCCC does not recognize emerging economies, as such it is proving difficult for Annex 1 Parties to continue funding emerging economies like China. Canada pulled out of the KP soon after CoP 17 in Durban.

• Most Annex I Parties are interested in funding mitigation (global commons problem), unlike open ended adaptation, because it is not different from ODA.

Experiences with the UNFCCC Funds

• Due to low funding levels, interventions are project based, in 4 year cycles, as such focus is on results which can be realized in 4 years, as such other important elements of resilience are neglected.

• The CoP despite guiding the GEF on paper, has delegated almost everything to the GEF, and it is unclear whose agenda prevails.

• Some recipient Parties have failed to utilize the funds, and they have been returned to GEF, and donors wonder whether money is really a problem.

Experiences with the UNFCCC Funds • There are no metrics in adaptation, and politically

inexpedient to policy makers.

• Less than 1% of the pledges by Annex I Parties in CoPs 15 through to 17 has been designated to be channeled through the UNFCCC, and developing countries are really working hard negotiating on the shrinking funds.

• The UNFCCC is in the process of creating a new Fund, Green Climate Fund.

• It is questionable as to how a new fund would make a difference, while existing funds are failing to attract the needed finances.

Experiences with UNFCCC Funds • CoP 1 through decision 11/CP.1, agreed to

address adaptation in three stages; a) Address planning, and studies on vulnerability

assessment b) Address measures, including capacity building to

prepare for adaptation as envisaged in Article 4.1(e)

c) Implementation of adaptation • Most developing countries are stuck on Stage 1,

because most projects are still on planning 18 years later after the UNFCCC came into force. Who will catalyze the graduation from planning to action? LEAD Fellows (to be) think about it.

Experiences with UNFCCC Funds • In some countries it is impossible to get local

Consultants;

• Countries don’t have direct access to LDCF resources, and don’t feel like owning the process;

• Approval process it too long and complex, as of 2006 it took an average of 66months between entry of a concept and project initiation.

A case study of Projects funded under the LDCF Cycle-5

Scale of Projects

Scale of implementation Frequency Percentage

(%)

National level 21 91.3

National and community

level

1 4.3

Community level 1 4.3

Total 23 100

Target audience for Capacity Building

Target audience for capacity building Frequency Percentage (%)

Government officials, local communities and media 1 4.3

Government officials, academia and communities 1 4.3

Government officials and local communities 10 43.5

None 1 4.3

Government officials alone 10 43.5

Total 23 100.0

Analysis of Budgets

Project preparation, 0.9

Agency fee, 1.4

Project Personnel, 1.7 Local Consultants,

2.6 International consultants, 3.6

Office facilities, 2.08

Travel, 0.3

Other project activities , 87.8

Relationship of Budgets across different Countries

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

Cambodia

Comoros

Djibouti

Gambia

Guinea-Bissau

Guinea

Haiti

Lao PDR

Lesotho

Malawi

Mali

Rwanda

Sao Tome & Principe

Sierra Leone

Key findings

• 95.5% of projects are addressing planning at central govt level;

• Adaptation proving to be a GOVERNMENT BUSINESS alone, there is no civil society, NGO, Academia, private sector involvement.

• Ministries of environment are implementing 15 of 23 projects unilaterally in AFS, DRM, WRM, forestry, meteorology and infrastructure development, and they are all at planning level to influence policy.

Key findings cont’d • 69% of Projects are depicting social

adaptation and not scientific. • It is an obstacle to future stakeholder

engagement. • Projects risk having activities implemented

workshops conducted, documents produced, money spent but lacking legitimacy, sustainability and impact on the ground.

• All project are consistent in different budget components.

Key findings cont’d……

• 22 of 23 projects provided for capacity building of policy makers & govt officials only.

• Level of capacity building not clarified except for Sierra Leone, the rest indicate as training workshops.

• International Consultants and Agency Fees from GEF Agencies account for 5.9% of budgets, and 87.8% spent in-country.

• There were very few programmes targeting local communities.

Conclusion

• The emphasis on how inadequate funding is has rendered LDCs dependent, instead of investing in developing sustainable response, the primary focus has been on searching for finances as the ultimate solution.

• Money alone cannot guarantee better response. • Regardless of the source of financing, how the

finances are used, and how they achieve the objective of climate change response remains the most important thing.

• Adapt to climate change, and not to money.