Topic: climate finance

The German Fast-Start Finance Contribution

Sarah Parsons — Thu, 09 May 2013 16:27:15 -0400

Summary

Industrialized countries have repeatedly committed to provide new and additional finance to help developing countries transition to low-carbon and climate-resilient growth. This assessment addresses German efforts to provide “fast start finance” (FSF) as a contribution to the pledge by developed countries to provide USD 30 billion from 2010 to 2012 under the United Nations Framework Convention on Climate Change (UNFCCC). It is part of a series of studies scrutinizing how developed countries are defining, delivering, and reporting FSF.

Germany has increased climate finance in recent years and met its self-defined FSF pledge. According to the government’s FSF reporting, from 2010-2012 Germany provided a total of EUR 1.29 billion (approximately USD 1.7 billion) for climate action in developing countries that was counted towards FSF. Germany has therefore slightly exceeded its FSF pledge for the period 2010-2012. Even before the start of the FSF period, Germany was already providing significant funding for climate change-related activities in developing countries, particularly for renewable energy and energy efficiency. It therefore started from a relatively high climate finance baseline. Moreover, FSF is only a part of what the German government provides in climate-related finance for developing countries. Overall, Germany has increased delivery of international climate finance when compared to climate-related spending prior to the FSF period: In 2011, Germany committed about EUR 1.8 billion in total for climate finance, an increase from EUR 470 million in 2005.

Germany’s FSF is roughly evenly distributed be¬tween bilateral and multilateral cooperation. Out of the EUR 1.29 billion, EUR 585 million was channelled through multilateral funds. The largest single channel is the World Bank-administered Climate Technology Fund (CTF), which received EUR 375 million from Germany from 2010-2012. Substantial amounts of funding were also transferred to adaptation-related multilateral funds and the Forest Carbon Partnership Facility. Two federal ministries, the German Federal Ministry Economic Coop¬eration and Development (BMZ), and the German Federal Ministry Environment, Nature Conservation and Nuclear Safety (BMU), are responsible for the disbursement of FSF resources. Nearly half of this funding has been channelled through the German development cooperation agencies GIZ and KfW. Relatively few resources were delivered directly to developing country domestic institutions.

Germany FSF has primarily supported general mitigation (45 percent), and efforts to reduce emissions from deforestation and degradation (26 percent), while 28 percent supports adaptation. Germany aimed to provide 50 percent of its climate finance for mitigation, 33 percent for adaptation activities, and 27 percent (EUR 350 million) for REDD+. The Copenhagen Accord sought a balance between adap¬tation and mitigation (including REDD+) during the FSF period. Adaptation has received less finance than expected at the outset of the FSF period. Overall, most German FSF resources have been allocated to the regions of Africa (34 percent) and Asia (29 percent). Additionally, roughly 60 percent of all adaptation finance and 50 percent of bilateral adaptation finance has been allocated to Small Island Developing States, Least Developed Countries, and African countries.

The majority of Germany’s FSF is provided through grants. Loans are provided to the CTF, and account for about 29 percent of the overall FSF contribution. Germany is relatively transparent about its FSF. Through BMU and BMZ, the German government publishes lists of the FSF projects it supports, reporting on the recipient country, project name, project description, objective, amount, implementing agency, financial instrument, and expected project duration. It also reports to the European Commission (EC) on an annual basis. In addition, Germany has commissioned a study on lessons learned from FSF for long-term finance. However, official reporting would be strengthened through the inclusion of information on the actual disbursements and on project impact.

Germany is one of the few countries which has applied and published a specific definition of “new and additional” for its FSF. Germany only counts those funds towards FSF which were committed in addition to a 2009 baseline (as part of Official Development Assistance, or ODA, spending) and/or which are generated by new financing sources, namely the auctioning revenues under the EU ETS. Nonetheless, some of the financial resources counted as FSF were pledged before the FSF period: for example, Germany pledged finance to the CIFs in 2008, but only funding delivered from 2010 onwards was counted as FSF. All German FSF is counted towards ODA. However, Germany has yet to meet its commitment to provide 0.7 percent of its Gross National Income as ODA, and in fact its ODA contributions have recently declined. Also, Germany’s climate finance is committed in the context of a complementary commitment to scale up finance for biodiversity under the Convention on Biodiversity (CBD). It will be important to monitor reporting against both of these commitments in order to understand whether pledges have been duplicated or recycled.

Most of the projects counted towards FSF seem to have a principal or at least significant climate objective. An independent application of the Organisation for Economic Development (OECD) climate markers to the FSF projects suggests that the vast majority of projects seems to have a clear climate element, based on limited project informaiton. However, a focus on only bilateral projects reveals that the share of principally climate-driven projects may be lower than bilateral projects committed to other climate objectives. Furthermore, an assessment of the incremental climate change costs that are covered through the projects is not available.

