WRI Publications Feed: 2011 Asia Clean Energy Forum

Summary of Developed Country ‘Fast-Start’ Climate Finance Pledges

Maggie Barron — Mon, 26 Nov 2012 15:41:50 -0500

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Reiterating a pledge made in Copenhagen in 2009, the Cancun Agreements of December 2010 formally commit developed countries to collectively provide resources “approaching USD 30 billion for the period 2010 - 2012” to support developing countries’ climate efforts. This so-called “fast-start” finance will help developing countries, particularly the poorest and most vulnerable, mitigate (reduce) their greenhouse gas emissions, and adapt and cope with the effects of climate change. These pledges also present an opportunity to build trust between developed and developing countries in the international climate arena, in turn fostering progress towards a comprehensive post-2012 international climate agreement.

WRI has synthesized available information on countries’ pledges and measures they have taken to make the pledged resources available to developing countries. The accompanying table sets out both the amounts and the mechanisms by which funding would be delivered. WRI has also looked at how countries indicate whether their pledges will provide “new and additional” funds compared to what they provide as official development assistance. In-depth analysis on a subset of countries’ fast-start finance contributions is available separately.

This table will be continuously updated as more information becomes available.

Q&A on this Analysis

(Updated on November 26, 2012)

Have developed countries met their fast-start finance pledge?

Based on our research, as of November 26, 2012, 23 developed countries and the European Commission have publicly announced their individual fast-start finance pledges, in addition to the European Union’s collective pledge. These pledges total USD 33.92 billion. While this represents a significant step in the right direction, the extent to which these pledges are consistent with internationally agreed principles for fast-start finance is unclear. The Cancun Agreements mandate that fast-start funds have a “balanced allocation between adaptation and mitigation,” be “new and additional,” be “prioritized for the most vulnerable developing countries, such as the least developed countries, small island developing States and Africa,” and include “forestry and investments through international institutions.” Because the details of this mandate have not been defined, it is not clear that developed countries’ fast-start finance contributions fulfill these criteria.

Finally, ensuring that pledges are actually delivered will be essential. According to reported information of the pledged funds, USD 28.06 billion has been requested and/or budgeted by the executive bodies of the countries during the fast-start period. In some cases, the legislative bodies have also approved these requests. The actual delivery and implementation of the finance, however, can be complicated to track, and is generally not documented in countries’ fast-start finance reports.

Do the funds have a “balanced allocation between adaptation and mitigation”?

Countries often specify the general objective that their fast-start funds will support. For example, of the USD 1.58 billion mobilized for fast-start by Germany in 2010 and 2011, 48 percent will support mitigation, 28 percent will support adaptation, 21 percent will support REDD+, and 3 percent will support multipurpose activities. In its 2010 fast-start finance report, Germany highlighted the challenges of identifying suitable adaptation projects as the reason for this, and recognized the need to adjust the allocation of funds across the three areas of mitigation, adaptation and REDD+. In the case of both Japan and the United States, a large majority of fast-start finance supports mitigation objectives. The grant-based portion of their contributions, however, gives more balanced consideration to adaptation. Several countries involved in the Interim REDD+ Partnership — a process created parallel to the UNFCCC to ensure effective and sustainable REDD+ (reduced emissions from deforestation and forest degradation) actions over the next few years — have also specified that at least 20 percent of their funds will support REDD+. However, there is no agreed-upon definition among countries of what constitutes a “balanced allocation.”

Are the pledged funds “new and additional”?

“New” funding represents an increase relative to pledges or allocations from previous years. A number of pledges include restated or renamed commitments already made in the past. For example, Japan’s Hatoyama Initiative is a restructuring of the previously announced Japanese Cool Earth Partnership, with some new resources included in the Initiative. Countries such as the United Kingdom and the United States are counting previous commitments to the Climate Investment Funds (CIFs) as part of their fast-start finance pledge. The United States also counts its annual contribution to the Montreal Protocol Fund, a long-standing commitment that dates back more than two decades.

Funds that are “additional” ensure that their delivery does not result in the diversion of funds from other important development objectives. In other words, climate mitigation and adaptation funds should be additional to development aid. Parties to the UNFCCC have not yet achieved consensus on a clear and specific definition of ‘additionality’ that can be applied uniformly to developed country financial pledges. As a result, countries have proposed a variety of methods for defining the additionality of their fast-start finance.

Do the pledges include “investments through international institutions”?

Countries are channeling investments through a mix of multilateral, bilateral, and public-private institutions. Several countries, including Japan and the United States, are channeling a considerable amount of their funds through export credit agencies and other public-private channels. The Climate Investment Funds(CIFs) and the Global Environment Facility (GEF) are the primary multilateral institutions of choice through which other funds will be channeled. The governance of the funds has implications for the effectiveness and perceived legitimacy of the overall climate finance architecture. Developing countries generally prefer that institutions governing finance ensure developing country ownership of funded activities and prioritize funding for climate vulnerable countries. Developed countries tend to emphasize the need to minimize bureaucratic costs and ensure the effective use of resources.

Why is fast-start finance “prioritized for the most vulnerable developing countries, such as the least developed countries, small island developing States, and Africa”?

Countries under the Convention recognize that developing countries are highly vulnerable to climate change impacts because they have fewer resources to adapt to the effects of climate change, which can include increased droughts and floods, rising sea levels, and greater uncertainty in the agricultural sector. Least developed countries (LDCs) and small island developing States (SIDS) in particular are recognized as needing special consideration due to their extreme vulnerability. For these reasons, developed countries have pledged to prioritize fast start funds for the “most vulnerable countries.” Several countries are channeling their fast start finance through the Least Developed Countries Fund or the Adaptation Fund, many are channeling finance directly to SIDS and LDCs, and Australia in particular states that it will channel about one third of its fast-start finance to SIDS and about one quarter to LDCs.

What types of financial instruments are countries using?

