METHODOLOGY FOR ASSESSING INVESTMENT AND FINANCIAL FLOWS TO

ADDRESS CLIMATE CHANGE IN ST. LUCIA

Grupo del PNUD sobre Medio Ambiente y Desarrollo

INTRODUCTION

Day 1 Introduction and project context Benefits of doing an I&FF Assessment General methodology

Day 2 Sectoral working groups

Day 3 Reporting Elaboration of workplan

Agenda

Train national teams in the use of UNDP Methodology for Assessing I&FF to address Climate Change.

Define final Workplan (outputs and timeframe).

EXPECTED LOCAL BENEFITS: Incorporate new Government areas into

Climate Change analysis.

Develop local capabilities to identify key issues.

Training ObjectivesINTRODUCTION

PROJECT CONTEXT

Why consider Climate Change in development planning

Climate change impacts different sectors, cross-cutting

If not addressed in long-term action, climate change costs will be high

Countries may want to position themselves To ensure that the negotiation outcomes are

coherent with national interests & priorities To be able to participate in the mechanisms that

will be created

Why consider Climate Change in planning

Bali Road MapFocus on 4 building blocks: Mitigation Adaptation Technology development & transfer Financial resources and investment

Context of climate change negotiations

What is Adaptation?

Closely linked to development Will require adjustments across every

aspect of society, environment & economy Linked to economic development, poverty

alleviation, disaster risk management Requires capacity for short- & long-term

planning

Adaptation & Mitigation

Process of sustainable & permanent adjustment to changing circumstances

What is Mitigation?

Bali Action Plan suggests nationally appropriate mitigation actions by developing country Parties in the context of sustainable development, supported and enabled by technology, financing and capacity-building, in a Measurable, Reportable and Verifiable manner (MRV)

International agreement will be major challenge

Adaptation & Mitigation

“An anthropogenic intervention to reduce the sources or enhance the sinks of greenhouse gases.” (IPCC, 2009)

Bali Road Map – Important outcomes Actions to address climate change are

linked to economic growth & sustainable development goals

Shared understanding for the necessity of common efforts, by all countries

Deadline for negotiations by 2009 New mechanisms & new demands to

countries

Context of climate change negotiations

Key messages of negotiations Importance to show flexibility to support

any new agreement & new financial architecture

Focus on national capacities for Broader participation of various decision

makers Longer term planning Implementing broader programmatic

approaches Understanding the finance & technology

opportunities

Context of climate change negotiations

Importance of planning tools To identify national priorities To facilitate cooperation among different

ministries To build strategies to deal with climate

change To create a coherent base of information of

climate change impacts on and opportunities in key sectors

The project tries to address these points

Project context

Why an I&FF assessment

An assessment of I&FF is important to Understand the magnitude & intensity of

efforts needed nationally to address climate change in key sectors

Facilitate the integration of climate issues into national development & economic planning

Expand the information & knowledge base Contribute to the elaboration of negotiating

positions for international climate negotiations

PROJECT STAGES & SUPPORT

Goals Development of national policy options to address

climate change in key sectors Increased capacity to co-ordinate negotiating

positions at national level & participate in the UNFCCC process

Outcomes National awareness raised Investment & financial flows

assessed for key sectors Web-based knowledge

platform populatedhttp://www.undpcc.org/

Project goals & outcomes

Sequencing of national activities

Pre-workshop preparation (2 months)

National workshop

on Bali Action Plan,

national issues

Assessment of I&F flows to address CC mitigation/adaptation options for up to 3 key economic sectors (6-8 months)

National workshop to present

results, policy

options• Key line

ministries engaged

• Key sectors identified

• National issues papers prepared

National workshop on:

• Bali Action Plan

• Adaptation, mitigation, technology transfer,

financing + LULUCF

• Key sectors

UNDP methodology on assessing I&F flows

Backstopping from regional centres of excellence

• Update on Bali Action Plan negotiations

• I&F flows assessments presented

• Post-2012 preparation

Preparation stage Implementation stage Reporting stage

Define & agree National objectives/goals Key sectors/scope I&FF team Capacities/needs: methods, information… Institutional arrangements On workplan/budget Available scenarios

Preparation stage (1- 2 months)

Conduct I&FF assessment in key sectors selected by the country using the UNDP I&FF methodology and the sector specific guidance & reporting guidelines

Guidance & procedures for Documentation & archiving Spreadsheet management Quality control & quality assurance

procedures

Implementation stage (5 – 6 months)

Ongoing activity, not starting at the end of the assessment

Define outcome (decision making tool, policy tool), target group (internal/external) to draft report

Ensure good drafter for preparation of report(s)

Purpose: documentation of steps and processes for interpretation of outcomes & for later follow-up work

Reporting stage

Support to the 3 stages of the project Work plan guidance Methodological guidance Reporting guidance

Regional Centres of Excellence Training on assessment of I&FF 20 days of technical backstopping incl.