Germany is one of the few developed countries to have committed climate finance beyond the FSF period. At COP18, Germany pledged to deliver EUR 1.8 billion in climate finance in 2013, an increase from the EUR 1.4 billion delivered in 2012.1 These funds will come from the general budget and from the “Sondervermögen Energie und Klimafonds” (“Special Energy and Climate Fund”). This separate budget structure is financed by auctioning revenues from the EU Emission Trading Scheme (EU ETS). The current low prices of carbon, however, may reduce available climate finance beyond 2012.

With regard to reporting on international climate finance, we suggest the following actions to further in¬crease transparency:

Continue to publish annual, project-level information after the close of the FSF period. Reporting systems could be updated to reflect the parameters of the new United Nations Framework Convention on Climate Change (UNFCCC) common reporting format (for example, by specifying the sectors to which funding is directed). It could also seek to improve reporting on the actual state of implementation of projects, and actual disbursement of committed funds. Therefore, Germany may explore practical options for providing some project-level information on the results of at least the larger programs funded in real time, e.g on the basis of the project reporting that is required of implementers (such as through annual or evaluation reports).
Provide additional information on which projects are funded by which ministries.
Provide more detailed financial information on projects that meet commitments to increase both climate and biodiversity finance to provide greater clarity on synergies, and assure that finance has not been double-counted. Such reporting can also be related to climate finance reporting under the OECD climate markers, in order to ensure consistency with FSF reporting.
Further strengthen and harmonize reporting and transparency standards for implementing institutions, in particular dedicated multilateral climate funds. Ger¬many can support progress to this end as a member of the governing bodies of these funds.

With regard to Germany’s international climate finance approach as a whole, we offer the following recommendations:

Continue to work to increase support for adaptation, with the goal of achieving a greater balance between adaptation and mitigation.
Explore ways to work more closely with recipient country-based institutions through its delivery of climate finance. This may need to be accompanied by capacity building support in order to increase these countries’ capacity to access such funding and use it effectively.
Explore options to ensure that increasing climate finance as part of efforts to deliver ODA does not reduce support available to help countries address development challenges as a whole. In the German case, the fact that ODA has been declining while climate finance increases at a relatively rapid rate presents a particular challenge.
Consider options to find more reliable sources of climate finance. The German climate finance approach has been largely sourced through the revenues from emission-trading. Nevertheless, there is a need for all countries to further scale-up climate finance in order to meet agreed goals of mobilising USD 100 billion from a mix of public and private sources by 2020. Options might include multilateral efforts to strengthen the EU ETS through increased EU mitigation targets, as well as the deployment of other innovative sources, such as financial transaction taxes or revenues from international transport. A clear pathway for scaling up climate finance would help create greater predictability of finance, and help generate trust and ambition in developing countries.

The U.S. Contribution to Fast-Start Finance: FY12 Update

Sarah Parsons — Tue, 23 Apr 2013 14:06:17 -0400

Summary

As part of the international climate negotiations, developed country governments committed to provide developing countries with “new and additional resources, including forestry and investments through international institutions, approaching $30 billion in the period 2010-2012 with balanced allocation between adaptation and mitigation.” This fact sheet considers U.S. efforts to provide “fast-start finance” (FSF) over the full three-year period, drawing primarily from program data presented in the State Department’s report series, “Meeting the Fast Start Commitment.” The fact sheet is part of a series of analyses on FSF contributions, and updates a May 2012 working paper quantifying total U.S. contributions to the global FSF commitment.

Over the FSF period, the United States has reported roughly $7.5 billion, or about 20% of the global self-reported total flows of FSF. Notable attributes of the U.S. FSF contribution include:

The levels of finance fluctuated over the three-year period, with the largest volume in FY11. This is related to variations in spending on the part of key agencies such as the Overseas Private Investment Corporation (OPIC) and the Millennium Challenge Corporation (MCC).
Over the three-year period, a significant share of the U.S. portfolio supported clean energy in Asia. OPIC and the U.S. Agency for International Development (USAID) played key roles in administering finance, and finance was channeled via a combination of grants and loans, guarantees, and insurance.

Transparency has improved in FY12 reporting, but there is room for further improvement. In addition to implementing the new international reporting requirements adopted at Doha, the following actions would help support verification of aggregate figures, as well as coordination and accountability:

Publishing a detailed, disaggregated, annual list of projects and programs;
Using the Foreign Assistance Dashboard as a platform for sharing information;
Aligning reporting under the United Nations Framework Convention on Climate Change (UNFCCC) with reporting to the Organisation for Economic Co-operation and Development (OECD); and
Continuing to work with other countries and multilateral institutions to strengthen and harmonize reporting systems.

Methodology and Database--Public Financing Instruments to Leverage Private Capital: Focus on Multilateral Agencies

Sarah Parsons — Tue, 12 Mar 2013 20:41:59 -0400

These documents are drawn from WRI’s working paper, Public Financing Instruments to Leverage Private Capital for Climate-Relevant Investment: Focus on Multilateral Agencies.

