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Scaling Up Climate Finance: Why We Need to Invest in Institutions

Addressing global climate change requires huge investments. In order to keep global temperature rise below 2 degrees Celsius and protect vulnerable communities from climate change’s impacts, experts estimate that developing countries will need between $110 and $275 billion annually to mitigate and adapt to climate change. The International Energy Agency estimates that for developing countries to transition to low carbon energy, approximately $10 trillion dollars in energy investments by 2050 is required. In addition, another $ 1.5 trillion per year will be required by 2030 for adaptation action.

Unfortunately, there’s a huge gap between the funding we have and the funding we need: According to experts, developing countries’ climate change financing needs exceed current and prospective flows by at least five to 10 times. While many policy analysts focus on the need for more money and a greater availability of technology to bridge this gap, there’s another issue that’s less talked about but equally important: investing in institutions and capacity development.

By “institutions,” I mean countries’ national structures, mechanisms, and related arrangements to effectively implement climate policy and administer climate finance, such as a national climate change commission, an inter-agency committee on climate change, a national climate change adaptation fund, or national climate change trust funds. “Investing” in these institutions means creating the necessary policy, institutional, industry, and financial conditions that can help scale up investments in climate action. Building these strong and effective institutions will also require capacity and knowledge-building.

How to Scale Up Climate Finance

The need to invest in institutions was the main message at the UNFCCC’s second long-term finance workshop, which was recently held in Capetown, South Africa. A few key ideas emerged from the meeting:

  1. The need to invest in long-term climate change action plans should be reflected in countries’ national legislation, frameworks for climate change mitigation and adaptation, or existing development priorities. For example, integrating resilience in infrastructure planning and consideration of low-carbon technologies in energy policy and planning. This inclusion ensures strong country ownership and inter-agency coherence and coordination when it comes to climate change mitigation and adaptation strategies.

  2. Countries should address the fundamentals of energy and carbon prices by setting comprehensive national policies and strong regulatory frameworks. A robust policy environment like this not only reduces the early-stage costs of low-carbon options, but incentivizes resilience measures, such as building codes. This practice allows for the development of a pipeline of bankable projects that could attract both domestic and international investments. Renewable energy legislation, as well as other enabling policies like feed-in tariffs, have helped scale up renewable energy investments in several countries, such as Germany, Denmark, Sri Lanka, South Africa, and Tanzania.

  3. Countries should strengthen human capacity in national institutions—such as newly formed national adaptation funds and national climate change funds—to facilitate direct access to domestic and international climate finance.

  4. It’s important for policymakers to engage multiple stakeholders in order to build technical capacity and a strong knowledge base. Civil society organizations, scientists, scholars, and parliamentarians can help create effective institutional arrangements. A few examples of such “arrangements” could include creating separate ministries focused on climate change or setting up national funds to administer climate finance and ensure coordination across governments’ various agencies and ministries.

The UNFCCC Also Has a Role to Play

Participants at the recent workshop in Capetown also discussed the role of the UNFCCC in facilitating the scale-up of climate change finance. Participants came up with a few ideas on how the UNFCCC could fulfill this role, such as:

  • Utilize the process to provide a platform for convening various stakeholders—including policy makers and different private sector players—in order to exchange knowledge in mobilizing and scaling up climate finance;

  • Promote linkages with other intergovernmental processes;

  • Send clear signals to the international community by providing clear, ambitious, long-term vision by establishing the link to future negotiations under the Durban Platform; and

  • Promote transparency and enhanced reporting in climate finance flows through further development of guidelines for measurement, reporting, and verification (MRV) of finance.

The Future of Climate Finance

It was encouraging to see that the issue of investing in institutions and capacity was highlighted, as not many conferences focus on this particular aspect of climate finance. Certainly, other strategies—such as the operationalization of the Green Climate Fund; smart use of public finance to leverage private sector investments, and expanding technology in developing countries—will be important contributors to scaling up climate finance. But as participants at the Capetown event agreed, establishing analytical capacity and creating strong institutions at the national level will allow for better access to international climate finance.

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