There are several different types of financial instruments countries are using to deliver their fast-start finance, including grants, loans, equity, loan guarantees, insurance, and private investments. Many countries have provided some information on the type of financial instruments used. For example, the US reported providing USD 4.7 billion in grants through Congressional appropriations, USD 2.7 billion in development finance and export credits, which mostly take the form of concessional loans. Norway reports that all of its fast-start finance will be grants. Meanwhile, Japan’s fast-start finance includes grants and loans that meet ODA standards, finance in the form of ‘other official flows’, and may also count leveraged private finance, though this is ambiguous. However, reporting on the type of financial instrument used is neither comprehensive nor consistent. For example, little information is reported on the concessionality of the loans when used.

What are the next steps to ensure clarity on the delivery of climate finance pledges in the future?

The UNFCCC system for developed countries to report on the delivery of climate finance faces several challenges, which limit the utility of available data. For example, countries currently use multiple methods for reporting and often provided insufficient information even where requested. To address this, the Cancun Agreements mandate more frequent reporting by developed countries using an enhanced common reporting format.

While these enhanced reporting provisions will be essential for successful tracking of developed country climate financial flows, they will not be ready in time to provide guidance for reporting on the short-term, fast-start finance. In the meantime, the Cancun Agreements invited developed country Parties to submit information to the UNFCCC secretariat, for compilation, on the resources provided to fulfill their fast-start finance commitment by May 2011, 2012, and 2013. Nine developed countries and the EU submitted their reports on or around the most recent May 2012 deadline. While the Cancun Agreements include reporting provisions for fast-start finance, it does not provide guidance on what these reports should include, resulting in reported information that is neither fully comparable, transparent, nor complete, as is demonstrated by the gaps in information in WRI’s fast-start table, the Open Climate Network’s fast-start finance assessments, and in a report by IIED assessing the transparency of the May 2011 fast-start finance reports. The UNFCCC secretariat hosts a fast-start finance module on its finance portal that enhances the comparability of the reports but it remains limited to information provided by developed country Parties. It also does not capture information available on the faststartfinance.org website or on individual donor or recipient websites, or other sources such as NGOs, the private sector or multilateral development banks.

To build trust with developing country counterparts, developed countries should improve their fast-start finance reporting in the future, for example, by including more comprehensive, comparable and transparent information on the following seven elements in their annual fast-start finance reports: scale, method for determining that the money is “new and additional,” channeling institutions, objective, geographic distribution, status of the pledge, and type of financial instrument.

Athena Ballesteros, Emily Chessin, Kirsten Stasio, and Remi Moncel contributed to earlier versions of this Q&A.

Grounding Green Power: Bottom-Up Perspectives on Smart Renewable Energy Policy in Developing Countries

Maggie Barron — Tue, 24 May 2011 12:51:13 -0400

Watch the summary interview with Lead Author Lutz Weischer

This paper was published by the German Marshall Fund of the United States in cooperation with the Heinrich Boell Foundation and the World Resources Institute.

Developing Countries in the Renewable Energy Transformation

In order to meet the intensifying climate challenge, the global energy system must undergo a fundamental transformation, with a rapid increase of renewable energy worldwide. Developing countries are at the forefront of this challenge, since they are expected to add around 80 percent of all new electric generation capacity worldwide in the next two decades.

The deployment of energy from renewable sources is accelerating in developing countries, and already accounts for a higher percentage of electricity generation than in the developed world. In 2008, non-OECD nations generated 21 percent of their electricity from renewable sources including large-scale hydroelectric power (compared with 17 percent in OECD countries), according to International Energy Agency (IEA) statistics. However, this figure must more than double by 2035, to 46 percent, in order to meet the IEA’s “450 scenario,” which outlines a climate friendly pathway for meeting global energy demands.

Transforming the energy system on this scale will require significantly increased support from developed countries, channeled through both bilateral assistance and multilateral institutions, as well as philanthropic initiatives. Our conclusions, derived from a series of case studies and a comprehensive review of existing literature, suggest that donors should deploy financial support more effectively by moving beyond a project-by-project approach to one that creates the right environment for investments in scaled-up, nationwide deployment.

This working paper seeks to assist in this process, by identifying key components of smart renewable energy policy in developing countries, focusing on the power sector. It also provides recommendations for maximizing the effectiveness of international support for deployment of renewable energies, drawn from these on-the-ground experiences in developing countries.

About this Working Paper

Chapter 1 introduces the approach and methodology taken in this paper and describes the key concepts we address. The second chapter discusses what developing countries are already doing to deploy renewable energy sources, and how they can be supported in scaling up such efforts. It also introduces a set of principles of smart renewable energy policy to propel such a transformation, developed by the World Resources Institute. These are based on insights drawn from case studies of existing renewable energy policies in 12 countries in Africa, Asia, and Latin America as well as from existing literature.

The following five chapters each examine one key element of smart renewable energy policy, discuss lessons learned, and identify needs for international support. These cover planning and strategy (Chapter 3), well-designed generation-based incentives (Chapter 4), an enabling policy and regulatory framework (Chapter 5), attractive financing conditions (Chapter 6), and the necessary technical environment (Chapter 7). Our findings and recommendations are summarized in Chapter 8.

Principles of Smart Renewable Energy Policy

We define smart renewable energy policy as the set of rules, regulations, and government actions that lead to an increased share of renewables in total electricity consumption in line with a country’s development objectives. Smart renewable energy policy encourages private investment, achieves its objectives in a cost-effective way, promotes continuous innovation, and is designed through transparent, accountable, and participatory processes.

Presentation

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High Wire Act: Electricity Transmission Infrastructure and its Impact on the Renewable Energy Market

Maggie Barron — Fri, 08 Apr 2011 16:37:13 -0400

Executive Summary

Context

Renewable energy (RE)—electricity from wind, solar, and other naturally renewing energy sources— has drawn increasing attention in the quest to reduce greenhouse gases on a scale commensurate with the dictates of climate science. Renewables have the potential to substitute for a significant proportion of the conventional fossil fuels prevalent in today’s electricity generation. However, two key features of renewable energy complicate this promise. First, renewable energy resources are location constrained and often available only in remote areas. Their energy must therefore be transported via connected transmission lines (the grid) to demand centers, such as cities. Second, because RE resources are typically intermittent, this energy must be stored or managed with other generation sources to provide a stable and reliable service to consumers. One effective way to address this intermittency is widespread interconnection to diverse resource areas so that low production in one location can be balanced by high production in another. These two important attributes, location-constrained generation and intermittency, mean that transmission is critical to unlocking the promise of renewable energy.