This working paper is part of WRI’s Climate Finance series, which tackles a broad range of issues relevant to public donors, intermediaries, and recipients of climate finance. A subset of this series examines how public funds can leverage private sector investment in climate-relevant projects to help meet developing countries’ significant investment needs.

Access other publications in this series.

Survey of Public Financing Institutions' Use of Instruments

Sarah Parsons — Tue, 12 Mar 2013 20:28:14 -0400

This document is drawn from Appendix I in WRI’s working paper, Public Financing Instruments to Leverage Private Capital for Climate-Relevant Investment: Focus on Multilateral Agencies. It maps the types of financial instruments used by various development financial institutions, export credit agencies, and climate funds to support their operations. This listing may serve as a useful reference for public sector decision-makers evaluating the broad toolkit of options available to support private sector climate change mitigation and adaptation projects in developing countries.

Public Financing Instruments to Leverage Private Capital for Climate-Relevant Investment: Focus on Multilateral Agencies is part of WRI’s Climate Finance series, which tackles a broad range of issues relevant to public contributors, intermediaries, and recipients of climate finance—that is, financial flows to mitigate greenhouse gas emissions and adapt to climate change impacts. A subset of this series examines how different types of public climate finance providers and intermediaries–or international finance entities like the proposed Green Climate Fund–can meet the significant investment needs of developing countries by mobilizing private sector investment. This subset focuses on how the public sector can finance and mobilize private sector investment and acknowledges the importance of overarching support for complementary climate change policies that create attractive market conditions domestically.

Access other publications in this series.

Mobilizing Climate Investment: The Role of International Climate Finance in Creating Readiness for Scaled-Up, Low-Carbon Energy

Sarah Parsons — Fri, 22 Feb 2013 15:20:51 -0500

Executive Summary

Between now and 2050, developing countries need an estimated $531 billion per year of additional investment in energy supply and demand technologies in order to limit global temperature rise to 2° C above pre-industrial levels. To achieve this scale of investment, developing country governments and custodians of international public finance will need to deploy limited public finance in ways that leverage an unprecedented volume of private sector investment. Despite growing global investment in low-carbon energy and falling costs, it will be difficult to achieve the scale and urgency of investments needed without the appropriate policy, institutional, industry, and financial conditions. Governments and their international partners need to undertake “readiness” activities designed to put in place the conditions that attract scaled-up investment and enable a transformation toward low-carbon energy development pathways.

Drawing on six developing country case studies, this report identifies a set of key lessons and insights for readiness. The report develops a framework to identify and prioritize readiness activities that will require public financial support to create the conditions necessary to scale up investments in renewable energy and energy efficiency (collectively referred to as low-carbon energy). The report discusses the implications of the findings for international climate finance and draws a number of recommendations for the Green Climate Fund (GCF). It targets international public funds and institutions looking to accelerate investment in low-carbon energy, as well as developing country governments looking to identify and prioritize activities for funding.

Enabling conditions for scaling up investment

We identify a number of policy and institutional, industry, and financial sector conditions that can attract scaled-up public and private investment in low-carbon energy. Policy and institutional conditions include plans and targets for low-carbon energy, institutional capacity to effectively implement climate change and energy policies, laws supporting investment in low-carbon energy, and regulatory and fiscal instruments to implement laws. Industry conditions include the capacity of developers to prepare bankable projects, information on renewable resource availability or options to conserve energy, engineering capacity, and the presence of a support industry and enabling infrastructure. Financial conditions include a stable financial sector with the capacity and range of financial products needed to support low-carbon energy.

In six case studies, we analyze the role that enabling activities have played in promoting scaled up investment in low-carbon energy, and the role that international public finance has played in supporting such activities. These case studies examine energy efficiency in Thailand, wind power in South Africa, solar water heaters in Tunisia, geothermal power in Indonesia, wind power in Mexico, and energy efficiency in India. Taken together, the case studies suggest two overarching determinants of success in scaling up investment: government leadership and effective responses to pricing distortions. When government leadership is strong, a commitment to policy and institutional reform and implementation of stated goals usually follows. This in turn strengthens the investment climate and increases investor confidence. In cases where market failures severely distort the market in favor of carbon-intensive energy sources, it has been more difficult to create the conditions that attract investment in low-carbon energy.

Lessons learned for the design of readiness activities

The case studies also reveal a number of lessons about the design of readiness activities and the role of international partners in supporting them.

Small amounts of long-term funding for enabling activities can help scale up investment

In each case study, small investments in enabling activities—from several hundred thousand dollars to several million dollars—helped pave the way for scaled up private and public investments by supporting the creation of conducive policies and market conditions. International support has been most effective when sustained over five or more years. Technical support can also be more effective if international advisors are integrated into national institutions and report to national, rather than international, authorities.