Review of workplan, draft and final assessments

Guidance on scenarios, data, approach

Guidance available + support provided

Guidance available + support provided

Knowledge platformPublic space Database of documents on

climate change Information on the project Dynamic: Users can upload resources;

results and updates “pushed” to site visitors

Member space Faciliate sharing of experiences in groups

(country groups, thematic groups) Private access for national project activities

Checklist

Country checklist Sectors selected

Major information background Draft work plan

Key deadlines?Roles?

TeamIn place?All recommended persons/groups in?

Institutional arrangements in placeTo share dataTo collaborate

Team composition

I&FF ASSESSMENT:

MAIN CONCEPTS

I&FF: Monetary flows needed to implement policy options in key sectors from the national perspective.

Investment Flow (IF): capital cost of a new physical asset (buildings, equipment, software, etc.) with life of more than one year.

Financial Flow (FF): expenditure not related to the purchase of physical assets (typically programmatic expenditures, e.g. vaccination campaign).

Operation & Maintenance Costs (O&M): are estimated for physical assets (salaries, raw materials, taxes, insurance, etc.)

What are Investment and Financial Flows?

I&FF: Example

Sector / Approach

Adaptation/Mitigation Measures

Investment Flows

(FI)

Financial Flows

(FF)

Operation and maintenance

Costs (O&M)

ENERGY (MITIGATION)

Increased energy efficiency

Energy saving appliances

Training programmes for

auditors / Information campaigns

O&M of new appliances

Wind farm Windmills   O&M of windmills

WATER (ADAPTATION)

Water conservation   Information campaigns  

Rainwater harvesting

Storage mediums

(tanks, jars, etc.)

Information campaigns

O&M of storage mediums

COASTAL ZONES (ADAPTATION)

Monitoring of infrastructure

New monitoring equipment

Monitoring campaigns

O&M of new equipment

Raising dock levels Construction costs   O&M of new

infrastructure

Who invests? Who finances? Entities and sources

Investment Entity Source of funds

HOUSEHOLDS Domestic Equity and debt

CORPORATIONS

DomesticDomestic equity

Domestic borrowing

Foreign

FDI

Foreign loans

Foreign Aid

GOVERNMENT

Domestic Domestic funds (budgetary)

ForeignForeign loans

Foreign Aid

An internally consistent and plausible characterization of future conditions over a specified time period (2005-2030).

Baseline Scenario: reflects business-as-usual conditions. Describes what can occur without new policies to address climate change.

Mitigation Scenario: incorporates measures to mitigate GHG emissions.

Adaptation Scenario: incorporates new measures to respond to the potential impacts of climate change.

Note: Only one climate and socio-demographic scenario is considered. The only difference between M/A and BL scenarios is that the former consider new measures to tackle CC.

What is a scenario?

Example - Water Sector

Baseline Scenario: provide water to a growing population extracting it from an aquifer (usual practice in the last years).

Adaptation Scenario: Climate Change will reduce aquifer refill, so it is decided to build a dam.

The additional investment flows will be the costs of building the dam (versus the investment needed to keep on extracting water from the aquifer)

Scenarios and policies - Example

Expected product

Year

Additional Annual Sectoral Investments (million 2005 US$)

ADAPTATION MITIGATION

Water Coastal Zones Energy

∆FI ∆FF ∆FI ∆FF ∆FI ∆FF

2005            

2006            

2007            

2008            

2009            

2010            

2011            

2012            

2013            

…            

2030            

Total            

I&FF METHODOLOGY

STEP BY STEP

1. For each sector, evaluate investments and financial flows for two policy scenarios: Baseline Scenario Adaptation/Mitigation Scenario

2. Estimate the additional flows needed to implement new adaptation/mitigation measures (difference between flows in both scenarios).

Methodology: General Vision

Methodology helps define/identify…

What are IF, FF and O&M costs.

Procedures to avoid double counting, compute additional I&FF and present results.

Preferrable information sources.

Additional I&FF needs for key measures in key sectors (no inventory).

National teams should identify themselves…

Key mitigation/adaptation measures from a national perspective.

Key trends/policies to consider in each scenario.

Analytical approach. How to define sector

scope and how to define boundaries if sector overlaps arise.

What policies are needed to implement CC policies.

METHODOLOGY What guidance does it provide?