About this Paper

This paper examines transmission developments and challenges in the European Union (EU), China, and the United States—three regions that present entirely different pictures in terms of governance structures, institutions, and traditions for making decisions about transmission.

Transmission infrastructure can be either a roadblock or an enabling technology for meeting renewable energy deployment goals and thus presents a poorly understood risk to RE investment. To provide context for renewable energy investors, this report examines the policy challenges of providing transmission to:

Move electricity from large-scale renewable energy generation in remote areas to distant demand centers; and
Facilitate regional grid interconnections necessary to manage intermittency. Because transmission is highly dependent on government decisions at both the political and administrative level, this paper emphasizes the regulatory trends in transmission that in turn affect renewable energy investments.

Key Findings

The transmission challenges impacting RE investment in China, the EU, and the United States have some commonality but occur in three unique regulatory and governance landscapes that establish different incentives and roadblocks to reform. Financing new or upgraded transmission capacity faces the difficult task of allocating cost across users (RE generators, power consumers in various jurisdictions, and society broadly) while ensuring low-cost energy and profitable business models that attract private investment. In all three markets examined, transmission planning and siting is primarily constrained by ongoing tension between national (or in the case of Europe, pan-European) interests and local, state, and member-state interests. In all cases, unlocking greater RE potential through improved transmission is highly dependent on government and regulatory decisions that try to steer through these challenges.

European Union

The European Union uses a mix of private and public investment for grid development, has aggressive targets for developing renewable energy, and is making progress toward those goals. It is also using Directives and other policy tools to push member states to integrate their grids and make the necessary technical and policy changes for cross-border transmission that will allow the flow of renewable energy. The challenges to reaching these objectives can be seen in the still fragmented planning processes and the resistance of member states to fully integrate, making the EU efforts a work in progress. Member states also currently retain the authority to determine whether projects will have a net benefit or cost to domestic customers, and thus to thwart crossborder objectives that do not yield enough local benefit.

The differences among member states in determining cost allocation for transmission expansion, preferential regimes for network usage charges, or the technical grid connection requirements creates additional complexities for planning generation projects across Europe.

China

China has aggressive plans to continue the grid spending surge of the past five years in an effort to keep pace with growing electricity generation. The central government is planning for a likely doubling of electric power generation capacity by 2020 (from 2009 levels), driven by a large increase in electricity demand. Wind farms that are largely located in northwest China, where grid coverage is currently sparse, will provide a large part of anticipated new renewable energy. China recognizes the compelling need to transfer energy from such remote locations conducive to wind and solar generation to its growing megacities and is focusing on new approaches such as investing in ultra high voltage (UHV) transmission research.

Despite a clear commitment to renewable energy, China faces several challenges when integrating RE into the grid, including a lack of connection standards for generators to follow, uncoordinated build-out of new generation, inflexible dispatching, and a lack of financial incentives for grid operators to take up RE power. The central government attempted to resolve several of these issues through the 2009 amendments to the Renewable Energy Law, but it will take time for the effects to be widely felt.

United States

Even more so than the other two markets, United States electricity generation and transmission planning and siting are managed in a highly local and fragmented manner. Renewable energy goals are currently set by states, rather than by the federal government, complicating broader regional planning for renewable electricity generation and supporting transmission. Whether the 112th Congress will set national goals, move transmission siting responsibility (in whole or in part) from states and local authorities to the federal government, or facilitate multi-state transmission project approvals is highly uncertain after the power shift during the 2010 midterm elections.

Cost allocation negotiations are also a significant challenge for proposed transmission projects, particularly those that cross utilities and/or states. Methods for allocating costs exist but cost allocation disputes between transmission companies or their regulators jeopardize large-scale transmission projects, particularly those not directly related to improved system reliability. The Federal Energy Regulatory Commission (FERC) is considering new federal rules for cost allocation, but reform would face both legal and legislative challenges.

**Table 1. Incentives Driving Transmission Action**
	RE Goals	Coordination Efforts	Innovations
European Union	EU Renewable Energy Directive (June 2009) sets goal of 20 percent power from RE sources by 2020 and mandates grid connectors to provide access to new RE to achieve EU climate policy	The European Network of Transmission System Operators for Electricity (ENTSO-E) and the Agency for the Cooperation of Energy Regulators (ACER) have transmission coordinating missions	EU Priority Projects defined and assigned an EU coordinator to push the project forward
China	Renewable Energy Law (2005, 2009) obligates power grid companies to connect all RE generation sites that fall in their grid coverage	Renewable Energy Law Amendments (2009) require coordinated RE and transmission planning	Development of UHV infrastructure with $59.7 billion in investment
United States	Thirty-one state Renewable Portfolio Standards	Federal efforts encourage regional transmission planning, though there are no requirements	Innovative cost allocation resolutions such as the Tehachapi and Southwest Power Pool projects

**Table 2. Roadblocks to Sufficient Transmission Action**
	Local Interests	Costs
European Union	Transnational coordination and enforcement powers of EU institutions remain unproven while local opposition to large-scale infrastructure projects is significant in some areas	Transmission investment will be difficult in an era of austerity and slow economic growth
China	Disagreement between the grid operators and wind developers on technology standards and planning complicate RE generation connection	Vast distances between generation and load sites and chronic grid congestion necessitate massive transmission expansion
United States	Weak jurisdictional coordination in the transmission siting and approval process slows or stops transmission projects	Transmission cost allocation issues remain largely unresolved or are resolved at local level, reflecting narrow local interests

Looking Forward: Signposts for Investors

Transmission siting and construction in general may be marginally easier to approve in the EU than in the United States; therefore, RE expansion may be more likely if the current European cooperative efforts succeed on schedule by 2014. This will depend on whether the controlling nature of the relevant EU directives and policies can prevail over local interests in practice. The potential generation that could be unlocked through transmission expansion in the United States and China may, however, be relatively greater, due to the large domestic tracts of land with significant RE generation potential that are currently inaccessible because of transmission constraints.