International support is likely to be more effective if it identifies and targets a few critical barriers to investment. In countries with comparatively few enabling conditions for investment, attempts to simultaneously surmount all investment barriers may result in resources being spread too thin to achieve a significant impact. Chapter 4 presents a framework that can aid governments and their international partners in identifying activities to support.

Strengthening the enabling environment should not end when investment begins. In each case study, readiness activities and larger investment took place simultaneously. Even in cases where the investment climate was already strong, there was still scope for additional enabling activities to address specific gaps.

Integrated, inclusive planning processes and policy and institutional reform are key to attracting investment

The integration of low-carbon energy into a broader development agenda can enhance coordination and alignment between different sectors of the economy. Civil society and private sector actors can bring valuable expertise and experience to the planning process, and play important roles in ensuring that low-carbon energy policies and plans are realistic, robust, and tailored to the needs of the country. International support should be aligned with national plans and priorities for effective and sustained outcomes, and should be flexible enough to respond in a timely manner to evolving priorities.

Changes to the policy and regulatory environment proved crucial to attracting investment on a significant scale in the case studies. International support for the design of policies is likely to be effective only if it is demand-driven and not seen as infringing on national sovereignty. Countries that have set up their own financial mechanism to support low-carbon energy projects are well positioned to implement their objectives effectively and independently, thereby reducing their reliance on international partners to finance their low-carbon energy needs.

Having the appropriate institutions in place to develop, implement, and regulate policy reforms—and empowering them with the mandate and resources to carry out their functions effectively—helped ensure that policies were coherent and consistent, which increased investor confidence.

In key institutions, strengthening the capacity of staff and management to carry out their functions is an important readiness activity that often requires international funding support. The case studies suggest that capacity-building support is most effective when carefully targeted to address particular skills gaps.

Tackling information barriers and strengthening industry and financial sector capacity can unlock investment

Public support for broad-scale renewable resource assessments or exploration can provide information on resource availability that is key to attracting investor interest. Similarly, measures to familiarize industry and other actors with low-carbon energy options—such as training centers, awareness campaigns, and seminars and workshops that bring together stakeholders—can strengthen industry knowledge of and capacity to implement renewable energy projects, and raise awareness of the potential cost savings from energy efficiency.

International support plays an important role in facilitating learning and demonstrating new financing models for renewable energy, as well as strengthening industry’s capacity to develop and implement low-carbon energy projects. In some cases, international support to strengthen the capacity of small and medium enterprises (SMEs) and improve their access to financing for low-carbon energy projects has helped unlock investment by this sector of the market.

Financial institutions can play a key role in opening the market for low-carbon energy technologies. However, some financial institutions lack knowledge of and experience with these technologies. Strengthening the capacity of financial institutions to support renewable energy and energy efficiency projects, including through pilot financing programs, has been important in scaling up domestic sources of finance for low-carbon energy in several cases. In some cases, the high risk—real or perceived—of investing in low-carbon technologies without a proven track record in the country has deterred domestic financial institutions. Mechanisms that carefully allocate risks to those best placed to manage them can help attract financing from domestic banks and other financial institutions.

A framework for guiding readiness support for low-carbon energy investments

Building on the experiences of the six case studies, we propose a framework to guide governments and their international partners in determining how best to provide readiness support to countries with low-carbon energy sectors in different stages of development. The framework describes some of the activities required to strengthen the enabling policy and institutional environment for investment. In the early stages of development, these include support for assessing energy options, engaging stakeholders in the energy planning process, capacity building for government agencies and civil society, technical support for developing plans and strategies, and outreach activities. In later stages, activities include support for designing and implementing regulations and fiscal instruments, and targeted capacity building for government agencies, including local governments.

The proposed framework also describes some of the activities needed to strengthen the enabling industry and financial conditions for investment. In early stages of development, these include renewable resource assessments and energy conservation awareness campaigns, capacity building for project developers and financial institutions, support for technology transfer and localization, feasibility studies and environmental and social impact assessments, and support for financial sector reform. At later stages, activities include strengthening engineering capacity for low-carbon energy projects, supporting ancillary industries (such as upgrading grid infrastructure), and supporting financial institutions to assess and finance low-carbon energy projects.

Recommendations for the Green Climate Fund

The six case studies illustrate different approaches that various international partners have used to support readiness activities. The lessons learned are intended to inform the recently established GCF as it attempts to identify how best to support a paradigm shift toward low-emission and climate-resilient development pathways. Although the GFC’s detailed operational modalities are not yet defined, it could take a number of approaches to support readiness. These include supporting readiness directly or partnering with existing institutions; establishing distinct channels and allocations for readiness or integrating enabling activities into existing channels and allocations; and supporting readiness through the private sector facility.