Steps to conduct sectoral

I&FF

Assessment

METHODOLOGY

Step 1:

Establish key parameters of the

Assessment

The team should decide:

Sector scope (activities, geographical areas, etc.) and overlaps avoidance

Analysis period

Key mitigation/adaptation measures (preliminary list)

Analitical approach for defining future scenarios

1. Establish key parameters of assessment

Define sector scope - Analize overlaps

WATER

BIODIVERSITY

TOURISM

FORESTRY

ENERGY

AGRICULTURE

Lake overflow Glaciers

Electricity

Oil and gas

REDD Stockbreeding

Coastal zones

Water pollution

Mangroves

BiofuelsTransport

Hydraulic Energy

1. Establish key parameters of assessment

Preliminary measures were identified in National Issues Papers and discussed in the Interministerial Dialogue.

Now measures need to be: Prioritized (according to national criteria) Made quantifiable (“How much does it cost to implement

it?”)

Benefits of the measures need to be identified qualitatively (the assessment is not a cost-benefit analysis - it is not asked to estimate benefits quantitatively).

Identify preliminary adaptation/mitigation measures

1. Establish key parameters of assessment

Suggestions: Base year: 2005 Horizon: 2030 Use constant 2005 US dollars (and discount flows) Use up to 2 discount rates per sector:

- Public rate (used in public projects)- Private rate- When analysing Climate Change impacts, theory

suggests not to use a discount rate higher than 3%. Subsidies: optional

Define base year and assessment period1. Establecer los

parámetros clave de la evaluación

1. Establish key parameters of assessment

Suggestions:

Use analytical models only if they are usually applied within the sector.

Projection alternatives: Sectoral plans Observed tendencies Scenarios included in National

Communications or strategic studies Current situation

Define analytical approach for projections1. Establish key parameters of assessment

What should we have at the end of Step 1?

Precise definition of sectoral scope (including overlaps analysis).

List of key adaptation/mitigation measures to value.

Analytical method to estimate/project sectoral tendencies (model, current scenario projection, existing development plan, etc.)

1. Establish key parameters of assessment

Step 2:

Compile historical I&FF data and other inputs for

scenarios

Compile historical annual data (I&FF and O&M) to address the following questions:

1. How much was invested in each sector (in recent years)?2. What are the main types of investment in each sector?3. Who has undertaken the investment?4. What is the usual life of investments and duration of

programmes?

Suggested period: 1995-2005 (and 2006-2008 if information is available).

Data should be collected for 3 - 10 years.

Compile annual I&FF data2. Compile

historical I&FF data and other input data for

scenarios

Step 3:

Define Baseline Scenario

Describe what is likely to occur in the absence of ADDITIONAL policies to address climate change

Baseline scenario should reflect Current sectoral & national plans Expected socioeconomic trends Expected investment trends (for each

subsector)

3. Define Baseline Scenario

Step 4:

Derive I&FF and O&M for baseline scenario

Estimate I&FF for the sector up to 2030

Information should be disaggregated by:

Year Investment entity (Corporations,

Government) Source of funds (national, FDI, official

development assistance)

4. Derive I&FF for baseline scenario

4. Derive I&FF for baseline scenario

Expected product (example Water sector– year 2010)

Entidad inversora Fuente de FI&F

BASELINE SCENARIO

Expected I&FF - year 2010

WATER SECTOR

Dam constructionInformation campaign for water efficient use Total Inverstments

IF FF O&M IF FFO&M IF FF O&M

HOUSEHOLDS Domestic Equity and debt                  

CORPORATIONS

Domestic

Domestic equity                  

Domestic borrowing                  

Foreign

FDI                  

Foreign loans  1000           1000     

Foreign Aid                  

Total Corporations                  

GOVERNMENT

DomesticDomestic funds (budgetary)      300      300  

Foreign

Foreign loans                  

Foreign Aid                  

Total Government                  

TOTAL      1000        300    1000 300   

Step 5:

Define Mitigation/ Adaptation Scenario

Describe a situation where new measures are taken to adapt to/mitigate Climate Change.

5. Define Adaptation/Mitigation scenario

Define adaptation/mitigation scenario

1. Reevaluate and reprioritize the mitigation/adaptation measures previously defined according to: Develpment plans/experience. Technological and sociodemographic tendencies

identified for baseline scenario. New information gathered during the project.

2. Include qualitative information regarding benefits (health, other sectors, etc.)

3. Redefine measures in order to clasify them in: “New” measures (eg.: new dam) Measures that are “extensions” of measures

included in baseline scenario (eg: bigger dam)

5. Define adaptation/mitiga

tion scenario

Step 6

Derive I&FF for Adaptation/Mitigation

Scenario

Project the I&FF and O&M associated with the mitigation/adaptation measures selected.