These opportunities could prove tougher to capture in the United States as a result of difficult-to-resolve regulatory and political uncertainties. If reform efforts bring greater certainty to the United States, investors will be able to respond and shape renewable energy projects accordingly. Even if not all roadblocks are addressed with legislation or regulatory reform, any increase in certainty regarding transmission siting coordination, cost allocation, and national energy policy would unlock new potential in the United States. Perhaps the market most likely to remove transmission barriers and unlock the real potential of RE is China, as the central government methodically works to reform transmission to support its national renewable energy goals. China faces primarily technical and capacity barriers rather than the paralyzing political debate seen in the United States. China’s future market depends on its ability to overcome the resistance of grid companies in a regulatory environment that at least appears more opaque than those in the United States or EU.

CCS Demonstration in Developing Countries: Priorities for a Financing Mechanism for Carbon Dioxide Capture and Storage

Maggie Barron — Mon, 04 Apr 2011 10:54:35 -0400

Executive Summary

Climate Change and CCS

In facing the challenge of mitigating global climate change, world leaders have acknowledged that no single solution exists, and therefore, a portfolio of carbon dioxide (CO2) reduction technologies and methods will be needed to successfully confront rising emissions. Due to their dependency on fossil fuels, the energy supply and industrial sectors are the greatest contributors to CO2 emissions, accounting for 25.9 percent and 19.4 percent of the total respectively.

In addition to efficiency improvements and enhancing clean energy use, one key option for limiting future CO2 emissions from fossil fuel energy use is carbon dioxide capture and storage (CCS). CCS is a suite of technologies integrated to capture and transport CO2 from major point sources to a storage site where the CO2 is injected down wells and then permanently trapped in porous geological formations deep below the surface. Candidates for CCS technology include fossil fuel power plants; steel, cement, and fertilizer factories; and other industrial facilities.

CCS in Developing Countries

Despite often-aggressive programs to promote energy efficiency and deploy nuclear, renewable, and other low-carbon energy sources, many developing countries will still rely heavily on fossil fuel energy to power their development for decades to come. There is therefore a need for developing countries to create strategies that address fossil fuel emissions in a way that minimizes the costs of doing so, and consequently minimizes impacts to their national development goals.

CCS is currently the only near-commercial technology proven to directly disassociate CO2 emissions from fossil fuel use at scale. Its deployment could potentially allow developing countries to gradually shift away from fossil fuels for energy and industrial needs with relatively little disruption to their long-term development strategies. If deployed as an interim measure, it could allow time for other alternative low-carbon technologies to be developed and deployed, permitting fossil fuels to be gradually phased out. This strategy could assist developing countries to transition to a low-carbon economy in the next 15–50 years.

While CCS is potentially attractive to some developing countries, there has been limited development of demonstration projects in Africa, Asia, or Latin America due mainly to their high cost in the absence of expected profits or significant carbon financing. The International Energy Agency (IEA) estimates the total cost for a new average-sized coal-fired power plant that captures up to 90 percent of its CO2 emissions to be US$1 billion over 10 years.

Existing financing for CCS is grossly insufficient to enable demonstration projects in developing countries. The few available funds are either spread over the full array of low-carbon technologies, or fall short of the magnitude or the mandate needed to propel commercial-scale CCS demonstrations forward. Current carbon offset mechanisms are not sufficient to spur CCS deployment in developing countries in today’s context either. Overall, existing CCS financing mechanisms help grow capacity, but their support is insufficient to leverage enough funding from capital markets to implement projects in a non-OECD context.

The IEA CCS Roadmap proposes 50 CCS projects in developing countries in the next 10 to 20 years. As well as reducing the developing world’s greenhouse gas emissions, accelerating CCS demonstration efforts in non-OECD countries can likely also improve technologies, increase efficiency, reduce uncertainty and risk, and initiate learning-by-doing at a lower cost than would be possible in OECD countries. The captured benefits from doing so will be more significant the sooner acceleration in CCS development in developing countries begins.

About this Paper: Topics of Discussion for Financing CCS in Developing Countries

This paper seeks to promote the effective deployment of CCS demonstration projects in developing countries. Aimed at international policymakers and agencies engaged in CCS funding and deployment negotiations and discussions, the paper explores some of the key issues emerging around this critically important topic, and it presents a series of options and recommendations to international policymakers. WRI’s aim is to assist the initial design of an effective approach for financing CCS demonstration projects in developing countries over the next 10 years. Below is a summary of the key topics and options explored in the paper.

Topic 1: Aims of Financing CCS Demonstrations in Developing Countries

The main goal for developed countries to provide financing for early-stage CCS demonstrations in developing countries should be to support non-OECD countries in fulfilling their share in global climate change mitigation efforts.
A financing mechanism for CCS in developing countries should aim to foster tangible CO2 emission reductions through a clear focus on storage goals. The level of ambition for CO2 storage should support current CCS deployment requirements in developing countries. While it is impossible to objectively ascertain what proportion of this total a dedicated OECD country–funded CCS financing mechanism should support, it is evident that developing countries will need support for a significant share of these projects.
Implementing CCS demonstrations that lead to the storage of 45–60 million tons carbon dioxide (MtCO2) over 10 years could significantly spur the research and deployment rates needed for CCS development to take off in developing countries.

Topic 2: Eligible Costs for Financing

Most CCS demonstration projects will operate in conjunction with new or existing power plants or industrial facilities that may also function without the technology. Funding for CCS demonstrations can therefore be structured around whole projects—including the non-CCS components of the facility under consideration—or just the specific CCS components that would enable the facility to effectively capture and store its carbon dioxide emissions.
Funding should only be eligible to finance incremental costs incurred as a result of CO2 capture, transport, and storage efforts—not the full cost of the project.