Public Financing Instruments to Leverage Private Capital for Climate-Relevant Investment: Focus on Multilateral Agencies

Sarah Parsons — Thu, 06 Dec 2012 10:12:49 -0500

Executive Summary

As private sector investment flows within and into developing countries rapidly increase, the public sector has a unique opportunity to ensure that these flows are directed to meet critical climate change investment needs. This paper informs the use of public funds to leverage private sector investment in climate-relevant projects. It focuses on the public sector’s use of financing instruments, which can help improve the risk-reward profile of climate-relevant projects, especially when combined with a foundation of complementary climate change policies and financial regulations.

This paper draws on the experiences of two types of multilateral institutions responsible for providing or intermediating finance to climate change projects in developing countries: (1) climate funds and (2) development banks. It maps the financing instruments available to various public actors, with a focus on three significant institutions: the Global Environment Facility, the Clean Technology Fund, and the World Bank Group. Future working papers will map the activities of other public institutions, including bilateral, national, and regional development banks; government agencies; and public-private partnership funds.

The results of these working papers will be aggregated into detailed analyses and recommendations that inform the future public provision of climate finance with respect to leveraging private capital.

Findings from this paper for public actors and international mechanisms, like the Green Climate Fund, include the need to:

1. Better tailor the use of public financing instruments and maximize flexibility in the use of these instruments. This includes:

Expanding the use of financing instruments beyond loans to equity and guarantees in order to mitigate specific risks faced by the private sector in different geographies.
Coordinating support for domestic climate change policies and robust financial markets with project finance.
Targeting grant support to markets where access to finance is most challenging and where public finance is instrumental in market development. This includes grant finance to poorer countries with less robust financial markets, as well as for new technologies that cannot achieve commercial returns without initial public support.
Capitalizing international mechanisms like the Green Climate Fund in a manner that allows maximum flexibility in the use of different financing instruments. Specifically, the governments of developed countries should consider providing a reasonable amount of grant funding to the Green Climate Fund and its Private Sector Facility to ensure that a suite of instruments can be used flexibly as needed to most effectively mobilize investments. Loans, equity, de-risking instruments, or investments in other funds will provide a suite of products for the Fund to most effectively leverage private capital in ways that are most appropriate for individual programs or projects.

2. Address internal, institutional barriers to private sector investment; for example, by:

Improving internal coordination and cooperation with the aim of offering a complementary suite of financing options for, or to attract private sector investment into, projects.
Instituting incentives for employees to proactively consider options to increase private sector participation in projects, while maintaining appropriate checks to ensure that private sector activities are not unnecessarily subsidized.
Streamlining fee structures and transaction processing times for all products, but particularly non-loan, non-grant instruments.
Improving tracking and monitoring systems, as well as data transparency and availability to better identify and incorporate best practices in leveraging private capital.
Familiarizing recipient governments with more complex instruments, like guarantees, to enable them to use such instruments when appropriate.

The Japanese Fast-Start Finance Contribution

Sarah Parsons — Wed, 28 Nov 2012 12:42:08 -0500

Executive Summary

Developed country governments have repeatedly committed to provide new and additional finance to help developing countries transition to low-carbon and climate-resilient growth. This assessment considers Japan’s efforts to provide “fast start finance” (FSF) between January 2010 and February 2012 in the context of the pledge by developed countries to mobilize USD 30 billion from 2010 to 2012 under the United Nations Framework Convention on Climate Change (UNFCCC). It is part of a series scrutinizing how developed countries are defining, delivering, and reporting FSF.

Given the size of its economy, Japan has a major role to play in delivering FSF.

Japan’s USD 15 billion FSF commitment is one of the largest amongst developed countries, but it is important to consider the contents of this commitment. Japan has played a significant role in global efforts to finance climate change activities in developing countries, and its FSF commitments accounts for almost half of the FSF that developed countries have pledged for 2010-2012. However, it is essential to better understand the broad range of instruments and activities that the government includes in its FSF, as different governments consider different types of finance to constitute FSF, so self-reported figures are not directly comparable between countries.

Other official flows (OOF) such as export and investment insurance, non-concessional loans, and guarantees make up around 40% of Japan’s total FSF contribution so far, and there is some ambiguity around the role of leveraged private finance. OOF amounts to as much as USD 5.1 billion of the USD 13.2 billion mobilized by 29 February 2012 sincethe announcement of the Hatoyama Initiative in September 2009. This includes USD 3.1 billion of leveraged private finance. While the role of leveraged private finance in the Japanese pledge is ambiguous, as discussed in the section on Methodology, we have included it in the analysis presented in this paper.