Disaggregate flows by:Year Investment entity and source,

6. Derive I&FF for Mitigation/Adaptation Scenario

6. Derive I&FF for adaptation/mitigation scenario

Example - Adaptation in Water Sector Annual flows

Year

WATER SECTOR – ADAPTATION SCENARIO

ANNUAL FLOWS

Measure.: Flood control

Building of a bigger dam (than planned in

the BS) (IF)

Education programme (FF)

O&M (of dam)

2005      

2006      

2007      

2008      

2009      

2010 1500 100  

2011 1500 100  

2012 1500 100  

2013   100 100

2014   100 100

2015   100 100

2016   100 100

2017   100 100

2018   100 100

2019   100 100

…   … …

2030   100 100

Total (cumulative 2005-2030) 4500 2000 1800

Investment Entity Source of funds

WATER SECTOR – ADAPTATION SCENARIO

I&FF AND O&M – YEAR 2010

Measure: Flood control

Building of a bigger dam (than planned in the BS)

(IF)

Education programme for risk management

(FF)Total Investments

IF FF O&M IF FFO&M IF FF O&M

HOUSEHOLDS Domestic Equity and debt                  

CORPORATIONS

Domestic

Domestic equity                  

Domestc loans                  

Foreign

FDI                  

Foreign loans 1000            1000     

Foreign aid                  

Total Corporations                  

GOVERNMENT

DomesticDomestic funds (budgetary)       100       100  

Foreign

Foreign loans                  

Foreign aid 500             500    

Total Government                  

TOTAL     1500       100   1500   100  

6. Derive I&FF for adaptation/mitigation scenario

Example - Adaptation in Water Sector Year 2010

Step 7:

Estimate additional I&FF needed to implement Adaptation/Mitigation

measures

Subtract the baseline I&FF from the mitigation/adaptation I&FF.

7. Estimate additional I&FF needed to implement adaptation/mitigation

Estimate additional I&FF7. Estimate

additional I&FF for adaptation/mitigati

on

Additional I&FF = I&FF estimated for Adaptation/Mitigation Scenario

minus I&FF estimated for Baseline Scenario

I&FF are estimated for: Each of the sectors selected (per year - cumulative) Each of the adaptation/mitigation measures selected:

New investment and programmes: additional I&FF are total costs

Extended investment and programmes included in baseline: additional cost given by difference of I&FF in adaptation/mitigation and baseline scenarios

All investments and all programmatic expenditures (detailed per investment entity and financing source)

Estimate additional I&FF – Example (year 2010)

Investment entity Source of I&FF

BASELINE SCENARIO - WATER SECTOR - 2010

Dam construction Infomration campaign for efficient water use

IF FF O&M IF FF O&M

C0RP.   Foreign loans 1000          

GOV.

Domestic Domestic funds         300  

Foreign Foreign aid            

TOTAL     1000       300  

Investment entity Source of I&FF

ADAPTATION SCENARIO - WATER SECTOR - 2010

Construction of a bigger dam Education programme for risk management

IF FF O&M IF FF O&M

CORP.   Foreign loans 1000          

GOV.

Domestic Domestic funds        100  

Foreign Foreign aid 500          

TOTAL     1500      100  

Investment entity Source of I&FF

ADDITIONAL ADAPTATION COSTS FOR WATER SECTOR - 2010 (Adaptation scenario I&FF – baseline scenario

I&FF)

Construction of a bigger damEducation programme for risk management

IF FF O&M IF FF O&M

CORP.   Foreign loans 1000 - 1000 = 0          

GOV.

Domestic Domestic funds        100-0=100  

Foreign Foreign aid 500 - 0 = 500          

TOTAL     500      100  

7. Estimate additional I&FF for adaptation/mitigati

on

investment entity

Households Corporations Government

baseline scenariomitigation scenario

additional investments

less investments

Projected amountof I&FF(in US$)in a year

additional investments

Example: How annual mitigation investments would change (per year)

Presentation of results

7. Estimate additional I&FF for adaptation/mitigati

on

7. Estimate additional I&FF for adaptation/mitigati

on

Step 8:

Evaluate policy implications

Reevaluate adaptation/mitigation measures, given costs and national development objectives.

Identify the entities responsible for incremental changes in I&FF and the main sources of investment/programme funding

Determine policy instruments and measures to encourage changes in I&FF.

Discuss potencial implementation barriers.

8. Evaluate policy implications

Step 9:

Sinthesize results and complete Report

Objectives of reporting:

Compare additional I&FF between sectors, years, entities and sources and between adaptation and mitigation.

Provide relevant information for decision making at local level

Compare results among countries.

9. Sinthesize results and complete Report