Topic 3: Project Eligibility Criteria

Project objectives: Finance should be primarily directed toward projects that either actively store CO2 or directly provide the basis for near-future CO2 storage locally, avoiding duplication with other existing funding mechanisms.
Project scales and types: To maximize both near-term and future storage, eligible project types should cover geological site characterization and integrated CCS projects, both at the pilot and commercial demonstration scales.
Project sectors: CCS projects in fossil fuel power plants are likely to be the largest recipients of funding. However, some industrial CO2 sources may present advantages that could facilitate timely and cost-effective development of CCS projects in developing countries. “Low-hanging fruit” projects in industrial facilities with high-purity CO2 streams can advance infrastructure and technologic know-how in developing countries at a fraction of the cost of implementing CCS at a power plant. Funding criteria should therefore not discriminate against industrial sources of CO2.
EOR and other CCUS projects: Enhanced oil recovery (EOR) and other carbon capture, usage and storage (CCUS) projects have multiple advantages for early CCS development and can result in the net storage of CO2, warranting their inclusion in financing opportunities. However, awarding of CCS financing to CCUS projects should occur only where projects are managed and monitored with the aim of permanent CO2 storage.
Additional project requirements: Funding criteria should stipulate that awarded projects employ sound procedures for CCS site selection, operation, and stewardship. Site selection must be based on specific geologic characteristics. Awarded projects must also have monitoring plans in place for both the operational and the post-closure stewardship phase and ideally demonstrate local government support and local community buy-in.

Topic 4: Project Selection Process

In order to make the selection process as equitable and objective as possible while maximizing CCS deployment goals, projects that meet funding demonstration objectives should be awarded on a competitive basis under a points-based system to judge applications. Such system should reward, among other factors, storage efficiency, geographic diversity, and contribution to wider CCS advancement in developing countries.
The selection system should also favor improving knowledge of storage opportunities through projects implemented in deep saline formations, since they represent the largest knowledge gap and the largest storage potential in the future.

Topic 5: Financing Mechanism Characteristics

Significant attention has been focused on creating an international public fund solely dedicated to CCS, or a CCS window within a larger fund that may also finance other pre-commercial, low-carbon technologies in developing countries. Additional research is needed to ascertain the pros and cons of different structures in a developing country environment. However, there are several advantages of adopting a CCS-only mechanism for the early demonstration phase, instead of having CCS in direct competition with other technologies for the same pool of funds.
In order to meet the IEA-recommended storage goal of 45–60 million tons of CO2 in 10 years, a CCS fund needs to be able to invest or leverage total investments of US$5– 8 billion and have the capacity to disburse its resources effectively over the same period.
A CCS fund should employ strong early-mover and CO2 storage incentive provisions to leverage its goals. A 10-year storage incentive on a rising scale could be applied to ensure project operators act to permanently reduce emissions.

Innovation and Technology Transfer: Supporting Low Carbon Development with Climate Finance

Maggie Barron — Sun, 16 Jan 2011 15:47:02 -0500

Overview

Meeting the ambitious goal of limiting global warming to 2° Celsius or less will require significant innovation - the improvement of technologies and processes to drive down their cost and improve their performance. Public climate finance is essential to spurring innovation and creating the conditions that attract private investment. Investing in innovation also makes the most efficient use of the limited financial resources available and takes advantage of the developing world’s growth to improve technologies.

Countries like the UAE have an opportunity to play a pioneering role in this expanded international innovation system. Innovation will be underpinned by international cooperation that supports:

priority setting and coordination,
joint research, development and demonstration,
sharing information and knowledge,
capacity building,
provision of finance and
supporting hubs and networks.

Several international forums can fulfill portions of these functions, but each faces its own limitations and risks. In this context the UAE could uncover opportunities to be an innovation leader. For example:

How can IRENA and Masdar develop into a world-class innovation hub and then effectively link into the international innovation system?
How can the UNFCCC’s Climate Technology Center and Network function effectively?
How can other forums such as the Clean Energy Ministerial develop to support the international innovation effort?
How can public climate finance be used to support innovation while deploying clean technology in the developing world?

Power, Responsibility, and Accountability: Re-Thinking the Legitimacy of Institutions for Climate Finance

Maggie Barron — Tue, 14 Dec 2010 12:27:05 -0500

Executive Summary

The 2009 Copenhagen Climate Summit left unresolved major questions about how to fund lowcarbon development in developing countries. In a high-level political declaration—the “Copenhagen Accord”—developed countries agreed to “provide new and additional resources … approaching USD 30 billion for the period 2010–2012” and to a goal of jointly mobilizing USD 100 billion a year by 2020 from both public and private sources, to address the needs of developing countries. As the negotiations on a global climate deal continue, disagreement remains on how much of these funds will come from public or private sources and whether these billions should be delivered through new or existing institutions. There is also heated debate over whether a single centralized institution or a decentralized approach that coordinates international, regional, and national institutions would be more effective.

Although there are many variations in government positions, broadly speaking, developed countries favor a substantial role for existing institutions, such as the multilateral development banks (MDBs) that they have funded and led for the past 60 years. Developing countries prefer new institutions, arguing that existing ones favor the interests of contributor countries and have failed to deliver on promises to support poverty alleviation and sustainable development. The ongoing negotiations on a global climate deal reflect this “northsouth” gulf. Despite these differences, one thing is clear: if the institutional arrangements entrusted with managing new flows of climate finance are to succeed in raising the required resources and in investing these resources effectively, they will need to be perceived as legitimate by both contributors and recipients.

Institutional Arrangements for Climate Finance: Power, Responsibility, and Accountability

Box A. Dimensions of Power, Responsibility, and Accountability in the Design of a Climate Finance Mechanism

Power: The capacity—both formal and informal—to determine outcomes

How will the financial mechanism’s governance structure distribute voice and vote between and among contributors and recipients?
What role will the United Nations Framework Convention on Climate Change’s (UNFCCC) institutions, including the Conference of the Parties, play in guiding the financial mechanism?
To what extent will contributors be able to determine funding priorities by placing conditions on the resource mobilization and allocation process?
How influential will the secretariat and management staff of the financial mechanism be in determining project design and selection?
Will advisory groups, civil society observers, and local communities play a role in determining how the financial mechanism operates?

Responsibility: The exercise of power for its intended purpose

Are the financial mechanism’s standards, program priorities, and eligibility criteria strong enough to ensure its resources are invested fairly and effectively?
How do cost-sharing formulas (e.g., incremental, marginal, transformative costs) allocate responsibilities between contributor and recipient countries, and between the financial mechanisms and recipient countries?
To what extent are national institutions and local civil society entrusted with ensuring the effective design and implementation of investments?