Japanese FSF is heavily weighted toward mitigation. About 70 percent of Japanese FSF addresses mitigation objectives. Most mitigation finance, in turn, is financed through loans (both ODA and non-ODA), which constitute about 75 percent of the contribution for infrastructure development projects, such as urban transport projects. There is a more even balance between adaptation and mitigation objectives within the grant portion of the FSF contribution (adaptation: 30 percent, mitigation and REDD+: 27 percent, multiple objectives: 43 percent). A significant share of Japanese FSF addresses one or more non-climate objectives in addition to mitigation or adaptation urban transport projects. Asia receives the most FSF among all regions, irrespective of financial instrument type. It is worth noting that the Japanese FSF includes a number of “clean” fossil fuel power plant construction projects, such as a natural gas combined cycle (NGCC) power plant project in Central Asia. There is a need for greater clarity amongst members of the international community about how support for lower carbon fossil fuel facilities should be treated in the context of climate finance.

On balance, it is not clear that the entirety of the Japanese FSF is “new and additional.” While the FSF contribution reflects some new effort to address climate change, it is unclear that the contribution as a whole can be considered “new and additional.” Since the start of the FSF period, Japan has substantially increased international finance that explicitly targets climate change. Some Japanese agencies have also begun integrating climate change into aspects of development assistance and development finance. Applying five different criteria proposed by experts and practitioners, however, the results indicate that at least a portion of the Japanese FSF spend is not new and additional. A significant share of Japanese FSF reflects pre-existing pledges to development assistance initiatives to scale up climate change related finance such as those articulated in the Japan Cool Earth Partnership of 2008. Furthermore, Japan’s FSF cannot be seen as additional to its existing commitments to scale up development finance to 0.7 percent of its GNI.

FSF reporting follows Japan’s standard processes for reporting on conventional development assistance, whose transparency can be strengthened to meet new needs associated with FSF. There is room for improvement in terms of the transparency, accountability and credibility of Japanese FSF. Some of the identified issues may be attributable to the fact that Japanese FSF contains a large number of projects supported by a variety of channeling institutions. This has made it difficult for the government to present a clear overview of Japanese FSF.

The largest issue is that the information on FSF is disaggregated, although project-level information provided by the implementing agencies is detailed. Most of the climate finance projects could not be easily identified without extensive key word research on the websites of implementing agencies. This study identified about 250 likely FSF projects, amounting to USD 11.7 billion or nearly 90 percent of the amount committed by 29 February 2012. At the same time, about 500 FSF projects – most of which are of relatively low monetary value – could not be independently identified.

The Japanese government has already taken steps to strengthen the transparency of Japanese FSF, such as adding information about channeling institutions to the list of FSF projects included in its second submission to the UNFCCC. However, additional information would facilitate an informed discussion of the adequacy of FSF efforts. The following practices would further strengthen the transparency of Japanese climate finance reporting:

Provide a complete list of the projects that have been supported through the Japan FSF spend. Specify the climate finance projects that constitute aggregated numbers in the official documentation;
Include hyperlinks to the relevant webpages that describe the projects that have been supported through FSF in this proposed project list, as this would substantially enhance stakeholder access to information on the FSF contribution and understanding of its objectives;
Compile all information on its climate finance contributions in one easily accessible format, and support access to supporting information on the individual projects that constitute the FSF spend;
Explain the eligibility criteria for the ODA and OOF flows that have been counted towards the FSF contribution;
Work in cooperation with other contributor countries and multilateral institutions to strengthen and harmonize bilateral and multilateral reporting on climate finance.

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.

Climate Finance

Christine Potochny — Mon, 05 Nov 2012 13:55:16 -0500

Facts and Figures: The Scale of Needed Investment

Developing countries will require new investments of up to $300 billion annually by 2020—growing up to $500 billion annually by 2030—to adequately limit their growing greenhouse gas emissions.
These countries will also require several hundred billion additional dollars to protect themselves from the worsening physical and economic impacts of greenhouse gases already in the atmosphere.
About $900 billion per year between now and 2050 will be needed to address investments in global energy supply and demand technologies (in addition to the roughly $2.6 trillion in annual investments to occur in a “business as usual” scenario.
While developed countries have committed to channeling US$100 billion (from public and private sources) annually by 2020 to developing countries for climate mitigation and adaptation activities, this level of investment is far from what is required.

Global Investment for a Resilient Low-Carbon Economy

Stabilizing the global climate is one of the most urgent challenges in coming decades. Our warming world affects all people and ecosystems, particularly the poor who already suffer disproportionately from climate-change impacts. Major financial investments – from both public and private sources and guided by smart and equitable policies - are required to transition the world’s economy to a low-carbon path, reduce greenhouse gas concentrations to safe levels, and build the resilience of vulnerable countries to climate change.

WRI is addressing how these massive investments toward a low-carbon and resilient economy – which we refer to as climate finance –can be realized.

In developing countries, climate change investment needs are significant. Direct government funding is scarce. And the billions of dollars committed to be marshaled by industrialized countries remain inadequate to the magnitude of the challenge of stabilizing a steep trajectory of greenhouse gases. Additional financial investment should be accompanied by rules, regulations, fiscal incentives and effective markets at international, national, and sub-national levels to shift current and projected “business-as-usual” investments, and mobilize resources at the scale required.

WRI’s Vision of Success

Public and private actors—development financing institutions, governments, and private sector investors, including financiers and project developers—significantly shift and scale-up their investments in sustainable, low-carbon and climate-resilient development. These investments will create new markets, address long-term opportunities and risks arising from climate change, promote wider socio-economic benefits, and minimize social and environmental harm.

WRI Strategy

WRI focuses on climate finance broadly defined, not just international public climate finance but both public and private flows including domestic (within developing countries) and international (to developing countries) finance that support climate-related goals.

WRI focuses its expertise on the technical and institutional aspects of three major questions:

How to SHIFT finance from high carbon to low carbon and climate resilient investments (mainstreaming);
How to LEVERAGE private flows using public climate finance (domestic and international) and
How to ASSESS the impact or effectiveness of climate finance, whether positive or negative.

WRI is pursuing national, international and private sector strategies.

National Strategy: Strengthen institutions for effective climate finance mobilization, management and monitoring

SHIFT

Facilitate building national public institutions and capacity to access, manage, program, deploy and monitor climate finance in an effective and transparent manner.
Empower non-governmental institutions and actors to engage and participate in climate finance processes in order to ensure more effective outcomes.
Related projects: Open Climate Network, Electricity Governance Iniative, Measurement & Performance Tracking in Developing Countries.

LEVERAGE

Ensure development financing institutions and finance ministries catalyze a shift in public and private investments toward climate-friendly development through the strategic use of international climate finance.

ASSESS

Help create efficient and accountable financial systems. WRI aims to help national governments and their domestic stakeholders develop systems through which they can wisely generate, access, disperse, and track finances for adaptation.
Related work: Vulnerability & Adaptation
Maximize the impact and effectiveness of climate finance by aligning national mechanisms for receiving, allocating and disbursing international climate finance with the country’s planning, budgeting, programming and monitoring procedures and systems.
Related project: Open Climate Network
Related publication: Summary of Developed Country ‘Fast-Start’ Climate Finance Pledges

International Strategy: Build a robust, effective and equitable climate finance architecture

SHIFT

Promote more effective and legitimate governance of international climate finance by bringing to bear developing country expertise and experience to inform discussions on governance and operation of international climate finance.
Related project: International Financial Flows & the Environment (IFFE).
Related blog posts: the Green Climate Fund.
Ensure mainstreaming climate change in international development finance by encouraging public international financial institutions to adopt and implement ambitious, internationally recognized standards. Such a significant investment shift will support low‐carbon and climate‐resilient development, while ensuring high environmental and social standards.
Related project: International Financial Flows & the Environment (IFFE)
Related publications:

ASSESS

Create an enabling environment for investment by ensuring that international climate finance includes long-term support for conducive policy environments and addresses non-financial barriers to investment. WRI has developed a framework to guide governments and their international partners in selecting pre-investment activities to support and inform the providers of public international climate finance.

Private Sector Strategy: Leverage private sector flows from public climate finance

Related project: Climate Finance & the Private Sector

SHIFT

Provide robust research and analysis to determine what tools and approaches are the most effective at leveraging private climate investment, including detailed mapping of financing instruments used by public and private institutions to finance climate-relevant projects.
Related publications:
Moving the Fulcrum: A Primer on Public Climate Financing Instruments Used to Leverage Private Capital
Public Financing Instruments to Leverage Private Capital for Climate-Relevant Investment: Focus on Multilateral Agencies

LEVERAGE

Help leaders in the public sector seize the opportunity to leverage private investment in a low-carbon future. The public sector can expand its role in effectively unlocking private investment by reducing risk, directing investment and maximizing public and private benefit through the appropriate mix of policies and finance.
Related resources:
Moving the Fulcrum: A Primer on Public Climate Financing Instruments Used to Leverage Private Capital
Climate Finance and the Private Sector brochure

ASSESS

Mobilize WRI’s strong external ties with private sector financial institutions to bring a private sector perspective to climate finance, and help translate the complex languages of private sector investors and public sector policy makers.

COP 18: Doha

Kevin Lustig — Fri, 02 Nov 2012 09:09:59 -0400

WRI Experts at COP 18

WRI Events at COP 18

COP 18 Commentary

From November 26 to December 7, 2012, the United Nations will host the 18th Conference of the Parties (COP) in Qatar.

WRI experts will be in attendance at this latest meeting under the UN Framework Convention on Climate Change (UNFCCC) to help inform the talks. Here, you can find a variety of materials from the World Resources Institute that shed light on key areas of international climate policy.

WRI Resources for COP 18

WRI Annual Report 2011-2012

Sarah Parsons — Mon, 01 Oct 2012 14:20:00 -0400

Monitoring the Receipt of International Climate Finance by Developing Countries

Sarah Parsons — Fri, 07 Sep 2012 10:19:30 -0400

Executive Summary

The 2010 Cancun Agreements and 2011 Durban Outcome call for developing countries to register, monitor, and report on support received, and for developed countries to improve their reporting by using more complete climate finance reporting guidelines. Doing so will enable information on climate change finance from developed countries to be matched with information from developing countries. The lack of detailed guidance makes it difficult for developing countries to decide how to respond to calls to report climate finance received.