Accountability: The standards and systems that ensure power is exercised responsibly

How does the financial mechanism measure, evaluate, and incentivize results?
Are effective environmental and social safeguards in place to ensure the investments do no harm?
How are fiduciary duties and financial management standards supported and enforced?
Are grievance and inspection mechanisms in place to ensure that standards are followed?

The full report seeks to ground the debate on the future of climate finance in an objective analysis of existing efforts to finance climate mitigation and adaptation in developing countries. The authors step back from the question of which institutions should be entrusted with new flows of climate finance to examine instead how governments can design a climate financial mechanism in a way that is widely perceived as legitimate. We identify three crucial dimensions of legitimacy: power, responsibility, and accountability (see Box A). While these three dimensions interrelate and overlap, we have found them to provide a useful analytical framework to analyze and guide choices in institutional design.

We review the governance structures, operational procedures, and records to date of 10 international and national financial mechanisms, with reference to these core dimensions of legitimacy, to draw lessons for future institutional arrangements (see Box B). We place special emphasis on the experiences with the Global Environment Facility (GEF), which, in operation since 1994, is the longest serving operating entity of the United Nations Framework Covention on Climate Change (UNFCCC) financial mechanism. In addition to the GEF, we review experiences from the Multilateral Fund for the Implementation of the Montreal Protocol, in operation since 1990, which is often referred to as a model for future funds. The remaining funds reviewed are much newer and yield more insights with regard to design, rather than operation.

We recognize that perceptions of the legitimacy of a financial mechanism are inherently subjective and that this subjectivity is revealed in the very different preferences expressed by contributor and recipient countries. We believe, however, that if governments were to discuss the dimensions of legitimacy more explicitly, the stakes and the trade-offs would become more apparent, and a more shared understanding on how to design a legitimate financial mechanism would emerge. We believe that the failure, thus far, to address the distribution of power, responsibility, and accountability more explicitly has led to a proliferation of financial mechanisms that are underfunded, which in turn leads to calls to create new mechanisms.

We recognize that perceptions of a financial mechanism’s legitimacy will also depend upon an institution’s performance—its demonstrated capacity to commit funding to investments that reduce greenhouse gas emissions and build resilience to climate change. Most of the climate financial mechanisms studied have not been operating at a scale or for a time period that would allow a full assessment of their performance. We nonetheless seek to make recommendations that could improve the design and the performance of new and existing climate financial mechanisms.

We conclude that a new global deal on climate finance is likely to significantly redistribute power, responsibility, and accountability between traditional contributor and recipient countries. Most significantly, the power of emerging economies to control climate finance mechanisms will grow, as will their responsibility and accountability for the performance of these institutions. In light of the dramatic changes in global politics and the global economy in past decades, this redistribution seems both long overdue and necessary to provide the basis for a successful global partnership on climate finance.

Conclusions and Recommendations

This is a dynamic time for climate finance, as the international community struggles to craft mechanisms that are perceived to be legitimate by all UNFCCC Parties and that are capable of funding climate-related activities efficiently and at scale. Our analysis of established and new climate financial mechanisms and the current UNFCCC negotiations leads us to conclude the following:

Change is coming. A new global deal on climate finance will likely reinterpret the principles that in the past have guided the design of climate finance mechanisms in a way that significantly redistributes power, responsibility, and accountability between traditional contributor and recipient countries.
A new balance of power, responsibility, and accountability could enhance recipient country ownership. Greater representation of developing countries on the governing bodies of international financial institutions more generally, and climate finance mechanisms more specifically, should help ensure greater emphasis on the national and local “ownership”—and thus the effectiveness—of climate finance investments.
A new understanding of how to balance national interests with global responsibility and accountability is required. This will require assurance that nationally driven investments contribute to global benefits in the form of net emission reductions and that investments protect the most vulnerable countries and communities.
New financial mechanisms—at both the global and the national level—are necessary. If the international community raises the scale of public finance necessary to move developing countries onto a low-carbon, climate-resilient pathway, the capacity and the creativity to spend these resources well will necessitate the creation of one or more new financial mechanisms at the global level and multiple nationallevel institutions.
Existing institutions must also be reformed. The scale of the climate change challenge and of the scale of the funding necessary to respond to that challenge will also necessitate the reform of existing financial institutions, many of which have been supporting fossil fuel–led growth and have yet to mainstream concerns about the impacts of climate change into their strategies.
Current negotiating positions reflect deep historical and ideological divisions—particularly between developed and developing countries—that will need to be overcome by building trust and experimenting with new kinds of relationships. Developed countries have been keen to build on existing financial institutions they have shaped and traditionally controlled. Developing countries are wary of these same institutions, which they see as historically having advanced contributor interests and theories of development, through both the formal and informal exercise of donor power.
At the international level, the choice between reforming traditional development agencies, such as the GEF, U.N. Development Programme (UNDP), the U.N. Environment Programme (UNEP), and MDBs, and creating new financial mechanisms will raise issues of institutional economy and effectiveness. In order to generate a greater sense of trust and ownership, backers of existing agencies may have to accept a degree of duplication of existing capacity through the creation of new mechanisms—particularly where significant gaps in capacity are identified—and to accept strengthened lines of accountability of climate finance mechanisms to the UNFCCC Conference of the Parties (COP). On the other hand, those calling for the creation of new institutions may need to concede that it may waste precious resources to replicate the staff and services provided by existing agencies.
Balancing the roles of international and national institutions will also involve trade-offs. Traditional development agencies have gained the trust of contributors by putting in place systems to both measure and manage impacts of their investments. Developing country recipients, however, have been frustrated by the bureaucracy and the focus on generic rather than country-specific concerns that these systems can generate. Many developing countries will likely struggle to convince contributors that their national institutions have the capacity to manage large-scale development finance without the support of development agencies. Notably, a number of developing countries are taking steps to build and strengthen this capacity and will need support to do so.
Delivering climate finance at scale, at least in the short term, will likely involve multiple mechanisms, both new and reformed. This is true because of the complex politics of the international negotiations and the differing views of legitimacy held by contributors and donors. The urgency and complexity of delivering funds at scale argues for moving forward, at least in the near term, with the institutions that we have, and investing in the strength and quality of COP guidance and national planning processes to ensure coordination and coherence. This experience should then guide the design and operation of the new institutions that will become necessary as the scale of resources grows.
Low-carbon, climate-resilient development is an unexplored frontier for all countries and has potential risks as well as benefits. While high standards will have to be developed and maintained to ensure emissions fall and the vulnerable are protected, climate finance will necessarily entail experiments with new policies and technologies that will need to be watched closely for unintended environmental and social impacts.
Policymakers must agree on ways to diversify the sources of climate finance and to de-link them from the levers of informal power. If existing institutions are to meet evolving standards of legitimacy, then their fundamental governance structures, as well as their operational procedures, will need to be reformed to give greater voice to developing country recipients. If formal grants of power are to lead to the effective exercise of that power, the international community must also make greater efforts to identify sources of revenue, such as new levies or longterm commitments, that are independent from the discretion of contributor governments.
It is necessary to build the capacity of non-state actors and civil society to monitor climate finance governance. Civil society groups at all levels can and are playing an important role in monitoring and influencing decision-making within climate finance funds. But they need to occupy such spaces more effectively than they have to date by monitoring and engaging in more inclusive decision-making processes with technical rigor and authority. However, “representation” of nonstate actors can be a very difficult issue—civil society is diverse with widely differing views.
Near- and medium-term climate finance should focus on strengthening national institutions. A next generation of climate investments should promote the responsibility of recipient countries by strengthening the national institutions that will implement mitigation and adaptation activities and by ensuring their transparency and accountability to citizens within countries, as well as to the international community. While it is important that development agencies provide technical support to national institutions, they should work in closer partnership with national stakeholders. It will be particularly important to engage with stakeholders outside of government, including the private sector, independent research institutions, and civil society. Such collaborations can help ensure climate finance proposals more appropriately reflect national circumstances and priorities.
It is important to draw from the lessons learned from decades of development finance to build national institutions that reflect universally accepted principles of good governance. Traditional finance and development institutions have decades of experience—both good and bad—in translating internationally agreed upon agendas into national and local investments. National institutions should draw from these experiences and be designed and supported to operate in accordance with universal principles of good governance. Strong provisions for accountability should be put in place, including sound fiduciary management, anticorruption measures, and grievance mechanisms and inspection procedures that ensure compliance with environmental and social standards and safeguards.

Scaling Up Low-Carbon Technology Deployment: Lessons from China

Maggie Barron — Fri, 01 Oct 2010 13:33:28 -0400

Executive Summary

The low-carbon energy imperative

Among the issues domestic and international policymakers must address in combating climate change is how to deploy and diffuse current low-carbon technologies in developing countries.

Developing countries, while bearing little responsibility for historical releases of greenhouse gases (GHG), now account for an increasingly large percentage of global atmospheric emissions. Today, they make up around 50 percent of emissions (CAIT 2005) and by 2030 this figure will rise to 65 percent (EIA 2009). Thus, without widespread deployment of low-carbon technologies in China, India, and beyond, global efforts to stabilize emissions and prevent dangerous levels of warming will be severely undermined.

Globally, while the pace of technology deployment has dramatically accelerated over recent decades, technology deployment within low- and middle-income countries remains slow. Only 30 percent of developing countries have reached the 25 percent penetration threshold and only 9 percent have reached the 50 percent threshold for technologies invented between 1975 and 2000 (Comin & Hobijn 2004). Low-carbon technology deployment generally aligns with this rule, with a few exceptions, notably China.

China’s leadership and approaches The speed and scale of technology deployment is highly correlated with income level. Despite being a lower-middleincome country, China has bucked this trend, boasting technological achievements greater than those of many high-income countries. In particular, China’s government has poured money, R&D resources, and a combination of incentives and regulatory levers, into developing and deploying technologies in the cleaner energy (such as supercritical/ultrasupercritical coal-fired power generation), renewable energy, and energy efficiency sectors. It has also invested in a range of partnership models with overseas governments and companies, including joint ventures, licensing agreements, and joint design. As a result, China has transformed itself over the past two decades from a low-carbon technology importer to a major manufacturer of a number of low-carbon technologies.

Scaling Up Low-Carbon Technology Deployment: Lessons from China examines how low-carbon technologies have been introduced, adapted, deployed, and diffused in three greenhouse gas-intensive sectors in China. By focusing on key policy and program drivers, the report identifies the building blocks for China’s successful low-carbon technology deployment infrastructure. Its purpose is twofold: to draw lessons of use in informing broader international cooperation on technology transfer and deployment; and to help governments and industries in middle- and low-income countries to pursue an effective transition to a low-carbon economy.

Focus technologies

This report focuses on three energy technologies:

supercritical/ultrasupercritical (SC/USC) coal-fired power generation technology;
onshore wind energy technology; and
blast furnace top gas recovery turbine (TRT)technology in the steel sector.

Why these particular technologies? First, all three if widely deployed could make a significant dent in emissions of carbon dioxide, the main greenhouse gas. As the power and steel sectors are major global energy consumers, efficiency improvement in these sectors entails large carbon dioxide reduction. Wind, the fastest growing renewable energy source, is the most likely renewable technology to capture a big share of the global electricity mix. Coal will likely remain a key global energy provider for decades to come. Second, these three technologies present diverse opportunities for future deployment both in China and internationally. Such diversity enables the lessons contained in this report to address issues across a broad spectrum of low-carbon technology deployment— thus maximizing its potential impact.