This paper explores the challenges faced by three Asian countries, that is, Indonesia, the Philippines, and Vietnam in monitoring finance for climate change. Challenges faced in the three focus countries can be grouped into five categories, and are summarized as follows:

Definitions and Criteria: Countries and donor institutions use a variety of definitions and criteria in identifying climate finance and distinguishing it from other development finance. For the three focus countries, no formal climate finance marker system or definitive guidance exists to help address this definitional issue.
Classifications and Indicators: Sector and activity type classifications also vary widely among donor and recipient institutions, and often do not lend themselves well to climate finance. For example, in the Philippines, there is no energy-specific classification in its current official development assistance (ODA) monitoring system.
Financial Instruments: The type of financial instrument monitored can carry both political implications as well as technical challenges. From a political standpoint, many developing countries and NGOs hold that climate finance—especially adaptation finance—should be delivered primarily in the form of grants. From a technical standpoint, all three countries expressed challenges in monitoring grants, while their loan monitoring systems are fairly developed.
Source: Private finance could potentially play a very important role in international climate finance and its monitoring may be something developing countries could explore for domestic purposes. However, domestic private finance monitoring efforts in the focus countries are often not coordinated with ODA monitoring efforts, nor do they include climate-specific information.
Institutional Arrangements: In the three focus countries, institutional responsibility for the coordination of national climate finance and development of monitoring systems is generally fragmented. Institutional platforms and databases for gathering data on climate finance in particular do not exist. Countries have two options, that is to either modify existing systems or to develop standalone/complementary standardized climate data systems for climate finance.

Despite significant challenges in building their capacity to monitor the receipt of climate change finance, government officials consulted in all three countries expressed an interest in doing so. Such efforts would require several steps, including, for example:

Developing the institutional arrangements and technical platforms necessary to monitor climate finance received. This may include the formation of an interministerial working group on climate finance with an agenda item dedicated to monitoring climate finance, and a complementary (stand-alone) management information system.
Agreeing on and adopting climate finance-specific definitions, criteria, and classifications.
Agreeing on the scope of information to be tracked (type of financial instrument, private versus public, etc.).

Such efforts should be complemented and furthered by support at the international level, both in the form of consistent yet flexible guidance that takes into account the domestic challenges outlined in this paper, as well as financial and capacity building support from developed countries.

Glossary of Financing Instruments

Sarah Parsons — Tue, 14 Aug 2012 13:17:08 -0400

This document is drawn from Appendix II in WRI’s working paper, Moving the Fulcrum: A Primer on Public Climate Financing Instruments Used to Leverage Private Capital. This working paper demonstrates how the public sector can employ different types of public financing instruments — whether loans, equity, or de-risking instruments — alongside policy and technical support to scale-up private sector investment in low-carbon markets.

Moving the Fulcrum is part of WRI’s Climate Finance series, which tackles a broad range of issues relevant to public donors, intermediaries, and recipients of climate finance. A subset of this series, including this primer, examines how public climate finance providers—whether governments, development finance institutions, or international finance mechanisms like the proposed Green Climate Fund–can meet the significant investment needs of developing countries by mobilizing private sector investment. It focuses on how the public sector can finance and mobilize investment into private sector projects, but also acknowledges the importance of overarching support for complementary low-carbon policies. Low-carbon sectors specifically considered include renewable energy, energy efficiency, and related infrastructure and services, though lessons may equally apply to other climate change-relevant sectors like sustainable agriculture, transportation, and water infrastructure.

Current Initiatives Focused on Using Public Climate Finance to Leverage Private Capital

Sarah Parsons — Tue, 14 Aug 2012 13:09:11 -0400

These tables are drawn from Appendix III in WRI’s working paper, Moving the Fulcrum: A Primer on Public Climate Financing Instruments Used to Leverage Private Capital. This working paper demonstrates how the public sector can employ different types of public financing instruments — whether loans, equity, or de-risking instruments — alongside policy and technical support to scale-up private sector investment in low-carbon markets.

Reading Resources on Using Public Climate Finance to Leverage Private Capital

Sarah Parsons — Tue, 14 Aug 2012 12:52:35 -0400

This document is drawn from Appendix II of WRI’s working paper, Moving the Fulcrum: A Primer on Public Climate Financing Instruments Used to Leverage Private Capital. This working paper demonstrates how the public sector can employ different types of public financing instruments — whether loans, equity, or de-risking instruments — alongside policy and technical support to scale-up private sector investment in low-carbon markets.

This document was originally published in August 2012, and updated in January 2013 to include new resources.