Key findings

China has accelerated its low-carbon technology deployment in recent decades, making the transition from technology importer to major manufacturer of a number of low-carbon technologies. China has made comprehensive efforts to put in place the infrastructure to achieve accelerated deployment and diffusion of the three technologies examined in this report. This indicates its commitment to becoming a global player in the low-carbon economy, securing a domestic energy supply, and reducing carbon dioxide emissions.
China’s experience highlights the important role of effective domestic policy in stimulating low-carbon technology. While the government took different approaches for each of the three technologies examined in this report, its building blocks for technology deployment infrastructure include:

Making a deliberate, holistic plan and long-term commitment to the localization of a low-carbon technology. This approach is taken in all three cases.
Establishing direct R&D funding programs to support the launch and scale-up of low-carbon technology innovation. This approach is especially prominent in the case of SC/USC coal-fired power generation technology.
Improving businesses’ technological absorptive capacity through directly funding their technology learning. The success enjoyed by two leading Chinese clean energy companies—Goldwind’s surge in the global wind market and Shanxi Glower Group’s dominance of the domestic TRT market— are both indebted to this measure.
Capitalizing on public-private and industryacademia synergies to bring together multi-sector expertise. The success of the localization of SC/ USC in particular is built on such multi-sector synergies.
Designing national-level and sector-wide laws, policies, and regulations to scale-up commercialization of low-carbon technology, create domestic markets, and drive down the costs. The rapid development of domestic wind energy greatly benefited from such a legal and regulatory infrastructure.
Relying on international cooperation to pursue new-to-market technology and knowledge. TRT technology’s transfer and deployment resulted from China-Japan cooperation in the steel sector.

China’s ambitious localization process for low-carbon technology has raised concerns about intellectual property rights (IPR) within some foreign governments and among Organisation for Economic Co-operation and Development (OECD) companies. The case studies found the situation regarding technology transfer to be more complex, including issues related to ambiguous ownership and contractual arrangements as well as IPR. While our case studies show that some foreign firms have benefited significantly from China’s low-carbon technology sector, both the SC/USC and TRT case studies reveal that while the Chinese government viewed these models as successful, international companies involved were less convinced. Our survey of multinationals involved in China’s low-carbon technology sector also revealed that such firms typically do not transfer all parts of a technology to China, holding back some of their IPR. This approach addresses the international companies’ concerns about IPR protection, but compared to an atmosphere of higher trust is suboptimal both for Chinese and overseas companies.

Conclusions and lessons learned

For Chinese policymakers:

China’s comprehensive efforts to put in place the infrastructure to achieve accelerated deployment and diffusion of low-carbon technology has been very successful in the three technologies examined in this report. Within 20 years, China emerged from a technology importer to a major manufacturer of low-carbon technology. If the same level of effort continues, China could soon be a player at the forefront of low-carbon energy technology innovation. However, underlying China’s success are some concerns that need to be addressed.
China’s preoccupation with localizing key energy technologies may be viewed by foreign companies and governments as going against standard international business practices, such as relying on trade to acquire technologies. The global wind industry, for example, is a globally integrated industry. China’s ambition to localize key wind energy technologies, such as bearing and electric controls, leaves China outside the global integration process—a process that can be harnessed to reduce the cost of wind technologies by increasing economies of scale, fostering competition, and encouraging innovation (Kirkegaard et al. 2009).
In spite of the national government’s effective technology deployment policy, China has not yet addressed the pressing issue of deployment of low-quality technologies. The low entry barrier for domestic wind energy developers highlighted by the wind case study, in particular, underscores the importance of setting high technology standards at the beginning of technology deployment.
China’s business sector still has lessons to learn in conducting international business negotiations. On the one hand we see government-managed processes in the coal and steel sectors that—while effective—may have left some legacy of distrust; on the other hand we see the hyper-competitiveness of the wind industry with its minimal barriers to entry. Nurturing a more sophisticated domestic business sector through market means is a key task for Chinese policymakers seeking to minimize costs and barriers and maximize trust and cooperation so as to scale-up low-carbon energy industries.

For U.S. policymakers:

China’s ambition is to emerge as a global science and technology power and Beijing is keenly aware that the next phase of the science and technology revolution will likely center on low-carbon technology. While the term “indigenous innovation” has been interpreted in international policy circles as encompassing a very narrow group of government procurement policies, in fact, the policies are much more ambitious and involve the kinds of long-term support for RD&D that are detailed in these three case studies.
There are major business opportunities for U.S. companies in China’s low-carbon technology deployment efforts. The success of Japanese and German companies in the wind and power sectors indicates that through joint venture, licensing, or joint design, foreign technology providers can benefit from China’s financial resources, manufacturing capacity, and enormous market. While China’s ambitious localization process for low-carbon technology has raised concerns about intellectual property rights in some foreign governments and among OECD companies, major multinationals surveyed as part of the study did not view IPR as a major issue. In the three case studies, the issue was somewhat more ambiguous. There did not appear to be any outright IPR violation, but instead different perceptions of ownership and contracts have colored some of the arrangements.
China’s experience highlights the importance of effective domestic policy and long-term government commitment. Without clear and lasting signals from the government and a central role for government-funded R&D, the market will not automatically embrace low-carbon technology.

For technology providers:

China’s preference for domestically manufactured technologies can present a competitive risk for foreign companies seeking a foothold in China. However, in practice, depending on the technology investors’ own conditions and needs, foreign technology providers can make a profit through various approaches, including:

Joint venture: Benefits include easy access to the Chinese market and freedom for foreign companies to use their own business model to sell products. One disadvantage is the possibility of leaking intellectual property rights to local partners. Because of this drawback, many joint-venture companies in China act as manufacturers or post-sale maintenance facilities instead of technology developers.
Licensing: Its benefit is guaranteed patent fees and royalties free of concerns about the technology users’ business model. The disadvantage is that China’s exports might swamp the marketplace and the patent owners receive only a small portion of the profit, usually from 3–6 percent of profits.
Joint design: If technology providers lack manufacturing capacity and financial resources, joint design offers good access to China’s financial capital and enormous market. The drawback is that in most cases all patent rights are lost to the Chinese partner companies.
Wholly foreign-owned investment: Benefits include freedom for foreign investors to use their own business models and easy access to China’s large skilled and relatively inexpensive labor force. For China this is a mechanism for training up a workforce in new technologies and related services. The disadvantage for the foreign company is that the Chinese government and scholars do not view wholly foreign-owned investment as a technology transfer mechanism. Therefore the foreign investors are less likely to receive administrative or financial support from the Chinese government.

For other countries who are adapting technology:

Other countries might lack the tremendous scale of resources for domestic investment in R&D that China can bring to bear, but China’s experience demonstrates some clear successes from which other countries can benefit. These include: the active role of the government in pursuing bilateral engagement internationally (in the case of steel); the importance of providing clear and lasting policy signals for clean energy markets (in the case of wind); and the central role that government-funded R&D can play (as illustrated by the localization of all three technologies).